Insurance Article, The Insurance Times 2021, The Insurance Times June 2021

“HEALTH” EMERGED AS KING BUT “MOTOR” OWNS THE THRONE

Disruptions that have taken place as fallout of the covid-19 pandemic have reflected themselves in many ways. Change is the only constant and for the insurance industry, change is nothing new. The industry is dynamic and changes with the changing trends and demands of consumers. Even in these trying times, when Covid numbers are breaking all records, the IRDAI has brought about several consumer-friendly changes in the insurance industry. The need for health insurance was all the more emphasized when Covid struck and people were increasingly being hospitalized. Though normal health plans covered Covid, they excluded the cost of consumables which was high in Covid treatments. That is why IRDAI directed health insurers to launch Covid specific health plans and then Corona Kavach and Corona Rakshak were born. These plans exclusively cover Covid and fulfill the short term coverage needs of individuals against the dreaded Corona virus. IRDAI asked insurance companies to boost their online sales so that policyholders can buy policies without stepping out from their homes. As a result, more and more insurance plans are being sold online for ease of buying. The KYC verification has also gone online as companies are resorting to video calls and image uploads of KYC documents for verification purposes. Keeping affordability in mind, IRDAI made health insurance premiums more pocket-friendly by introducing the installment mode of payments. Now, health insurance plans are allowing individuals to pay their premiums in easy installments rather than in lump sum. This change has two benefits. One, individuals would be able to afford a comprehensive health insurance plan with an optimal sum insured level. Two, the popularity of health insurance would increase thereby increasing their penetration too. General Insurers are benefiting from an uptick in retail health insurance that grew by 31% y/y over 4mFY21 leading to a 13% rise in total health insurance. This segment forms 14% of premium & is key to rise in total premiums. Moreover, claims have been manageable (estimated 10-15% y/y falls) as rise in Covid-claims is offset by lower normal claims.

For the first time in India’s insurance sector, the health business has beaten the motor vertical to become the biggest non-life industry segment, boosted by a rise in standard Corona virus plans.  On the other hand, a slump in vehicle sales has affected motor insurance.  IRDAI data showed that while motor insurance premiums saw a 15.7 percent decline, health insurance premiums saw a 13 percent YoY growth in the April 1-August 31 period.  For the general insurance industry, premium collections remained muted for the period with just a 3.6 percent YoY rise to Rs 73,968.26 crore. The health insurance business contributed Rs 22,903.44 crore. Till now, the motor insurance segment, driven primarily by the mandatory motor third-party insurance, has always been the largest business segment in the general insurance sector. However this year, Covid-19 played spoilsport. On the other hand, a slump in vehicle sales has affected motor insurance. When it comes to third-party cover, it includes insurance for new vehicles as well as renewals. The reality is that customers are not renewing their vehicle insurance since remote working is the new normal. This has severely affected motor premiums. The concept of long term motor insurance plans was unveiled in 2018 when IRDAI mandated new vehicles, bought on or after 1st September 2018, to have a mandatory long term third party cover. With that change came long term comprehensive plans which offered long term coverage for third party liability and own damage cover. These plans have, however, been withdrawn from 1st August 2020. Though long term third party coverage would still be mandatory for new vehicles, long term own damage cover has been withdrawn. Vehicle owners can, therefore, buy bundled plans with a long term third party cover and one year own damage cover.

Standardized insurance products to improve penetration:

The Regulator has announced a number of standardized insurance products for term life, health, residential property and small businesses, to increase insurance penetration in the country. Standardizing insurance products will help first-time buyers purchase a plan without having to pore over documents or make comparisons. Only 79% of four-wheelers and 36% of two-wheelers have mandatory third-party insurance. Of the total dwelling units in the country, only 0.9% are covered by insurance and 62% of healthcare expenditure is paid out of pocket. Despite the temporary negative impact on the insurance industry of the Covid-19 pandemic, the industry will move towards its long-term average growth rate of 12% for life, 18% for general, and 25-40% for health insurance. Health insurance can emerge as key growth driver in post Covid-era. Low penetration of health insurance is evident from the fact that over 60% of medical expenses are personally incurred by patient. Only 10% of the population has taken commercial insurance (i.e. outside Govt. plans). This segment is sized at over Rs 500 bn in India and over the next five years we see this more than doubling. ICICI Lombard could be a key beneficiary of this uptick, and we expect this segment to be key growth driver.

