Insurance Article, The Insurance Times 2020, The Insurance Times October 2020

PANDEMIC A BOON FOR HEALTH, BANE FOR MOTOR INSURANCE

Insurance has always been a recommended instrument in financial planning. However, with the ensuing global pandemic, the importance of insurance is even more pronounced. Especially a health insurance plan is paramount when it comes to protection and financial security As the Covid-19 pandemic has disrupted almost all sectors it has had its effects on the insurance industry, too. While India remains to be an under penetrated country when it comes to insurance coverage, insurers did lose a good amount of business in the month of March as the pandemic had set in creating a large uncertain environment. The lockdowns to curtail the spread of the infection had aggravated the challenges as the entire workforce had to be transitioned to a remote working environment or commonly known as work from home environment. The COVID-19 pandemic has pushed the insurance sector to phygital from physical. It can’t be denied that the lockdown paved the way for multiple innovations and opportunities for the sector that never existed before. However, to thrive and survive in this new landscape, insurers will have to take a structured approach to digital strategy and talent, to deal with customers empathetically in the new frontier of the touchless.

General insurance business in India is expected to contract by 9% in 2020 due to COVID-19, a sharp decline from the 10% growth witnessed in 2019. The current crisis has had a strong impact on the financial planning priorities of customers placing insurance at the forefront. The perceptions, needs and concerns of customers with regard to insurance have also undergone a change with more sensitivity towards stability for themselves and their families. The insurance industry in India has been changing fast over the last couple of years. The current crisis has further provided a ‘digital-first’ push. The industry that was for years driven by traditional business models has evolved driven by a change in customer behavior, data, disruptive technologies, artificial intelligence and innovation. India is largely an underinsured population with the insurance penetration amongst the lowest in the world. Thus the un-explored potential in the country remains high. The current insurance industry is largely focused on the urban organized sector. This segment is most vulnerable to the financial loss from the untimely demise of the bread-winner and has unique needs. As the Covid pandemic continues to be a major threat, physical meetings have been replaced by virtual ones in all genres of life. The same holds true for doctor’s consultations which are increasingly being done through virtual modes like video conferencing, video calling, online chatting, etc.

MOTOR INSURANCE:

The general insurance sector has managed to show a positive premium growth in August, but the numbers are unlikely to bring any cheer to the industry.  For August, the general insurance sector collected a total premium of Rs 13,140 crore, a growth of just 5.5 percent when compared to same month last year. The growth in the general insurance sector between April to August 2020 also hasn’t moved anywhere as it remains almost flat.  From business point of view, the health segment for general insurers has become the biggest line of business, overtaking the motor insurance segment. And it is estimated that by the year end, the health segment may be far ahead of the motor segment. Despite good growth in premiums in August, cumulative premiums collected in the April-August period of FY21 were mostly flat. Premiums of non-life insurers grew 3.58 per cent to Rs 73,965 crore in that period. General insurers also saw flat growth with premiums at Rs 62,669.21 crore in the April-August period, up 0.02 per cent. This is due to a fall in motor segment premiums and no hike in motor third-party premiums. The Motor insurance segment has continued to witness a significant decline due to a sharp drop in vehicle sales.

As per a recent mandate issued by the IRDAI, long-term motor insurance packages that cover both own damages (OD) and third-party (TP) damages, will be discontinued. The change has come into effect from 1 August 2020 and had applied to those cars that have been purchased post this date. As per the older 2018 policy, it was mandatory for a four or two-wheeler owner to have third-party insurance, 3-years for cars and 5-years for bikes and scooters. They could also buy long-term comprehensive insurance which bundled OD and TP for a longer period. After the nation was in lockdown because of Covid-19, city streets became empty and the number of car trips dropped dramatically. Motor insurance was the worst affected with a 49% year-over-year dip in sales to Rs. 2621 crore for the month of April, 2020.

