Life, health… or both?

Life insurance companies are now gearing up to venture into health cover. But are they “fit enough” to meet the expectations of the health insurance sector?
In the past, general insurance companies failed to make health into a successful portfolio due to various factors such as limited focus on life-related products, less commission compared to other products, comparatively more demanding, higher claims r atio, and problems with hospitals/doctors. In comparison, life-insurance companies have been more successful with the critical illness rider portfolio, though this business belongs in a different league compared to health insurance. While the critical illness rider is usually a one-time payment, health insurance means a long-term relationship besides involving many players.

Cross-selling
Life-insurance companies hope to sell more health policies by tapping their existing customer base. The question is if this will work.
On the positive side, it will help to standardise the underwriting procedures and also set up quality process standards for both the life and general insurance sectors.
But if life-insurance companies are allowed to sell health insurance in the current framework, many new problems might crop up.

The problem areas
Currently, most life-insurance policies are sold through agents and a majority of them do not record the policyholder’s health facts. Though the insurance industry regards agents as the primary underwriters and empowers them to weigh the potential hazards — moral, financial, physical — many a time the agents, who are anxious to achieve their target, fail to record all the facts.
Ultimately, it is the customer who faces the problems for misrepresenting his health status. This may have serious implications only in cases of early claims.
But when it comes to health insurance, most claims face rejection. Moreover, policyholders who have both life and health policies with the same insurer or its subsidiary run the risk of misrepresentation in the life-insurance policy, as their health insurance claim would reveal the true state of affairs.
As most life insurance companies have an integrated data warehousing system this is very likely to happen.
The net result is that existing life insurance policyholders may want to think twice before going in for health insurance with the same insurer.
Besides, life-insurers will bank only on the Third Party Administrator (TPA) network. Hence, the supply chain management will lack an innovative process compared to the general insurance companies. Already, there is a lot of criticism about the TPAs and the way claims are processed.
Life-insurance companies also run the risk of losing their loyal customers due to the rejection of claims in the health insurance portfolio. Far from ‘cross-selling’, this may lead to ‘cross-lapsing’.
There is enough evidence to prove that the cross-selling concept, based on mere customer base statistics, may not work very effectively.
For example, when the State Bank of India entered the life-insurance business with its 13,000-plus branches, pitted against the 2,000-plus branches of the behemoth Life Insurance Corporation (LIC), it was thought that SBI Life would give tough competition to LIC due to its brand image and rural reach.
But even after eight years, this has not happened.Though the Insurance Regulatory and Development Authority allowed agents of any insurance company to work for standalone health insurance outfits, there has been no visible impact, yet. The expectations from the loyal customers of life-insurers such as LIC will be too high in terms of the strength of network hospitals, claim procedures, etc. As most companies have both life and general business as separate entities, health insurance — the common portfolio for both — may lead to horizontal conflict among companies. In the post-tariff regime, general insurance companies were somewhat liberal with the health insurance portfolio in terms of underwriting and claims, as they could offset the losses in health insurance with profits from other lines of business. With competition creeping in due to de-tariff regime, general insurance entities are facing a lot of pressure in the health insurance portfolio.

Tackling issues

What is the solution?
financialexpress
Let life-insurance companies start with simple products before strengthening them.
For designing the products, companies should analyse their portfolio and the segments they are already covering. Going in for stereotyped products may not help.
Let these products be positioned in between the critical illness rider products and full-fledged health insurance products.
Award discounts for loyal life-insurance customers and provide slight relaxation in the health insurance portfolio conditions. Now it may be the turn of the life-insurers to offset the loss. But this should be done because it is a soci al objective; there is an imminent need to expand the base.
Health insurance was neglected in the past leaving millions of people without cover. For example, a person may be paying Rs 25,000 premium for life insurance for the past 10 years, but not even Rs 1,000 towards health insurance. The main reason for this is the lack of proper information.
Trigger re-engineering at all levels — IT, workflow, and business.
Above all, why not pool the health insurance departments of life and general insurance companies (for those with both forms of insurance) and create a health insurance company? Now the regulatory climate is more conducive in terms of c apital requirements and other support requirements.

Article By: S. Jayaprakash (Insurance consultant at i-flex)