Insurance Article, The Insurance Times 2021, The Insurance Times September 2021

Prudent Underwriting In Health Insurance

Health is a state of complete physical, mental, and social well-being and not merely the absence of disease or immunity. Good health is an essential requirement for the enjoyment of most aspects of life.

In this new millennium where: –

  • Health is greater risk than death.
  • Patterns and type of diseases are changing.
  • Mortality is decreasing and morbidity is increasing.
  • Need for healthcare is not only for bread earner but is equally important to other family members.
  • Medical technology developed quite fasts during last few decades.
  • Technological upgradation in medicine and other field has raised the cost of medical care.
  • Corporate hospital culture is adding cost of treatment.
  • Modern medical science has reached at the stage where virtual Autopsy is the talk of the day, where no cuts needed to do post-mortem and images can be analysed by forensic experts. This will certainly help in medico-legal cases.

Health insurance is the only answer to the above which will: –

  • Provide financial help for availing the benefits of this advance technology in medical science.
  • Protect the patient and family against financial disaster due to treatment.
  • Protect against the unexpected risk of illness and medical care.
  • Make more of payment for healthcare simplifies as insured will pay premium to insurer who in turn will take care of hospitalisation expenses including other medical care expense.
  • Eliminate sickness as a cause of poverty because sickness increases loss of earnings and cost of medical care thereby increasing poverty.
  • Reduce anxiety (economic, medical, moral of different natures) i.e. has the psychological consequences.

So, Health Insurance is a necessity now a days. It is not a luxury. It provides vitally important financial protection for individual and family. Lack of Insurance means going without needed healthcare, having to use lower quality care or having to pay medical expenses out of pocket. So, Health insurance is protection that provides benefits for covered sickness or injury.

It is protection for an agreed price against the cost resulting from specific health risks. In India, health insurance is transacted into

  • Non- Life Insurance Companies
  • Life Insurance Companies
  • Specialist stand alone health insurance companies

First Mediclaim policy was introduced in 1986 by Public Sector General Insurance companies.

As on 31.03.2020, 68 Insurers are working in India.

  • 24 are in Life Insurance
  • 27 are in General Insurance
  • 6 are in stand alone Health Insurance
  • 11 are acting as a Re-insurer.

As a result, the number of persons covered has grown from 690 Lacs in 2001 to 4987 Lacs in 2019-20. Total health premium collected as on 31.03.2020 is Rs.56865 Cr, which is 30% of total G.I. business.

  • Share of business under Govt. schemes – 10% covering 3590Lacs person(72%)
  • Group Mediclaim contributes 51% covering 947 Lacs persons (19%)
  • Individual mediclaimcontributes 39% covering 450 Lacs persons 9%

There is a huge scope for Health Insurance business to grow in India. Out of 130 Crore population,49.87 Cr are covered under Health Insurance schemes.

The health awareness is rising day by day in public with regular yoga, Gym, Walking, Jogging and also taking organic food but on the other side rising health expenditure, food habitsand increase in morbidity rates compel people to purchase health insurance.

Health is wealth and only healthy mind can exist in a healthy body.70% of medical expenditure in our country is born by Individuals.

As per IRDA in 2019-2020,

  • Total GIC business – INR 1,88,916 Cr
  • Share of Fire – 8.33%
  • Share of Marine – 1.87%
  • Share of Motor – 36.50%
  • Share of Health – 30.10 (INR 56,865 Cr)
  • Share of Misc. – 23.21%

As per IRDA incurred claim ratio of health insurance as on 31-03-20 is 88.43%. Under group mediclaim policies is 98.84%, individual mediclaim policy 72.86% and under government scheme 97.22%.

After motor, only Health Insurance is most demanding insurance. So, Health insurance is one of the fastest growing sectors in Indian Insurance industry. Growth of health insurance mainly lies in :-

  • Better customer service, standardization of procedures and definitions.
  • Standardization provides simple innovative products and better understanding of terms.
  • Increased awareness about benefit of health insurance in public due to rise in medical cost.