GROSS DIRECT PREMIUM INCOME UNDERWRITTEN BY NON-LIFE INSURERS WITHIN INDIA UPTO THE MONTH AUGUST 2020

(PROVISIONAL & UNAUDITED) IN FY 2020-21 (Rs. In Crs.)

Insurers Motor Total Motor OD Motor TP Health Grand Total Growth %
Standalone Health sub Total 0.00 0.00 0.00 6096.45 6268.76 25.85%
Previous Year Sub Total 0.00 0.00 0.00 4731.58 4981.07
% Growth       28.85% 25.85%  
Specialized Insurers
AIC (Crop) 0.00 0.00 0.00 0.00 4681.16 39.04%
Previous year 0.00 0.00 0.00 0.00 3366.79
ECGC 0.00 0.00 0.00 0.00 348.29 13.11%
Previous year 0.00 0.00 0.00 0.00 400.85
Specialized sub Total 0.00 0.00 0.00 0.00 5029.45 33.49%
Previous Year Sub Total 0.00 0.00 0.00 0.00 3767.64
% Growth         33.49%  
Industry Total 22253.68 8662.60 13591.08 22903.44 73968.16 3.59%
Previous Year Sub Total 26406.54 10480.58 15925.96 20274.11 71406.21
% Growth -15.7% -17.3% -14.7% 13.0% 3.59%  
% Market Share 30.1% 11.7% 18.4% 31.0% 100.0%  
Previous Year Market Share 37.0% 14.7% 22.3% 28.4% 100.0%

 

RECENT DEVELOPMENTS IN MOTOR INSURANCE:

The Ministry of Road Transport and Highways has proposed to make FASTag mandatory for buying new third-party motor insurance for your car with effect from April 1, 2021.  Besides, the ministry is also considering making FASTag mandatory from January 1, 2021 for four-wheelers sold before December 2017. FASTags are prepaid rechargeable tags for toll collection that allow automatic payment deduction from the FASTag. They are normally affixed on the windscreen of your vehicle. With the help of a FASTag, you will not have to stop your vehicle at toll plazas to pay the toll. As soon as the vehicle crosses the toll plaza, the toll fee will get deducted from the bank account/prepaid wallet linked to the FASTag affixed on the vehicle’s windscreen.

The IRDAI in June asked all general insurers to withdraw from August long-term packages offering both third-party liability (TP) and own-damage (OD) motor insurance policies. Scrapping of long-term package products (for private cars and two-wheelers) were basically done to reduce the insurance premium ticket size for the customer.

ICICI Lombard developed digital platforms and practices even before the pandemic. In January 2020, ICICI Lombard received approval under the regulatory sandbox for three of its products. Prospective policyholders can buy products with features that regular policies do not offer during a six-month testing period.

The company’s first offering, Pay As You Use (PAYU) is an OBD-based (On-Board Diagnostics) offering where the premium charged is based on the number of kilometers driven/opted for. The second option, Pay How You Drive (PHYU) is also an OBD-based offering where the premium charged depends on the driving behavior score as captured through the telematics device.  The third product called Single Owner-Multiple Vehicles (SOMV) covers all vehicles owned by an individual under one motor policy and provides the convenience of one document, one premium and one renewal date.

The IRDAI in a circular on August 20, 2020, told companies that a valid PUC certificate was mandatory for insurance renewal. As per the prescribed standards under 115 (2) of CMV rules 1989, all vehicles that are tested for PUC should fall within the prescribed standards. For instance, for a four-stroke two-wheeler vehicle manufactured after March 31, 2000, the prescribed percentage of CO should be less than 3.5%, whereas the hydrocarbon emissions — measured in PPM  (parts per million) — should be less than 4,500.

The entire automobile sector was already facing a dip in 2019-2020. New automobile purchases constitute a major portion of the premiums, and hence the lockdown and virtual stoppage of business may aggravate the situation. Challenges faced by the motor insurance industry have also increased. Lack of purchase of new vehicles is one of the biggest challenges.

