NEED FOR HIGH SUM INSURED IN HEALTH INSURANCE

The Government of India has recently announced Rs.5 lakh sum insured for the poor. So, it is time for insurers and intermediaries change traditional mindsets and gear up to offer high sum insured to make qualitative change in the Indian health insurance scenario.

POSSIBLE SETBACKS IF SUM INSURED IS NOT HIGH

A sum insured is the basis on which a claim is paid. If the sum insured is not sufficient, then there are many setbacks to proper health coverage. Some of these are:

1.           If the sum insured is low, the chance of reimbursing all costs of treatment in case of a major illness is low and leaves the insured with sudden major out of pocket burden, which can be the cause of unbearable hardship to the insured.

2.           If there has been a previous claim and realizing the risks faced, if customers wish to raise the sum insured, insurers are likely to refuse raising the sum insured to a substantially higher level, because of the possibility of adverse selection. This is true even if the past disease is fully cured.

3.           There are hidden or silent sublimits or restrictions in many health insurance policies. These will bite hard, if the sum insured is low.

4.           In case there is a recurrence of illness, sum insured may have run out in the first claim itself.

5.           Some insurers offer sops such as reinstatement of sum insured, but often the raise is short term not for the same disease or treatment.

6.           If there has been a history of claims any rise in sum insured will normally be refused.

WHY HIGH SUMS INSURED ARE REQUIRED?

1.           Health Insurance is to be taken for life, even though the policy is annual. There is a high rate of inflation in medical costs of treatments owing to various factors. Therefore, a reasonable sum insured today becomes highly insufficient after a few years. It is unlikely that insurers will permit a large sudden increase in sum insured. There are obvious risks in permitting such increase. So, at the initial stage itself take or encourage taking a very high sum insured.

2.           Critical illness treatments and high cost surgeries are on the rise and needs high sum insured. So also, costs go up as insureds seek specialised or high technology treatments in super speciality hospitals.

3.           Everyone ages every day. So, a sum insured which looks sufficient when young will not look sufficient when a person gets old. Moving from low sum insured when young to high sum insured when old is not something insurers favour on principle.

4.           By taking high sum insured more benefits such as many addons may be offered by the insurer.

FACTORS TO BE CONSIDERED WHEN CONSIDERING SUM INSURED

1.           Individual Policy – The sum insured should be reasonably high.

2.           Family floater Policy – it should normally be a high sum insured for each individual multiplied by the number of family members, because there is a premium moderation in family floater rates as it is.

3.           Group Policy – it should be ensured that the sum insured is as high as possible per member – there is a right of migration when a person leaves the group. This has to be protected. If the employer cannot take a high sum insured, the employee can pay the premium though the group for the balance sum insured which an employee may opt for.

4.           Multiple policies – it is possible to have multiple policies in more than one company. The total sum insured should be high.

5.           City where one lives – the medical cost index of some cities is high. People taking policies for treatment in the city will need very high sum insured.

6.           Type of hospital – Depending on the type of hospital usually utilised, the sum insured should be taken. Government and charitable hospitals can have lower costs. Secondary level treatment hospitals also will have lower costs. Specialities and super-specialities can have very high costs and the sum insured needs to be very high.

7.           Age – As the age goes up, treatments will also become more complex and diseases may be of such type that more expenses will add up. However, in insurance, companies will not encourage anti-selection. This means that one cannot play with sum insured on a need-based manner. Hence it is better to have a high sum insured from the beginning. Insurance is about uncertainties and hence one cannot rule out high cost treatment at any part of life. The premium per unit of sum insured at younger age is usually much lower when young.

BENEFITS FOR THE INSURER

1.           For insurers a high sum insured offer a more attractive proposal, so long as the proposer is in good health as on the date of the policy. Low sum insureds get exhausted even when the treatment is for an ordinary disease. In addition, the cost of servicing the policy of low sum insured is dis-proportionately high and the insurer may not get any margin from such from such policies.

2.           Health Insurance is a frequency risk. This means that there are too many claims per 100 persons insured and in such a situation, the profitability of health insurance is eroded, if the premium pie is low which happens when the sum insured is low.

3.           Low sum insured policies may actually make a loss for the insurer as many actuaries estimate. So, they should be offered only as a social welfare measure. Now that the government itself is offering high sum insured for the poor, this reason is not valid any more.

4.           When the sum insured is high, insurers can offer various add-ons, including various wellness benefits, health maintenance and palliative benefits.

5.           Insurers can moderate their punishing limits of co-pay and deductibles, which bite low sum insured very hard.

6.           Customer get more attractive rates per unit of sum insured and adverse selection fears go down when they approach the insurer for upward revision of sum insured.

To know more about Health Insurance read the Book: UNDERSTANDING INSURANCE OF HEALTH by the Author available at amazon.in