Health insurance premium shoot up 40-70%:

Health insurers have hiked their premiums for medical insurance plans by 40-70% following regulatory directives for them to broaden coverage over more illnesses. In addition, exclusions in health insurance policies will be completely standardized. Previously, the exclusions were not fixed across the insurer and varied from one insurer to another. Insurers say the hikes are necessary as the IRDAI has asked them to cover a range of conditions excluded previously. Regulatory changes in the past one year have made it mandatory for insurers to cover Covid-19, HIV/ AIDs, artificial life maintenance, mental illness, mental disorders, age-related degeneration and internal congenital diseases. The Regulator had approved the new premiums. It is not like insurers are arbitrarily deciding to increase rates. However, it is argued that insurers are raising rates by pricing policies at the highest end of the rate band approved by the regulator, instead of pricing them mid-range. Another industry trend is the change in age-band pricing. Previously, the age bands which determine premiums payable were, for instance, 25-35, 35-45, 45-55. As policyholders crossed an age bracket, there would be a price increase. But increasingly, the market has been flooded with new products, which have narrower age brackets of five years. In the entire non-life sector, standalone health insurers have seen the largest gains due to Covid-19 awareness and allied policy purchase. Data reveals that health insurance premium income rose 12.97 per cent to Rs 22,903 crore in the April-August period, overtaking auto business as the largest insurance segment. These insurers saw a 29 percent YoY increase in health premiums to Rs 6,096.46 crore. Star Health Insurance was the largest insurer in this segment with a growth rate of 45.45 percent YoY in the April to August period, with premiums touching Rs 3,182.26 crore.  Aditya Birla Health Insurance saw a 93 percent YoY growth in health premium to Rs 409.03 crore in this five-month period. Another factor that led to the growth in health insurance has been the availability of more products. A Rs.20 lakh health insurance cover for a 30 year old may cost around Rs. 13,000 for one year. A new digital health and wellness market place, Vital is offering monthly subscription plan for health insurance just like you pay your monthly EMIs or pay for your Netflix subscription on a monthly basis.

Colour codes to decide health insurance plans:

To make health insurance more customer friendly, medical plans offered by a general insurer or standalone health insurer will soon carry a colour code each.  The colour codes will indicate the level and degree of complexity of the product. To determine whether a health plan is simple or complex, a set of scores will be given to the product based on the terms and conditions of the insurance policy. Factors like the number of optional covers, percentage of co-payment, waiting period, permanent exclusions, number of treatments, and simplicity of terms will be considered in determining a score for the product. The higher the number of optional covers and percentage of co-payment, the higher will be the score. Products with a score of 2 or less will be classified green, more than 2 and less than 4 will be orange, while those above 4 and up to 6 will be red. Where there are multiple options for a certain health plan, the average of the options shall be considered. For example, if a health product has two options of 10% and 20% co-payment, then the average co-payment shall be 15%.

Telemedicine and online consultation under health policy:

Telemedicine was a developing concept in India but Covid pushed the concept to the forefront as the nation went under lockdown and social distancing became the norm. Telemedicine includes offsite medical consultations done through telephones, video calls, online chats, etc. As telemedicine became popular in the post-Covid world, the Regulator asked insurers to cover the medical costs incurred on telemedicine if their health plans offered coverage for doctor’s consultations. So, now, health plans have become all the more inclusive as they cover telemedicine costs too. With a surge in the number of Covid-19 cases across the country, the IRDAI has instructed insurers to settle claims for telemedicine and online consultation under health insurance policies. As the Covid-19 pandemic continues to spread across the country, people increasingly prefer online consultation with doctors rather than hospital visits.  A number of hospitals have also started offering nursing services at the homes of their patients. Over the past few months this trend has been increasing which has prompted the insurance regulator to take steps that will be beneficial to insureds. The regulator has requested insurers to allow claim settlement for telemedicine consultation wherever normal consultation with a medical practitioner is allowed under the terms and conditions of the policy. The insured person taking telemedicine consultation from a doctor will be allowed to claim the expenses under the health insurance policy if it covers outpatient department expenses or if telemedicine consultations are a part of pre- or post-hospitalization expenses. The Regulator has advised insurers to allow telemedicine wherever consultation with a medical practitioner is permitted under the terms and conditions of the policy, and where they are following guidelines given by the Medical Council of India. The provision of allowing telemedicine is part of claim settlement policy of the insurers and need not be filed separately with the authority for any modification. However, the norms of sub limits, monthly or annual limits of the product shall apply without any relaxation.