NON RENEWAL OF MOTOR POLICY:

Many people working from home and making minimal use of their cars have decided not to renew their motor insurance policies. The Ministry of Road Transport and Highways had issued a notification that extended the validity of vehicle documents, such as driving licence, permits, and fitness certificates, till December, 2020. The General Insurance Council has, however, clarified this does not include the insurance policy. Not renewing your motor insurance policy on time can lead to several problems. Vehicle owners who have not made a claim for several years would have accumulated a no-claim bonus (NCB), which can go up to 50 percent of the premium for the own damage part. Once three months elapse after the deadline for renewal, policyholder will lose out completely on the NCB. Some insurers charge a higher premium for renewing expired policies. Also, when for a comprehensive policy after expiry, insurers insist on inspecting the vehicle. If the inspection reveals damages, the insurer will exclude them from coverage. Insured will then have to pay for those repairs out of his own pocket. Given the severe impact of this pandemic on the lives and livelihood, no one would want an unwanted financial liability. Thus, it is advisable to have a valid comprehensive motor insurance policy.

The premium rates for motor third-party liability insurance for 2020-21 remain unchanged from last year’s rate till further order. The rates for the ongoing fiscal could not be finalized because of the Covid-19 and consequential lockdown. For motor insurance, the number of claims has come down to less than 5% of the normal which led to some savings for insurers. When the country was under rigorous lockdown, motor segment claims fell significantly. But, claims started moving up in the motor segment with lockdown being gradually eased. On the revenue side, renewals have picked up. The own damage claims are now 80-90 percent of what they used to be. And, average claim size is increasing. So, the claims outgo is more or less equal to what it used to be.  But revenue is falling. Next six months will be tough in terms of loss ratios for the industry.

HEALTH INSURANCE:

In fact, the health segment for general insurers has become the biggest line of business, overtaking the motor insurance segment. And it is estimated that by the year end, the health segment may be far ahead of the motor segment.  The awareness around having a health insurance policy during the times of COVID-19 has done really well for the standalone health insurance sector. Standalone health insurers, in August, saw their premiums growing by 36.5 percent which compares to an average growth of 23 percent seen in the first four months of FY21. The biggest gainer in premiums has been standalone health insurers, as they saw a 36.42 per cent rise in premiums during the period to Rs 1,462.92 crore, against Rs 1,072.32 crore. Gross direct premium income underwritten by general and standalone health insurers grew by 10.44 per cent between April and July this year to Rs.18,415.5 crore even as the overall general insurance industry expanded by 1.62 per cent in the period.

Interest in health insurance has gone up for majority of the population. While the pandemic has made health insurance the largest premium segment in general insurance, consumers prefer to buy comprehensive policies with higher sum insured rather than just targeted covers. This is driven by the fact that demand for health insurance has been on the rise due to the ongoing coronavirus (Covid-19) pandemic. Also, the regulator’s drive to nudge insurers to sell standardized health products has done the trick as there is huge demand for the Corona Kavach and Corona Rakshak policies. These schemes were launched specifically to provide protection against the virus. Insurers are capitalizing on the increased demand for health insurance policies to compensate for the negative impact from other business. Health insurance premiums grew by 18% year-on-year in July 2020, as insurers revamped product portfolio to meet consumer demand. Health indemnity policies have seen a sharp rise in sales. The sum insured has increased significantly to anywhere between Rs. 25 lakh and Rs. 1 crore as people have realized that the cost for Covid-19 treatment can be very high. Health insurance premium in July amounted to 32.7 per cent of the general insurance market, taking over the motor segment which stood at 30.3 per cent.

GROSS DIRECT PREMIUM INCOME UNDERWRITTEN BY NON-LIFE INSURERS WITHIN INDIA:UPTO THE MONTH AUGUST 2020

(PROVISIONAL & UNAUDITED) IN FY 2020-21  (Rs. In Crs.)