Now we will examine, underwriting aspects of the Health Insurance.

Health Insurance underwriting refers to the processby which a life or health insurer uses an applicant’s medical history to decide whether they can offer them a policy. Whether policy will include Pre-existing disease condition exclusion or a premium that’s higher than the standard rates.

The most important question in underwriting is: – What should be the rate of premium to be charged under a policy of Insurance?

The rate of premium is fixed according to certain principles: –

  • Firstly – the premium varies according to the degree of hazard or exposure to loss or damage to property.
  • Secondly – To assess the variations in the degree of hazards
  • Thirdly – The degree of hazard is determined based on past loss experience or past medical history or claim history.

A Mediclaim policy provides for reimbursement of Hospitalisation/Domiciliary hospitalisation expenses for illness/disease suffered or accidental injury sustained during the policy period. The liability in respects of all claims admitted during the period of insurance shall not exceed the sum insured for the person as mentioned in the schedule/policy.

The company will pay through TPA named in the schedule of the policy to the hospital/nursing home or the insured person reasonable and necessary expenses incurred in respect of medical/surgical treatment. At present in India 24 TPA’s are servicing.

Reimbursement is allowed only when treatment is taken in a hospital or nursing home which satisfied the certain specified in the policy.

Relevant medical expenses incurred during period up to 30 days prior to and period of 60 days after hospitalisation are treated as part of the claim.

To be able to assess a particular risk the insurer needs to identify from the proposal form medical conditions which are likely to affect the present health of the proposer and the implications in future.

In insurance sector, we usually talk about prudent underwriting means identification of good risk and bad risk for the rating purpose as well as acceptance or denial of risk/proposal.

Bad risk should be loaded, and good risk must be discounted as well as bad risk to be denied or good risk to be accepted.

So, in particular health insurance underwriting involves researching the medical history of a proposer for insurance in order to identify risk factors and fixing the price(premium) accordingly.

So, medical underwriting for high risk proposer may lead to exclusion of certain coverages for certain conditions/denial of covering altogether or coverage offered only at a very high price. Even in such cases, co-payment condition is also implemented for certain conditions.

Prudent health insurance underwriting includes:

  1. Thorough medical history examination
  2. Demographic profile
  3. Lifestyle
  4. Other factors like age, family medical history, occupation etc.

Through actuarial analysis, an estimate of the risk associated with providing health coverage to that person is determined and priced.

Actuarial components in Health Insurance

  • Sickness/Morbidity rates
  • Claim costs
  • Administrative costs
  • Others (Profit, Solvency)

Main job of an underwriter is to identify pre-existing conditions that add risk for the insurance companies.

Moreover, for health insurance underwriting point of view, technology can be use to identify customers availing treatment for various ailments in line with their adherence to treatment protocol, Realtime sugar/Blood pressure monitoring and for fitness addicts in line with their level of physical activity and endurance.

The effective application of new underwriting technology and analysis of data would enable to better understand customer’s needs preferences and behaviours. Charging of premium accordingly with the individual’s needs and risk proposal would be another step towards prudent underwriting of health insurance.

Thus, analytical models and stimulators will allow underwriters to understand risk cover and pricing interlinks and eventually more and more risk base pricing model. Now a day, many insurance companies are deploying analytical system to identify risk factors combined with artificial intelligence.

This will certainly help in going faster and accurate in decision making at every point of customer journey from ‘Point of sale’ to ‘claim settlement’. It will also help in product development as per need of customers.

Underwriting philosophy of Health insurance for any Insurance company would be to achieve growth with profit, so price should have a margin to take care of following over and above the pure risk premium arrived at by analysis of ICR (Incurred Claim Ratio):-

  1. Procurement cost
  2. Medical Inflation
  3. Expense of management
  4. Catastrophe reserve
  5. Credit for investment income
  6. Profit margin

Retail Insurance is a class rated product and will be governed by the internal underwriting guidelines of each company and also rates as filed with and approved by IRDA.