COVID-19 claims form 40% of total health insurance claims:

One analysis of claim costs (normal & Covid-linked) shows that blended impact for the sector seems manageable. So far (5mFY21), the overall claim incidence for the sector should be 10-15% lower than normal claims (despite 13% growth in premiums) because the rise in claims due to Covid has been offset by lower claims for normal medical costs. In FY20 sector paid Rs 330 bn worth of health-insurance claims implying that for 5m FY21 the normalized claim payment would have been Rs 140 bn (assuming no growth). Against this, insurers would have paid Rs 120 bn (including claim of Rs 26 bn towards Covid) — which is a 10-15% decline. It’s relevant to note that while claims paid are based on actual payouts, ‘claims incurred’ (i.e. charged to P&L) is subjective & insurers have taken divergent policies. ICICI Lombard seems to have been conservative whereas PSU insurers and some standalone health insurers seem a bit aggressive about reserving for health insurance claims. Health insurance claims from Covid-19 are rapidly growing and as at end of September 2020 they were 40% of the total claims of the Indian general insurers. Covid-19 claims have been steadily increasing from 8% in May 2020 to 23% in July 2020 to 34% in August 2020 and now 40% in September 2020. As cases rise and reliance on private healthcare increases these are likely to rise further. This is scary — Covid claims now nearly form half of total health industry claims. One must remember that non-Covid claims have also been increasing. In March and April when the lockdown was severely enforced, we saw people postponing planned surgeries like a cataract operation or knee-cap surgery. But in September, non-Covid claims rose because of the pile-up; caused by people postponing necessary treatment in the first half of the lockdown. Industry analysts are concerned that the rising Covid claims could put more pressure on the books of general insurers, particularly the four public sector general insurers.

Health portfolio loss ratio could increase by 10%:

Initially, there was a misconception that Covid-19 claims won’t be paid under health insurance. Later, the regulator clarified that Corona virus treatment would be covered, and there has been an uptick in policy purchase. Indian insurers have received 349,000 claims for over $736m from Covid-19 patients as of 5 October 2020 according to data made available by IRDAI. The general insurers had settled 217,000 claims amounting to $297m up to 5 October 2020. If claims continue to rise then the loss ratio in the health portfolio could increase by 8%-10% solely due to the ongoing pandemic. During the financial year 2019-20, Indian health insurance had received premium income of $7bn, a growth of 13.41% compared to the previous financial year 2018-19. As such, claims arising from Covid-19 are around 10.5% of the health insurance premiums received during 2019-20.  Typically, every year loss ratio for the retail health policy is around 65%-70% while for the group health policy its around 90%-100%. But this year due to the pandemic we expect loss ratio to further go up by 8%-10% for the insurance companies on account of the pandemic. The average claim size reported for Covid-19 health insurance is $2,127. The average claim size, however, varies from one state to another. Moreover, as the number of active cases goes down, insurers expect claims to go down in the days to come. With the number of active cases going down in India, we have seen doubling of claims going up from 16 days to 31 days. This indicates slowing of growth rate. If things continue to remain under control in the next few days, we might see lesser number of Covid-19 claims going forward. Globally, 42 vaccines are undergoing human trials right now, with another 151 in the pre-clinical stage. In India, three vaccines—by Serum Institute of India, Bharat Biotech International and Zydus Cadila—are in human trials, and half a dozen more are in pre-clinical stage. Serum Institute’s candidate is in phase 3 trial, while the other two are in phase 2. At least one candidate is expected to get nod by December-end or early next year, and commercialization may begin by June 2021. While vaccines take at least five years to develop, Covid candidates are going through all three phases of trials in a year. India has become the second-most affected country in the world after the US, in terms of Covid-19 cases.

Need to slice health insurance claims data for more clarity:

The moment of truth for a health insurance product is when a policyholder raises a claim. So in rating insurance policies for customers, claims data becomes an important parameter by which to assess an insurer. Policyholders’ rates insurers on the basis of their performance on claims settlement, time taken to settle claims and complaints related to claims. While this helps in ascertaining the performance of an insurance company on a macro level, it may not give a clear picture to the end consumers for two reasons: the numbers are adulterated with group claims and claims settlement rate does not give customers an idea about the out-of-pocket expenses they may have to bear despite having insurance. Claims data needs to be cleaner and sharper. Now that the pandemic has popularized health insurance, customers, advisers and even policymakers need to look at claims more carefully. Public disclosure documents, therefore, need to dedicate more space to claims and distil the usual entries of claims reported, settled, rejected and outstanding for the retail bucket and also capture the leakages (or the out-of-pocket expenses) from the claims filed. Slicing the data for retail is only one step and may still not reflect the true picture, if the retail bucket comprises defined benefit health plans, which pay the entire sum assured. The other type of health plan is indemnity policy that pays for hospitalization up to the sum insured. Critical illness plans come under the defined benefit category as they pay the sum assured if the policyholder contracts a defined illness. But such policies define the severity of an illness which can lead to claims rejection if the customer does not understand the nuances which is often the case. For instance, critical illness plans that cover cancer specify the severity of the ailment and usually exclude early-stage cancer. Although defined benefit plans may not form a huge proportion of an insurer’s health portfolio, segregating this bucket from indemnity will make the data sharper. Higher rejection rate in the pure retail indemnity bucket, for instance, sheds light on the sales practices of the company, among other things. Also, within the retail bucket, it would help if claims are further segregated for the insurer’s own plans and Regulator’s mandated standard offering Arogya Sanjeevani.