Insurers  Health-Retail Health-Group Health-Government schemes Overseas Medical Health Total Growth %
Stand-alone Health sub Total 4977.25 1108.33 0.00 10.87 6096.45 28.85%
Previous Year Sub Total 3360.38 1041.94 261.95 67.31 4731.58
% Growth 48.12% 6.37% -100.00% 83.85% 28.85%
Industry Total 9645.62 11896.60 1285.84 75.38 22903.44 12.97%
Previous Year Sub Total 7259.10 10819.38 1752.44 443.19 20274.11
% Growth 32.88% 9.96% -26.63% 82.99% 12.97%
% Market Share 42.11% 51.94% 5.61% 0.33% 100.00%
Previous Year Market Share 35.80% 53.37% 8.64% 2.19% 100.00%

REPORTED CLAIMS:

The As cases of the novel coronavirus are steadily climbing in the country, general insurance companies continue to see higher claims for treating the disease. As on September 1, the non-life insurance industry received 1.69 lakh claims amounting to Rs 2,641 crore.  Maharashtra has the highest number of claims, followed by Tamil Nadu. So far, insurers have settled over 1.06 lakh claims amounting to more than Rs 1,000 crore. The exponential rise in the number of Covid-19 cases in the country has meant that the number of claims related to Covid-19has also risen for non-life insurers. However, the claim number is still very low, if compared with the total number of Covid-19 cases the country has seen, indicating the low level of health insurance penetration in the country. As of September 8, non-life insurers have received 192,863 claims, amounting to Rs 3,013.43 crore. Out of the total reported claims, as many as 121,739 claims have been settled by the insurers so far, amounting to Rs 1,165.81 crore, revealed claims data of General Insurance Council (GI Council), which is not publicly available. At the end of July 31, insurers had received 81,000 claims. So, the number of reported claims has doubled in a months’ time. Among states Maharashtra still leads in the number of reported and settled claims, followed by Tamil Nadu, Karnataka, Gujarat, and Delhi.

A positive that has come out of this crisis is the fact that consumers are more willing to buy health covers to protect them from the uncertainties that the current pandemic might throw up. Within a month of launching standardized Covid-19 specific products, as many as 1.5 million lives have been covered. The regulator last month had launched two Covid-19 specific policies – Corona Kavach and Corona Rakshak. Furthermore, the industry is seeing, for the first time, the health segment overtaking motor as the largest business in the general insurance space. the average ticket size for a novel Coronavirus claim is around Rs 1.5 lakh in urban areas and around Rs 50,000-75,000 in semi-urban or rural areas. Where the condition of patient is serious, and she/he has been admitted to the intensive care unit, claims are in the range of Rs 6-8 lakh.

The reasons for higher claims were also because of increased expenses on overheads in the treatment of the virus where the risk of contagion is rather high. When it started out in March and April, the PPE kits were high due to the demand, the treatment protocols and cost patterns were not clear which took a few weeks to settle down. From a hospital perspective, there is also a pressure to improve capacity utilization. General insurers have registered 1.92 lakh claims worth Rs. 3,013 crore as on September 8, 2020. This is the monthly claims data monitored and compiled by the General Insurance Council. Of this, about 1.2 lakh claims were settled by industry amounting to Rs. 1,165 crore, the data further showed. Maharashtra led the country with 78,000 claims, followed by Tamil Nadu, Karnataka, Gujarat, and Delhi.

FRAUDS IN HEALTH INSURANCE:

