Swapan Khanna, Co-founder & Director, MAGI Research and Consultants Pvt Ltd, is also the co-founder of i-save.com. An online customer centric portal, i-save provides its customers with information and content across various financial services and product categories. Prior to setting up i-save, Mr Khanna worked in a range of roles across corporate strategy, business planning, operations, project and change management with leading insurers and asset management companies.
MAGI Research and Consultants Pvt Ltd is a research and consulting company founded by insurance and financial services professionals. Promoted by MAGI, i-save.com provides information and analysis to enable customers to make informed choices on their financial requirements.
Replying to Dolly Mirchandani of IIFL, Swapan Khanna says, “With the healthcare sector being fragmented, there is a lack of adequate information about potential diagnosis, treatments and their costs. This has over the years resulted in overcharging by healthcare providers.”
Indians are so accustomed to risks that they consider risk as a part of life, and don’t feel the need to buy an insurance policy. What are your views?
Insurance is one such product that has been grossly underrated by Indian customers. However, trends in the last couple of years indicate that customers are slowly understanding the importance of risk protection, both for life and health insurance products, to secure their family’s future.
Risk coverage—both for health and life—should be an integral part of any individual’s financial portfolio. In absence of these, any financial plan, which may seem robust from a wealth accumulation perspective, will always be under threat of any unforeseen events.
Life insurance provides an individual with means to mitigate risks associated with occurrence of adverse events such as death, critical and/or terminal illness. A major reason why people should buy a life insurance policy is to provide financial support to their dependents in case of an unfortunate event. Life insurance can thus be used, amongst other things, to ensure:
- That your family can continue to lead their lives with a lifestyle they are accustomed to
- Your debts are paid off without adding an additional financial burden on your dependents
- Key events of your family such as children’s education and marriage are taken care of
- Similarly, health insurance protects you against rising healthcare costs and risk associated with unforeseen hospitalisation due to accidents or illnesses. Costs for treatment of an illness requiring prolonged hospital care can sometimes be fairly expensive and due care should be taken while choosing the adequate amount of cover that you should insure for.
Various studies point out that one in four women and one in five men are affected by critical illnesses such as heart ailments, cancer, diabetes or kidney related diseases before reaching the age of retirement. Some of these illnesses not only require high medical and hospitalisation costs to be met but can also result in loss on income and additional financial burden due to lifestyle changes. Health insurance helps mitigate some of the financial risks and uncertainties associated with such medical emergencies.
A lot of people continue to view insurance as a savings product. What should a customer look for while buying an insurance policy?
There are two risks that any life insurance plan helps to mitigate—risk of dying early and living beyond your earning years. Both risks have the potential to cause significant turmoil in your own and/or your loved ones’ financial well being. As said earlier, an untimely death can leave your dependents with loss of income (especially, if you are the primary earning member of the family) and can cause significant financial hardships. On the other hand, insufficient savings during the earning years can result in loss of financial independence during your post retirement.
Any individual’s financial planning should revolve around three broad parameters:
- Control over your current finances
- Saving for your future needs
- Protection against risks
The insurance type that best meets your requirements is largely dependent on the need you are trying to fulfil. If securing your family’s financial future is the primary need, then you should consider a ‘term’ plan. But if there is already adequate financial protection available for your dependents and your primary requirement is long-term savings for capital appreciation, available options under savings-oriented plans should be considered.
Do you think that health insurance is deeply affected by the fragmented, unorganised healthcare industry in India?
There is no doubt that the healthcare industry in India is largely fragmented and unorganised and this impacts the health insurance sector. The impact was recently brought to light when public sector insurers took the step last year to standardise rates for certain medical procedures and restricted cashless services only to hospitals that accepted these rates and price bands.
Hospitals that accepted these rates became part of the preferred provider network (PPN). With the healthcare sector being fragmented, there is a lack of adequate information about potential diagnosis, treatments and their costs. This has over the years resulted in overcharging by healthcare providers.
In an unorganised framework, without any standardisation in terms of examination, treatments and costs, the potential of controlling costs is limited. There is usually excessive treatment by the providers and potential overcharging that result in higher bills than required leading to huge claims to insurers.