The pace of Motor Insurance business:

The motor insurance business of insurance firms declined by 15.73 per cent during the period April-August 2020 amid relaxation announced by the state governments in the Motor Vehicle Act and the slowdown in the business due to the Covid pandemic. According to IRDAI data, total motor business premium fell to Rs 22,253 crore in the five months ended August 31, 2020 from Rs 26,406 crore in the year-ago period. About Rs 1,850 crore declines was reported by four PSU general insurers only. The overall degrowth (in motor) is the result of drop in premium mobilization in commercial vehicles where the fall in sales of new vehicles has been steep. In September 2019, we saw a huge increase in motor business which was primarily fuelled by the two wheeler and standalone TP policies for private cars due to the Motor Vehicle Act. Most of the cases were break-in insurances and were due for renewals. At Digit, we had seen a 500 per cent growth in policy issuance especially in the two wheeler segment.  GI Council, which is a representative body of insurance companies formed by Insurance Act 1938, said motor insurance policies have to be renewed at the earliest. The Council said the, The MoRTH letter on August 24, 2020 advising state governments over the validity of vehicle papers only extends to fitness certificates, permits, driving licenses, and registration certificates. Here are the new rules:

  1. Carrying vehicle license, registration certificate, insurance documents etc., will not be required from October if these documents are validated through government portal.
  2. The documents can be uploaded on Digi-locker or m-Parivahan. Both these apps are available in any play store. One can register through their mobile number.
  3. Revoking driving license will also happen digitally.
  4. Records of license being disqualified etc., will be digitally stored.
  5. E-challans will be issued on the portal.
  6. Drivers can only use mobile phones for route navigation while driving.

These changes, to be effective from October 1, 2020 were brought in by the Motor Vehicles (Amendment) Bill, 2019.

No slump in motor insurance business:

Motor insurance is the largest business portfolio for general insurers. The Regulator released business figures which indicate a substantial growth in the premium income underwritten by general insurance companies in September. Premium income rose to Rs.20,145.46 crores in September from Rs.14,463.60 during the same time last year. Overall, general insurers witnessed a growth of 16.84% compared to last year. Major chunk of general insurers’ revenue is drawn from the sale of motor insurance policies. However, passenger vehicle sale continued to disappoint with a plunge by almost 24% in September. General insurance companies seem to be enjoying the spike in the sale of motor insurance policies. After the amendments to the Motor Vehicles Act, not having a third-party motor insurance attracts a fine of Rs.2,000 for the first offence and a fine of Rs.4,000 for the second offence. The high penalty is contributing to the increasing sale of motor insurance at a time when the automobile industry is struggling. August to September, the sale of motor insurance saw a significant rise because there’s a high penalty now. The penalty is actually higher than the cost of insuring a two wheeler so this has brought a large number of uninsured vehicles within the insurance net. Own damage and third-party insurance, both have seen equal boost. Insurers haven’t taken a hit due to drop in automobile sale only because older vehicles have now come under the ambit of mandatory insurance. This could be a one-time high because motor insurance is bought for three and five years so the premium numbers may not continue to remain this strong a year from now.

Till now, the motor insurance segment, driven primarily by the mandatory motor third-party insurance, has always been the largest business segment in the general insurance sector. When it comes to third-party cover, it includes insurance for new vehicles as well as renewals. The reality is that customers are not renewing their vehicle insurance since remote working is the new normal. This has severely affected motor premiums. Regulatory data showed that while motor insurance premiums saw a 15.7 percent decline, health insurance premiums saw a 13 percent YoY growth in the April 1-August 31 period. For the general insurance industry, premium collections remained muted for the period with just a 3.6 percent YoY rise to Rs 73,968.26 crore. The health insurance business contributed Rs 22,903.44 crore. However, with relaxation by the state governments, this effect faded away in October 2019 itself. Now with the pandemic and lockdown restrictions in select cities, the renewal ratio of this business is expected to remain low. Apart from this due to the MV Vehicle Act, the minimum claim size has increased and we expect it to automatically increase by 5 per cent each year.

