28 th India Fellowship Seminar Group vs Individual

28 th India Fellowship Seminar Group vs Individual Health Insurance Challenges with Claim Experience and Underwriting Guide: Joydeep Saha Presenters: 1 Jinal Shah 2 Hemant Mundhra 3 Mohit Sehgal Date: 9 th & 10 th November ‘ 17 Mumbai Indian Actuarial Profession Serving the Cause of Public Interest

Agenda 1 Health Insurance Products and Indian Market Statistics 2 Group Health Insurance - Features 3 4 5 www. actuariesindia. org Group Health Insurance Underwriting Individual Health Insurance - Features Individual Health Insurance - Underwriting 2

Health Insurance Products • Mediclaim / PMI • Major market share • Limited Penetration www. actuariesindia. org • Critical Illness • Personal accident cover Indemnity Based Fixed Benefits Income Protection Long-Term Care Insurance • Not existent in India 3

Indian Health Insurance Market – GWP Statistics 20% GWP Breakup By Insurers (FY 15 -16) • Health Insurance Business is dominated by Public Sector Undertakings (PSUs) • Standalone health insurers, in spite their small number, have a notable market share 64% Private 16% Standalone Health PSUs 10% 42% 48% Government Group www. actuariesindia. org GWP Breakup By Line of Business (FY 15 -16) • There is a fair split of individual and group business, with slight dominance of group portfolio Individual Source: IRDA Annual Report 2016 4

Indian Health Insurance Market – Claim Statistics Claim Ratios - Group Segment 124% 116% 114% 109% Claim ratios in group segment have been increasing over last few years 120% 119% This is driven majorly by market competition 110% 104% 2013 -2014 -2015 -2016 Claim Ratios - Individual Segment 84% Claim ratios in individual segment have been decreasing over last few years, mainly due to 82% • Increasing share of private players • Upward price revision across the industry • Increase in new business volumes 78% 83% 81% 80% 77% 76% 74% 2013 -2014 www. actuariesindia. org 2014 -2015 Source: IRDA Annual Report 2016 2015 -2016 5

Group Health Insurance - Features Mostly employer-employee groups Flexible and Comprehensive Typically covers in-patient treatment, out-patient treatment, maternity covers, etc. Cover commences from day 1 No exclusions, generally “Actively Working” criteria enough to provide coverage www. actuariesindia. org 6

Group Health Insurance - Underwriting in group health insurance business is very liberal and generally no medical underwriting is done Homogenous Groups www. actuariesindia. org Compulsory Enrollment Experience Rating 7

Group Health Insurance – Challenges in Underwriting Voluntary Options www. actuariesindia. org - Individual employees may have optional benefits like cover for family members (Parents, Dependants or children), dental treatment, etc. - Exists mainly because employers wish to control costs - Issues of anti-selection 8

Group Health Insurance – Challenges in Underwriting Voluntary Options Theoretically, waiting period and exclusions could be used as a solution to this problem. However, these do not work due to commercial considerations. Practical solutions that insurers are trying to implement include: Out of Pocket Expense • • Co-Pay Deductible www. actuariesindia. org Application of Sub- Limits Different ways of limiting claim cost Lock-In Period Commitment from client to stay with insurance company for a minimum period (say 3 years) 9

Group Health Insurance – Challenges in Underwriting Small and Medium Enterprises (SMEs) Group pricing should ideally be driven by past claims experience Require large group size and claim size for credible statistical analysis SMEs have usually very small group sizes – 50 members, 100 members, few claims Reliance on company’s overall experience Market may not allow to make technical pricing decisions Difficulties at renewal stage as well Final pricing decisions depend on company’s philosophy www. actuariesindia. org 10

Individual Health Insurance - Features Bought by individuals for self or family Priced using Individual Rating Factors like age, Sum Insured, location Life time renewability Typically covers in-patient treatment, out-patient treatment, etc. Generally have exclusions (Pre-Existing Diseases, Specific Illness waiting period etc. ) www. actuariesindia. org 11

Individual Health Insurance - Underwriting Voluntary Cover High risk of Anti Selection Moratorium Underwriting: - Waiting Period for Pre Existing Diseases - Waiting Period for Specific Diseases - First 30 days waiting period (Except accidental emergency) Medical Underwriting: - Higher ages - Higher Sum Insured - Disclosure in proposal form www. actuariesindia. org 12

Individual Health Insurance – Challenges in Underwriting Worsening of Claim Experience with Increasing Duration Increasing Policy Duration End of Waiting Period and Exclusions Natural Progression of body and subsiding effect of underwriting Selective lapsing of healthy lives Increasing claim cost due to medical inflation, medical advancements, changes in lifestyle, etc. Inability to differentiate premiums for new business and existing business www. actuariesindia. org 13

Individual Health Insurance – Challenges in Underwriting Worsening of Claim Experience with Increasing Duration 110% 90% 30% 45% 70% 51% 54% 56% 49% 46% 44% 5 6 7 100% 50% 70% 30% 1 2 60% 3 4 NB Ratio • • • 55% EB Ratio Model assumes no price revision with regards to experience New Business growth rate is assumed to be 40% Y-o-Y during first 3 years and 20% Y-o-Y thereafter Persistency is assumed to be 60% for year 1 and 80% thereafter www. actuariesindia. org Claim Ratio Year 1 2 3 4 5+ Claim Ratio 40% 45% 65% 70% 75% 14

The extent of increase in claims ratios will depend on interplay of the three factors: New Business Growth CHALLENGE SOLUTION PROBLEM Potential Solution and Challenges Renewal Growth Selective Lapsing Given that claim experience is expected to deteriorate each year with increasing duration, RE-PRICING should be done PERIODICALLY, if not every year. Ability to increase premium will depend on: • Commercial position (Competition, NB Growth, Renewal Growth) • Regulatory Challenges www. actuariesindia. org 15

Thank You www. actuariesindia. org 16