Indian Actuarial Profession Serving the Cause of Public Interest 28th India Fellowship Seminar Group vs Individual Health Insurance - Challenges with Claim Experience and Underwriting Guide: Joydeep Saha Presenters: 1 Jinal Shah 2 Hemant Mundhra 3 Mohit Sehgal Date: 9th & 10th November ‘17 Mumbai Indian Actuarial Profession Serving the Cause of Public Interest

Agenda Health Insurance Products and Indian Market Statistics 1 Group Health Insurance - Features 2 Group Health Insurance - Underwriting 3 Individual Health Insurance - Features 4 Individual Health Insurance - Underwriting 5 www.actuariesindia.org

Long-Term Care Insurance Health Insurance Products Not existent in India Limited Penetration Critical Illness Personal accident cover Mediclaim / PMI Major market share Indemnity Based Fixed Benefits Long-Term Care Insurance Income Protection www.actuariesindia.org

Indian Health Insurance Market – GWP Statistics GWP Breakup By Insurers (FY15-16) Health Insurance Business is dominated by Public Sector Undertakings (PSUs) Standalone health insurers, in spite their small number, have a notable market share GWP Breakup By Line of Business (FY15-16) There is a fair split of individual and group business, with slight dominance of group portfolio Source: IRDA Annual Report 2016 www.actuariesindia.org

Indian Health Insurance Market – Claim Statistics Claim ratios in group segment have been increasing over last few years This is driven majorly by market competition Claim ratios in individual segment have been decreasing over last few years, mainly due to Increasing share of private players Upward price revision across the industry Increase in new business volumes www.actuariesindia.org Source: IRDA Annual Report 2016

Group Health Insurance - Features Mostly employer-employee groups Flexible and Comprehensive Typically covers in-patient treatment, out-patient treatment, maternity covers, etc. Cover commences from day 1 No exclusions, generally “Actively Working” criteria enough to provide coverage www.actuariesindia.org

Compulsory Enrollment Group Health Insurance - Underwriting Underwriting in group health insurance business is very liberal and generally no medical underwriting is done Homogenous Groups Compulsory Enrollment Experience Rating www.actuariesindia.org

Group Health Insurance – Challenges in Underwriting Voluntary Options Individual employees may have optional benefits like cover for family members (Parents, Dependants or children), dental treatment, etc. Exists mainly because employers wish to control costs Issues of anti-selection www.actuariesindia.org

Application of Sub- Limits Group Health Insurance – Challenges in Underwriting Voluntary Options Theoretically, waiting period and exclusions could be used as a solution to this problem. However, these do not work due to commercial considerations. Practical solutions that insurers are trying to implement include: Out of Pocket Expense Application of Sub- Limits Lock-In Period Commitment from client to stay with insurance company for a minimum period (say 3 years) Co-Pay Deductible Different ways of limiting claim cost www.actuariesindia.org

Group Health Insurance – Challenges in Underwriting Small and Medium Enterprises (SMEs) Final pricing decisions depend on company’s philosophy Difficulties at renewal stage as well Market may not allow to make technical pricing decisions Reliance on company’s overall experience SMEs have usually very small group sizes – 50 members, 100 members, few claims Require large group size and claim size for credible statistical analysis Group pricing should ideally be driven by past claims experience www.actuariesindia.org

Individual Health Insurance - Features Bought by individuals for self or family Priced using Individual Rating Factors like age, Sum Insured, location Life time renewability Typically covers in-patient treatment, out-patient treatment, etc. Generally have exclusions (Pre-Existing Diseases, Specific Illness waiting period etc.) www.actuariesindia.org

Voluntary Cover  High risk of Anti Selection Individual Health Insurance - Underwriting Voluntary Cover  High risk of Anti Selection Moratorium Underwriting: - Waiting Period for Pre Existing Diseases - Waiting Period for Specific Diseases - First 30 days waiting period (Except accidental emergency) Medical Underwriting: - Higher ages - Higher Sum Insured - Disclosure in proposal form www.actuariesindia.org

Individual Health Insurance – Challenges in Underwriting Worsening of Claim Experience with Increasing Duration Increasing Policy Duration  End of Waiting Period and Exclusions Natural Progression of body and subsiding effect of underwriting Selective lapsing of healthy lives Increasing claim cost due to medical inflation, medical advancements, changes in lifestyle, etc. Inability to differentiate premiums for new business and existing business www.actuariesindia.org

Individual Health Insurance – Challenges in Underwriting Worsening of Claim Experience with Increasing Duration Model assumes no price revision with regards to experience New Business growth rate is assumed to be 40% Y-o-Y during first 3 years and 20% Y-o-Y thereafter Persistency is assumed to be 60% for year 1 and 80% thereafter Year Claim Ratio 1 40% 2 45% 3 65% 4 70% 5+ 75% www.actuariesindia.org

Potential Solution and Challenges PROBLEM The extent of increase in claims ratios will depend on interplay of the three factors: New Business Growth Renewal Growth Selective Lapsing SOLUTION Given that claim experience is expected to deteriorate each year with increasing duration, RE-PRICING should be done PERIODICALLY, if not every year. CHALLENGE Ability to increase premium will depend on: Commercial position (Competition, NB Growth, Renewal Growth) Regulatory Challenges www.actuariesindia.org

Thank You www.actuariesindia.org