Insurers               Motor Insurance Premium                                 (In Crores)
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
Acko 0.82 75.32
Bajaj Allianz 2699.85 2918.38 3277.29 3567.44 4152.67 4857.03
Bharti AXA 1052.27 1093.52 1019.91 1104.70 1073.87 1143.00
Cholamandalam 1249.71 1279.09 1667.61 2165.48 2640.73 3001.08
DHFL 0.00 21.11
Edelweiss 0.00 26.90
Future Generali 706.35 828.10 927.85 903.00 1037.34 1143.47
Go Digit 74.71 854.53
HDFC ERGO* 1004.06 1051.65 1174.30 1097.88 NA NA
HDFC Ergo(earlier L&T) 3213.80 3415.81 4149.81 4541.81 2306.60 3059.97
ICICI Lombard 1761.73 2141.97 2407.14 2973.31 5249.47 6423.53
IFFCO Tokio 3002.38 3261.25
Kotak Mahindra 137.53 204.86 301.94 725.22 139.37 197.60
Liberty Videocon 97.01 192.16 274.47 409.08 553.78 754.70
Magma HDI 388.49 401.19 334.48 340.31 413.42 746.55
Raheja QBE 0.65 0.42 5.43 28.92 51.83 76.96
Reliance 1444.65 1642.54 1660.53 1962.65 2484.49 2856.74
Royal Sundaram 1022.46 1159.43 1273.91 1704.23 2026.51 2075.87
SBI General 465.33 538.65 707.94 680.79 978.17 916.10
Shriram 1481.04 1461.31 1666.41 1835.56 2040.59 2252.45
TATA AIG 1074.03 1224.58 1411.36 2020.01 2813.99 3791.34
Universal Sompo 231.75 251.30 315.77 392.64 647.29 699.36
Private Total 18030.69 19804.97 22579.79 26521.95 31688.03 38234.86
National 4838.97 5177.48 5664.60 6321.67 7024.02 6164.28
New India 4604.61 5366.01 6177.29 7600.67 9094.89 8846.68
Oriental 2638.63 2861.70 3150.64 3743.64 4357.48 4535.20
United 3709.85 4169.17 4728.54 6062.60 7081.69 6741.33
Public Total 15792.06 17574.36 19721.07 23728.58 27558.08 26287.49
Grand Total 33822.75 37379.33 42300.86 50250.53 59246.11 64522.35

The provisional gross written premium (GWP) income by 34 non-life insurers within India for FY 2019-20 is Rs. 1,89,301.76 crore, of which the GWP under the motor portfolio within India for 2019-20 (for both motor own damage and motor third party) is Rs. 69,208.14 crore. So, on an

average, India’s motor premium per month is Rs. 5,767.34 crore. Lesser people have renewed their vehicle insurance this year. The insurance industry is living up to its responsibilities to the economy during this unprecedented crisis by making life less miserable for millions of policy-holders and their families struggling for liquidity, and small businesses and traders with no revenues, all of whom are hard-pressed because of the pandemic. Customers are of the opinion that the vehicle may not be used for some time in the future due to lockdown or the ongoing Corona scenario. And this majorly happened in Q1. Q2 seems better than Q1 for sure. Brand new vehicle sales took a huge hit in Q1 and have started to pick up now.  From August 1, the 3+3 and 5+5 motor policies for brand new vehicles have been discontinued. As a result the ticket size of insurance policies for brand new vehicles has taken a bit of hit and this impact will be seen in the coming months as well. The month of September is also expected to show a drop as last year a lot of people purchased due to MV Act and fines. This year many customers from this segment aren’t renewing their policies is the absence of policing on that front. Lockdowns are the best-case scenario for insurers as there are fewer vehicles on the road, meaning fewer accidents and fewer claims. Fewer claims mean extra profits. Insurers are better off than before because of this crisis and, therefore, there is a compelling necessity to offset the above risk-free premiums based on the claims cost saved during the lockdown. Despite the gradual revival of the economy, motor insurance business recovery is expected to be stretched. The pressure on new vehicle sales is likely to continue until 2021, resulting in sluggish growth in motor insurance premiums.

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