Our body weakens over time. It is natural that at later ages we will have periodic medical expenses. For some people, it would be worse when a major illness could not only result in physical and mental trauma but also put a huge financial burden on them. This can sometimes derail a well-planned retirement.
Hence it is natural for us to opt for health insurance which will help reduce the risk of running out of money in case of a major disease. Besides, in an emergency, when a health intervention is expensive and the decision needs to be taken at the spur of the moment, health insurance comes handy.
If this is such an important need then you would think that there would be many customer-friendly good health insurance solutions in the market place but that is not the case.
What are the challenges in selecting the right health insurance policy?
A Complex Product
The health insurance product is complex because it is hard for a common man to understand the contract (policy) document. The policy document can run into several pages of coverage and exclusions and each line has a heavy legal meaning.
There are clauses such as room rent limit, ICU rent limit and proportionate deduction and you may wonder why these clauses are there in the first place. There are different waiting periods (24 / 36 / 48 months) for pre-existing diseases for the same product from different Insurers. The permanent exclusions list for different insurers varies for the same product.
Even if some of us take the effort to read and understand the policy document, there would still be many unanswered questions:
- What happens if there is no wording about a clause e.g. room eligibility. Could we assume that all rooms are covered or the ambiguity will hurt the policyholder at the time of claims processing?
- What happens if you are diagnosed with a disease? Would the Insurer limit the Sum Insured for the diagnosed disease in future? Would the Insurer exclude that disease from future coverage? Would the Insurer increase the premium?
- Would the Insurer disallow the increase in Sum Insured at the time of renewal based on new underwriting?
- Would the Insurer make the policy more limiting at the time of the renewal?
- Would the Insurer disallow increase in Sum Insured in old age?
- Would the Insurer increase the premium abruptly in old age?
- Would the Insurer drop the product and migrate to a limiting product?
Like these, there are many pertinent questions for which the answers are not readily available.
In the name of innovation, the insurers have introduced new products and features e.g. Top-Up policy, Super-Top policy, NCB (No Claim Bonus), Restore, Reload, Recharge, Refill. You would think that these additional features will be beneficial for you but the truth is that they are making the product more complex and creating more ambiguity.
Can’t they launch a simple product that covers everything? They can vary co-pay (the liability of the policyholder) based on the medical condition of the person at the time of issuance of the policy. Would not that make life simple?
The same insurer is promoting a combination of base and Super Top-up policy. If you ask them why not give a base policy with the sum insured equivalent to the one offered by a combination of base and Super Top-up policy at the total price of combined products, they do not have a clear answer.
The challenge is more options and wording creates more room for ambiguity, more disconnect between the Insurer and policyholder leading to poor claim experience.
Lack of policy standardization
There is no standardization of the policy document and its wording. The coverage and exclusion are read differently for different Insurers for the same product. Would not it be nice if the basic product policy wording was written by the regulators and the Insurers only share the quote? It will give the policyholder confidence that the policy wording is blessed by the regulator and the Insurer cannot mess with it.
What about removing the subjectivity and ambiguity from the policy wordings? Could the regulator use the coding mechanism (Classification of disease and procedures) to bring clarity and consistent understanding among all stakeholders?
While there has been some progress in this direction, a lot more needs to be done.
Claims Experience
This is the most important factor influencing the health insurance purchase, but till date, there is no good data available that can help us measure the performance of claims processing of an Insurer. The closest data which is being tracked is CSR (Claims Settlement Ratio) and that also is not a good basis. Hence, at the time of purchasing a policy, the claims experience input is mostly based on the information available in the public domain and hearsay.
After years of paying the premium and being a loyal policyholder, you would hope that the claim processing experience will be smooth but the policyholders are worried that the jargon of the policy document can be used against them to deny a claim.
The biggest reason for refusing a claim is that the policyholder has not done an honest declaration of the medical condition at the time of purchasing the policy. But the reason for not filling the right medical condition could vary: the applicant may not recall a treatment that was done a long time back; the applicant may think that the declaration of a disease may not be material to policy issuance; the applicant may not clearly remember family medical history; the applicant could knowingly be suppressing the medical condition.
But the real question is what the Insurers have done to educate people about the importance of declaring their medical conditions honestly. Many times these products are being sold by the agents who fill the application on behalf of a client and do not put the declaration correctly to convert it into a sale. Why are insurance companies not doing sufficient medical checks at the time of policy issuance to weed out any risk which they do not want to insure? It is high time that the burden of declaring a medical condition by a policy purchaser is changed to the burden of the Insurer to do the medical check-up to pick the right customer.
How should you go about purchasing an insurance policy?
Having discussed the challenges in identifying the right Insurer/policy, listing a few basic criteria which you can use to purchase a policy
- Declare medical condition in the application as it is
- Pick an insurer/product with the following key features
- The hospital of choice should be within the network
- Less waiting period for pre-existing diseases
- Avoid policy with a limit on Room rent, ICU Rent and Proportionate deduction clause
- Less permanent exclusions
- Buy a combination of base and Super Top-Up policy to reduce the overall cost
- Buy the base and Super Top Policy from the same insurer to facilitate cashless experience across the products
Opportunity for Insurer
I remember the days when reaching on time was the biggest pain point in the Indian aviation industry. The Indigo Airline grabbed that pain point as their opportunity to differentiate from the pack. They came out with the slogan “Being on time is a wonderful thing” and internalized that in every aspect of their business model i.e. people, process and system to create the biggest success story of the Indian aviation Industry.
The poor claim experience is the biggest pain point of the Indian healthcare industry. Which Insurer is going to do an Indigo story for the health care sector? This is anybody’s guess.
You may also like to read Do we need an individual health Insurance policy in addition to the group insurance policy through work?
The writer is a SEBI Registered Investment Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. To know more about him, click on https://finmyn.com/about/.