After attempts of fraud in the name of covid-19 treatment by hospitals empanelled under Ayushman Bharat—Pradhan Mantri Jan Arogya Yojna (AB-PMJAY) came to light, the government has warned of action against the erring hospitals.  The third-party administrators (TPA) servicing PMJAY have brought some incidents of fraud attempts to the notice of National Health Authority (NHA), the nodal agency responsible for implementing the AB-PMJAY. The testing and treatment for covid-19 was made available free of cost for Ayushman Bharat beneficiaries at private laboratories and empanelled hospitals in May. One of the hospitals  was found with more than 100 admissions for covid-19 alone. There’s no way to verify the admission or presence of patients in the hospital as no one is allowed to visit dedicated covid-19 hospitals for audits. That being a testing centre also, positive cases can be created, and admissions, too, can be created. There have been instances where hospitals claim higher cost packages wrongly, such as using 2 stents and claiming for 3 in cardiac procedures; claiming expensive packages under paediatric NICU (neonatal intensive care unit) treatment etc. It is also noticed that expired medicines are being used by hospitals.  Insurance company appoints TPAs where the scheme is run on the insurance model such as Gujarat and Punjab. Primary services that FHPL provides in any state are cashless and claims management subset of these services are creating awareness among hospitals on using PMJAY software, fraud and abuse control, hospital and beneficiary audits and feedback, verification of beneficiary and confirming the identification in Beneficiary Identification System (BIS) for registration of beneficiaries in PMJAY software and contact centre management to address beneficiary queries and grievances.

The coronavirus pandemic has prompted India’s health insurance industry to flag, for the first time in a court, concerns about arbitrary overcharging of patients by private hospitals and to caution that such practices could increase annual premiums. Excessive profiteering by private hospitals for treatment of COVID-19 patients has forced the statutory body of insurance companies to seek Supreme Court’s intervention. It said that this unchecked practice will raise the medical premium cost in India. It cited instances from different cities where hospitals had initially sought payments two to five times the amounts they accepted after objections by insurance companies. The Council found, one private hospital had billed a patient Rs 282,782 for a 10-day stay of which Rs 200,000 was charged under the head “PPE (personal protection equipment) kit ward. The insurance company objected and asked the patient to ask for a revised bill as an uninsured patient and then seek reimbursement.  The hospital reduced the bill to Rs 49,973 after “considerable haggling.

NEW RELEXAIONS:

  • Regulator IRDAI has permitted health and general insurers to obtain consent of prospective policy holders through a duly validated One Time Password (OTP), thus dispensing with the practice of getting wet signature in view of the COVID-19 pandemic.
  • The regulator has also exempted the insurers from mandatorily sending hard copy of the document to policyholders. However, the policies will have to be sent through electronic mode on the registered e-mail.
  • To help the insurance sector provide basic financial protection to the people, the Regulator has approached the Finance Ministry again with a request to cut GST rates on life and health insurance premiums.
  • To promote wellness benefits in life and health insurance, the IRDAI has issued guidelines on wellness and preventive features.
  • Now, insurers have to notify the rewards accrued to the credit of a policyholder and entitlements of the policyholders under the wellness and preventive features.
  • Insurance companies will offer reward points to policyholders who maintain good health and regularly take part in various wellness and fitness programmes. The rewards could be redeemable vouchers for health supplements, membership in yoga centres, gymnasiums, sports clubs or fitness centres. The insurer can also provide discounts on premiums or increase the sum insured at the time of renewal.
  • Since the outbreak of Covid-19 pandemic, the insurance regulator and industry have helped ease the financial burden of policyholders by extending the grace period for premium payment, the introduction of standard health policies and Covid-19 health policies and some insurers even offered to continue cumulative bonus benefits.
  • Keeping in mind the increasing medical costs, policyholders may purchase multiple health insurance policies across different insurers if there’s a need for a higher sum insured in case it is insufficient under a single policy. But if you have multiple health policies, there is no need to worry. You are allowed to use multiple policies, such as the group policy from your employer, your individual health policy and your top-up health policy, for a single claim.
  • The demands for a more fluid workforce for insurance would increase. At present there is a strong need for underwriters and claims investigators to work with data scientist and analysts. By having a liquid workforce component companies can have a right mix of internal employees, freelancers and technologists. This helps drive faster innovation and change within the company. This trend has been gaining popularity across industries and we expect it to become prevalent in insurance as well.

