NEW DELHI: With a new Covid-19 variant emerging in many countries, India is preparing for a possible third wave even though the Health Ministry today said that the severity of the disease from the Omicron variant could be low. However, health and life insurance plan premiums are likely to get costlier with several service providers across the industry looking at raising prices this month.
According to a report by Motilal Oswal, health insurance premiums will witness a growth momentum as Indians look to protecting themselves and their families so that they can be financially secured for any kind of medical treatment during the third wave.
Health Insurance in India is highly underpenetrated. Less than 4 per cent of the population has a retail health cover. However, the pandemic has helped increase awareness about the need for a medical cover, which has translated into a 28 percent and 18 percent growth year in year in FY 21 and the first half of FY 22, respectively. General insurance companies reported a 29.81 per cent rise in premium income from the health segment to Rs 42,571 crore during the seven-month period ended October 2021, compared to Rs 32,796 crore witnessed in the same period last year. In fact, health premium income shot up by a record 34 per cent to Rs 5,463 crore in October alone, according to insurance regulator IRDAI.
Non-life insurers have shelled out nearly Rs 23,000 crore in Covid-related health claims since the onset of the pandemic. Insurers have now hiked the premium on health policies and started demanding vaccination certificates and stringent medical check-ups before issuing new policies.
In April 20 (after the Covid-induced nationwide lockdown), growth in health insurance was muted at 5.7%. While demand was strong during this phase, the challenge in distribution, owing to the lockdown and limited preparedness of insurers to conduct business online at such a large scale, restricted growth.
During the second COVID wave, the frequency of claims. COVID-related claims during the April-August 2021 witnessed a 44 per cent increase even though the severity of claims declined by 24 per cent during the same phase to Rs 112,366.
"The key reason for the fall in severity was the preparedness of hospitals, established cost of treatment, discovery of the line of treatment, and rollout of vaccination," said Prayesh Jain, research Analyst at Motilal Oswal.
In case of a third COVID wave, a sizeable chunk of India’s population would be vaccinated with both doses (currently 32% of the population has received both doses) and preparedness of hospitals and the government administration will be much better, thus reducing its severity.
"At present, 8.3m doses are being administered daily, of which 2.6m/5.7m are for the first/second dose. At this pace, almost 80% of the population will be vaccinated with both doses in the next 3-4 months," said Jain.
Here are 3 reasons why premiums will grow if India goes through a third wave:
1. Growth will accrue from a higher number of individuals subscribing to Health Insurance
2 Existing customers are increasing their sum insured
3. Possible price hike by insurance players considering a sharp increase in claim ratios for most in FY21 and 1HFY22. And claim ratios are expected to remain elevated throughout FY22 as non-COVID claims pertaining to Respiratory disorders, Dengue, and Chikungunya have seen a sharp increase in frequency as well as severity.
What is claim ratio and how bad is it?
Claim ratio is the ratio of insurance claims paid and expenses against total premium earned. For instance, if a health insurance company has approved a total of Rs 80 crore of claims against Rs 100 Crore of premium received, the Incurred Claim Ratio would be 80%. A low Incurred Claim Ratio indicates that the health insurance company’s claim settlement process is highly rigorous. A company with an incurred Claim Ratio between 75% to 90% is said to be perfect as it indicates that the company is making profits, offering qualitative product, and meeting the expectations of the customers at the same time.
For example, New India Assurance paid health insurance claims worth Rs 2,350 crore on account of Covid during the first six months of the current financial year, which resulted in the incurred claims ratio rising to 126% in the first half of FY22 from 74% in the same period of previous year.
COVID related insurance claims have almost doubled compared to the non COVID claims for private insurer Star Health too. Of the net paid claims for the company, 30 percent of the claims were due to the pandemic, which increased further to 41 percent as the severity of pandemic increased with the second wave. Consequently, its claims ratio increased from 64.2 percent and 65.8 percent in FY19 and FY20, respectively to 87 percent in FY21. For H1 FY22, this ratio stood at 88.2 percent as compared to 60.3 percent in H1 FY21.
Standalone insurers have already witnessed a growth in premiums because of their distribution advantage such as higher number of agents. However, vulnerability to higher claims will remain high.
Do existing health policies cover the new variant?
Existing health indemnity policies cover for hospitalization expenses due to infectious diseases. Hence, Covid-19 irrespective of the variant is covered under health insurance policies