  1. Renewal of individual mediclaim policy cannot be denied other than cases/proposals with fraud, misrepresentation, non-disclosure of material facts. If at the time of claim, any of above is discovered, the policy will be cancelled after due notice giving 15 days’ time to insured.
  2. No loading shall be applied on claims of expiring policy as per IRDA Health Insurance Regulations 2016.
  3. Retail product should cover all section of insured persons, Senior citizens, women, minor children, physically disabled persons, HIV/AIDS contracted person etc.
  4. The underwriting parameters for risk acceptance will include age, pre-existing conditions, past claim history, good health practices and such other relevant parameters of proposer like occupation, married or single, food habits etc.
  5. Portability: – For retail policies from one insurer to another insurer. Portability procedure as per IRDA guidelines. No intermediator charges are payable.
  6. Free look period: – Applicable for retail policies. Insured will be allowed a period of at least 15 days from date of receipt of policy to review terms and conditions of the policy and to return the same if not acceptable. This condition is applicable for insured persons taking policy first time.
  7. 30 days grace period: – If the insured failed to remit premium for renewal before expiry of the period of insurance but within 30 days thereafter. Admissibility of any claim during the period of subsequent policy shall be considered in the same manner as under a policy renewed without break. But company will not be liable for claims made in the interim period of 30 days.
  8. Acceptance or denial of proposal: – The basis of acceptance of proposal /renewal will be as per internal underwriting of the company which includes

– Age

– Pre – existing health conditions

– Family health history

– Moral Hazard

– Misrepresentation, fraud, non-disclosure of material facts

– Non-cooperation by the proposer

– Pre-acceptance medical check up for all insured persons entering the policy age of 60 years.

– Pre-acceptance health check-up persons up to 60 years of age with advance medical history ( fresh entrants) or         break in insurance.

– Last claim details

– Consume Tobacco detail

– Good health declaration

– Psychiatric disorder

– Genetic disorders

– Any person aged between 18 years and 65 years can take Mediclaim policy (may differ company to company)

– Nomination (mandatory) – For individual policy holder. It is mandatory to make a nomination by the proposer for the purpose of claim payment in the event of death of insured.

– All policies to be serviced by TPA (for PSU). Choice of TPA as per IRDA guidelines for individual Mediclaim policy.

– Empanelment of preferred provider network hospitals. In case of PSUs cashless is made available in these network hospitals. In all other non-network hospitals, the claims are honoured by way of re-imbursement claims.

Rejection – Insurance is a subject matter of solicitation. Insurer has the right to decide to accept or reject the proposal based on objective criteria. In accordance with IRDA health regulations 2016, a denial of proposal shall be communicated to prospect in writing by recording the reasons of denial.

-Premium payable annually. There is a provision of no claim discount of 5% after every claim free year and maximum up to 15%.

-Underwriting looking for pre-existing conditions. A risk loading on the premium payable depending upon insured health status. Loading not be more than 50% of premium.

-Underwriter may seek re-insurance support in respect of major group health policies and government scheme to:

  • Obtain technical expertise on pricing & designing of product.
  • Introduction of various loss control measures under group policies.
  • Controlling and monitoring of claims and creating processing in Govt. and other group schemes.

The company may look for quota share support to shore up the portfolio.

Group Health Policy underwriting excluding Government :-

Group health policy catering to corporates is normally sourced through brokers/agents apart from direct business procured by office directly.

As the insurance coverage sought are dictated and designed as per need and requirement of customer, rating would be based upon sound actuarial principles, supportive data considering all the relevant aspects of pricing such as

  • Morbidity experience by gender
  • By age group
  • By occupation
  • By group size
  • Expenses
  • Project margin

Discounts and loading as per objective criteria for the renewals of GMP.

  • Claim experience in previous policy
  • Change in coverage
  • Change in sum Insured
  • Limit of Indemnity sought
  • Expected frequency/severity of losses
  • Group size
  • Age group
  • Medical inflation
  • Procurement cost
  • Management expenses
  • TPA service cost

Premium rates quoted keeping in view of above factors

Claim experience of GMP is monitored and analysed periodically. Introduction of various loss measures are suggested to insured where the claim experience is very adverse. It is a very important task for underwriter while underwriting such risk.

