Non life insurance policies are set to take the ‘customisation’ path. The financial security covers will soon come with add-on services, of course, by paying extra premium.

The Insurance Regulatory and Development Authority (IRDA) has approved the customisation of policies for extra premium that insurers for new products from January 2009. So when you buy a motor insurance policy, you may get options like a temporary replacement of a car in case it breaks down, or even complete reimbursement of damages even if the vehicle is over fiveyears-old, by paying extra premium on the insurance cover.

Similarly, you may be able to pay a low premium for your household and factory insurance cover if you are willing to share the claim with the insurance firm. ‘‘Insurer will be permitted to add on covers above the tariff in the case of fire, engineering, and motor insurance with appropriate additional premiums,” a senior IRDA official said.

The idea, he said, was to give more flexibility to insurers so that they, as well as policy holders, benefit from this new agreement. IRDA has also permitted variation in deductibles in fire and motor insurance policies. ‘‘This effectively means insurance products can be provided for lower premium if the policy holder is willing to share the claims in case of damages,” said Rahul Agarwal CEO, Optima Insurance Brokers said.

Insurers and brokers see this as one more step towards full detariffing of the insurance sector. ‘‘IRDA has now decided to relax the terms and conditions of coverage. This will give a lot of felixibilty and firms will now showcase innovative products,” said Swaraj Krishnan, CEO, Bajaj Allianz General Insurance said. Mukesh Thakker, development officer state-run New India Assurance Company said, ‘‘Since insurers are now free to design policies of their own, there will be a wider choice for customers, who has already benefited by de-tariffing as tariffs have come down by substantially.”

Have you ever applied for a life insurance policy and had your proposal turned down by the insurance company?

Incredible as it may sound to some, particularly given the aggressive sales pitch adopted by many players in recent times, insurance companies do reject applications they think are too risky.

And how do insurers decide who gets a cover and who doesn’t? Well, based on a process called risk-classification or underwriting.

An insurance company’s performance is judged among other things by its claim ratio — the lower the ratio, the better is the performance. To achieve this, the companies follow a stringent underwriting process.

The insurer’s underwriters identify and calculate the risk of loss from policyholders, establish appropriate premium rates, and write policies that cover this risk.

In life insurance, this decision process sometimes requires medical evidence of the applicants. The applicant may be required to provide the following information (for life insurance) to enable underwriters assess mortality risks and determine appropriate premiums:
l Age
l Gender
l Height and weight
l Health history (often family health history)
l The purpose of the insurance (estate planning, business or family protection, etc)
l Marital status and number of dependants such as children
l The amount of insurance the applicant already has, and any additional cover he proposes to buy
l Occupation (some are hazardous, and increase the risk)
l Income (to determine suitability)
l Smoking or tobacco use (smokers typically have shorter lives)
l Alcohol (excessive drinking reduces life expectancy, too)
Each insurer sets its own underwriting standards of what is acceptable, insurable risk. Then each application for insurance is reviewed to determine if the individual meets those standards.
There are four common categories:

Preferred: If you are a better-than-average risk (i.e. in good health, with no dangerous occupation or health history) you may be charged the preferred or lowest rate.

Standard: If you are considered an average or typical risk, you will be charged the standard rate.

Rated: If you pose an above-average risk (say you have high blood pressure, smoke, or engage in skydiving every weekend), you may be classified as an increased risk and charged a higher premium.

Declined: If you are rated as uninsurable (perhaps due to a serious illness), you may be denied coverage entirely.

Health insurance is poised to record a massive growth in India. Half of the country’s population is expected to come under the health insurance umbrella in the next seven years, according to an Ernst & Young study. A mere 12% of the population is currently covered by healthcare.

The health insurance premium income is likely to touch Rs 30,000 crore in 2015 from the existing Rs 4,000 crore, according to the study. The premium was Rs 670 crore in FY02. Experts say the government’s proposal to scale up the foreign direct investment (FDI) in the insurance sector from 26% to 49% will boost the healthcare business. Ernst & Young National Leader-Financial Services, Ashvin Parekh says, “The health insurance report is yet to be tabled, but increased FDI investment will help the sector.

The committee on health insurance has submitted its report recommending a reduction in capital, transformation of health providers into stakeholders in health insurance companies to prevent over-treatment and encouragement of regional health insurance companies vis-a-vis pan-Indian ones.”

Ideally, three years of health reforms should give rise to 16 regional health insurance companies. “It is important to create a pool of resources at the grassroots level and cover communities instead of individuals. Moreover, abuse needs to be checked, given the importance of data,” Mr Parekh said.

With rising income levels, changing lifestyles and dietary patterns, the healthcare consumption in India has increased by 8% in the past 20 years, compared to the overall consumption growth of 4.7%. The health expenditure across the country was Rs 180,000 crore last year. Given the escalating healthcare costs, rising demand for healthcare services and limited access of the low-income group to quality healthcare, health insurance is emerging as an alternative mechanism for financing healthcare. And with merely 12% of the population being covered, companies are looking at the health insurance space as a lucrative segment.

The state-owned companies constitute nearly 70% of the health insurance market and private companies account for the remaining 30% As the out-of-pocket expenditure on healthcare is pegged at more than 70%, private insurers are treating this as an important target market. ICICI Prudential has started a division catering to health insurance, while Bupa-Max is awaiting the IRDA’s approval to launch health insurance schemes. LIC recently unveiled its health insurance scheme to compete with players such as Apollo, Star and Bajaj Allianz.

Yet another product that defies the basic principle of not mixing insurance with investment.

Most insurance buyers forget one simple thing – they should be buying only life, health or any other cover from insurance companies. Instead they lose their focus and buy products, which are completely different in nature. Here we give you one such example.

Take for instance, HDFC Savings Assurance Policy. The marketing material of this policy reads something like this: “You need to plan today to ensure a bright future for your child, build your dream home and fulfil all your other aspirations. To help you realise your dreams, we present HDFC Savings Assurance Plan.” Interestingly, in spite of being an insurance policy, there is absolutely no mention of life insurance cover at all.

So what does this policy do? Read the full post

Source: Business Standard