HEALTH INSURANCE AS GIFT:

Insurance provides financial stability to the family of the deceased policyholder. an insurance policy to your loved ones is among the best ways of securing their financial future. The new plan launched by SBI General Insurance, Shagun, allows you to directly gift a personal accidental insurance policy not just to your family but to anyone — your friends, cook, maid or driver.  If there are any minors in the family, you can directly gift a life insurance plan to them, provided the minor (less than 18 years) is part of the immediate family (your child/grandchild). Life insurance works on the principle of insurable interest and therefore, gifting is usually limited within family. While one cannot gift an insurance plan outside of immediate family, Shagun, SBI General Insurance’s new product, overcomes this limitation. SBI’s Shagun is like any other personal accidental insurance product in the market. It provides the benefit to the nominee of the insured in case of accidental death of the policyholder. It also covers for partial/total disabilities, permanent as well as temporary disabilities resulting from an accident, in which case, the benefit is paid to the life assured directly and the policy terminates. The claim amount varies with disabilities.

IRDAI has asked insurers to include the cost of telemedicine in their plan’s coverage. If health plans cover the cost of doctor’s consultations, they would also cover the cost of telemedicine from October 2020. This move by the IRDAI is seen in the best interests of the policyholders as their policies are set to become more inclusive in terms of coverage. Moreover, by including telemedicine in the ambit of coverage, health plans would address the current need of the pandemic and would prove more relevant. This is also expected to increase the popularity and demand for health plans as well as the penetration of health insurance in India. The government is all set to launch National Digital Health Mission (NDHM) which enables all citizens to possess digital health records. Unique Health ID will be allotted to each person and a Health Card will also be issued facilitating people to share the data with healthcare providers anywhere in the country and get the necessary medical attention. While this should usher in a new era in the healthcare sector, this can also be a boon to the insurance industry. General insurers are gearing to come up with novel products under the regulatory sandbox, after the enthusiastic response to the first set of policies announced by the Insurance Regulatory and Development Authority of India. The pandemic has opened new avenues for innovation and, soon, there may be covers for job/income loss and business interruption. The Regulator announced the opening of the second cohort of regulatory sandbox policy. The window for filing applications opens on September 15 and closes on October 14. The regulatory sandbox refers to the live testing of innovative products in a controlled regulatory environment, backed by relaxation of certain insurance norms for the limited purpose of the pilot. Indian insurers should consider performing targeted activities to protect community interest and build more trust in the society.

The novel Coronavirus disease pandemic has led to an increase in health insurance awareness in India. Humungous hospital bills for COVID-19 treatment have prompted many to buy – or enhance – health insurance covers.  However, only around 4 per cent of COVID-19 patients in the country have filed health insurance claims so far despite growing awareness – a pointer to the dismal levels of health insurance penetration in the country. Despite a rise in claims in the last two months, the insurance penetration in the country still seems to be low. Health insurance claims made till now are only 2.7 per cent of the total number of people who have been infected with the virus till now. While it is important to follow all government advisories to protect yourself physically from getting infected with the coronavirus, it is also very important to stay financially protected against not just the pandemic, but all other ailments as well. This is because the pandemic may end in a couple of more months, but other lifestyle diseases and age-related ailments can affect you any time and it is very important to stay adequately protected against any such ailment. The hunt for a coronavirus vaccine is underway across the world. With multiple vaccine candidates entering the phase III trials, a safe and effective vaccine against coronavirus infection could become a reality soon. But will a vaccine be covered under health insurance policy? The answer is — only specific health insurance policies will bear the expenses of the coronavirus vaccine. Currently, COVID-19 vaccination is not covered under indemnity plans available in the industry. However, in the foreseeable future, it being a critical need, insurers will evaluate covering it under their plans, once the COVID-19 vaccine availability and pricing comes in. One of the biggest offerings from the new normal has been the adoption of the ‘work from home’ culture across industries. Many companies have invested in technology infrastructure to enable work from home to ensure continued services. There have been reported benefits of the work from home culture and over the last few months employee behavior has also adapted. Work from home also provides companies with the opportunity to deploy its resources better and help in flexible expansion across geographies.

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