  • Application of suitable conditions and clauses
  • Restrictions in the limit
  • Incorporation of deductible/Co-pay
  • Loading of premium where warranted
  • Modification/deletion of covers granted


As discussed earlier, pre-policy medical check-up by the insurance companies helped to reduce the risk of paying the claim in near future.

Although physical medical check-up help in knowing the current health condition of a person but not a history of particular ailment.

So Tele-Underwriting is an option which is an efficient and cost effective to issue the policy to customers, who are digitally dependent and believe in on demand services with minimal customer barriers. Generally, people are friendlier of telephonic conversation and rightly disclose their medical conditions which can’t be obtained through physical medical check-up. It also reduces the turnaround time to issue a policy by insurer and also converting one more policy seeker to customer.

Most of the private insurer in India/abroad is following this practice.



Covid Pandemic is a worldwide spread of corona virus, suddenly disrupted business as human life remains under threat. More than 27 Lacs persons died in the whole world due to pandemic.

In this period, the insurers prefer Tele – Underwriting method because physical health check-up was restricted.

Appointed doctors over telephone ask customers regarding basic health condition, lifestyle of customer etc. After satisfaction, policy was issued to customer by Insurance Company.

In nut-shell, we can say that health insurance underwriting is a purely technical step whether someone should be taken as a customer at affordable cost(premium), so that goal of profit with growth can be achieved by insurance companies.

Now due to advances in technology, operations, awareness for health insurance, medical cost inflation, customer’s mind set to avail best choice of hospitals for treatment, we have to look underwriting in a changed prospect: –

  1. Develop financially attractive products, customer centric process and technical soundness.
  2. More focus on health care management, so free health checks up to policy holders or free healthcheck-up camp. So that health may be improved, and it will help in lower downing of medical cost.
  3. Increase transparency, simpler medical questionnaires, use of digital channel is the need of hour in changing scenario.
  4. To achieve the prudent underwriting goal, insurance companies must focus on
  • Technical soundness
  • Innovation of products as per need and requirement of customers’ means focused product innovation.
  • Customer centric approach.

In health insurance underwriting or even other insurance, risk assessment, evaluation, cost, coverage, limited liability, exclusions, co-pay condition etc. is to be understood.

How to deal with rare diseases with higher cost of treatment. So at the inception of policy, identification of such diseases is must so that cost (premium) may be decided accordingly.

Product innovation is also one area where different products for senior citizens, critical illness cover products with add on cover like

  • Air ambulance charges
  • Organ donor benefit
  • Modern treatment methods with advanced technologies for certain diseases
  • Restoration of Sum Insured
  • Daily cash allowance
  • Second medical opinion
  • Standard exclusion wordings as per IRDA
  • Removal of exclusions for HIV/AIDS, Genetic disorders, Psychiatric and psychosomatic disorders
  • Ayurvedic/Homeopathic/Unani treatment
  • Mental Illness cover
  • Coverage for Robotic surgeries, oral chemotherapy, Deep brain stimulation, Stem cell therapy, Immunotherapy etc.

Accordingly, product may be designed, and cost may be fixed, however an accurate understanding of customer’s health.

Correct assessment of risk for accurate price.

It is important to check fraud at this stage because many customers try to hide some important information. So, customer attitude is important factor while understanding of risk.

Simplified medical questionnaire can improve the customer experience and data accuracy.

For groups, tailor-made policies can be designed and price may be fixed. For large groups, cross subsidization with other portfolio is also one option for insurer as a part of underwriting strategy.

A particular customer segment may be targeted for product design and costing.

So, underwriter should be able to manage

  • High cost claims
  • Prevent uncontrolled renewals
  • Risk premium is based on scientific evidence.
  • Skill and motivation of the underwriting staff.
  • Different departments like Product development, Underwriting, claim management, Health management should work much closely together.

At last but not the least, a high degree of professionalism is the need of hour for underwriting of health insurance to achieve the Moto

“Growth with Profit”.

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