1. 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

2. 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

3. 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

4. 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

5. 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
Source: IRDA Annual Report 2016

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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.)

12. 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

13. 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

14. 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%

15. 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

16. Thank You