Such experiences coupled with the administrative burden of managing a vast network of healthcare providers adds to the cost of insurers which results in higher premiums. Absence of an organised healthcare sector also results in insurers offering products with higher number of exclusions or at times not having enough transparency in the products to control their costs/claims ratios.
What is a critical illness cover? Does it make sense to buy critical illness cover in addition to a health insurance policy?
Critical illness cover is an insurance product that pays a benefit on the diagnosis of certain specified critical illnesses. The diseases covered under such plans vary from one company to another but most plans cover ailments such as heart attacks, cancer, bypass surgery, kidney failure, etc. These plans are different from your usual health insurance policies:
Health insurance plans will cover your hospitalisation and medical expenses due to any illness or accident. While, standalone critical illness plans or riders cover only the diseases specified as part of the contract.
Both health insurance as well as critical illness plans are bought for a specified sum assured (the maximum benefit payable by an insurer) and are typically sold for the duration of one year and need to be renewed every year.
In case of health insurance, you will be covered for any medical treatment or hospitalisation expenses as long as they are within your sum assured limit and the policy can continue for the remaining part of the year with a reduced cover (sum assured minus expenses claimed).
On the other hand, your critical illness will pay you the entire sum assured once any of the specified diseases are diagnosed. You are then free to utilise this amount according to your financial needs which could be a lot more than those just related to hospitalisation.
The expenses associated with life threatening ailments are not just restricted to hospitalisation. There could be financial needs associated with lifestyle changes required, continued treatment post hospitalisation as well as the reduction in or loss of regular income. Health insurance policies primarily cover medical and hospitalisation expenses only and do not usually cover post hospitalisation expenses beyond a certain number of days. Since the benefit under a critical illness policy is paid out as a lump sum amount, it gives you the flexibility to manage these additional requirements without hampering your savings.
The best combination would be to buy a health insurance policy and top it up with a critical illness plan. This helps you meet your hospitalisation expenses for both critical illnesses or even other diseases/accidents through the health policy and can provide you with a meaningful financial protection you may require in case of a critical illness.
Make sure you take an adequate amount of cover keeping in mind the rising costs of healthcare. The amount of cover should not only be enough to provide reasonable financial help when it is needed most but should also be affordable.
According to the IRDA’s latest circular, policyholders surrendering their pension plans will have to take annuity from the same insurer. Will this help policyholders?
The recent circular issued by IRDA clarifies that any surrender of pension plans will have to comply with ULIP (unit linked insurance policy) or traditional plan surrender norms, as applicable. Thus, there will be no surrender charge applicable if a ULIP is surrendered after a lock-in period of five years. The circular, however, further clarifies that this surrender amount will have to be used to purchase either a single premium deferred annuity or an immediate annuity product from the same insurer from whom the original pension plan was purchased.
The restriction of having to purchase an annuity from the same insurer from whom you bought the pension plan takes away from you the choice of better options provided by other insurers. Such a restriction is not in the customer’s interest and reduces the insurer’s need to price its annuity plans as competitively as would have been required in the absence of such a restriction.
Many health insurers are in the process of launching insurance policies that cover alternative forms of treatments? What are some of the factors investors should keep in mind while going in for such policies?
Health insurance covers have traditionally not covered alternative treatments such as ayurveda, homeopathy, etc. However, in recent times, a few insurers have been offering such covers as part of their group plans and players like Tata AIG cover alternative treatments in their product Mediprime subject to certain sub-limits.
The move can be considered as a welcome trend in a country where alternative forms of medicine have perhaps their biggest market and acceptance. Policyholders should bear in mind that these covers come with applicable limits and should also examine the exemptions on these covers.
IRDA has proposed to establish a separate channel to address health insurance-related claims and grievances of senior citizens. Is this going to add to the cost of insurers who would pass it to the customers in form of higher premiums?
The recent proposals by IRDA as part of their exposure draft on health insurance have the customers’ interests as the central guiding principle. These draft guidelines which include lifelong renewability, higher transparency and more flexibility to the customer in addition to the proposal to have a separate channel for senior citizen claims and grievances are bound to boost customer confidence and can potentially go a long way in increasing coverage over time. While some of these proposals may result in additional costs in the short term, the market will find its optimal levels of pricing with increased levels of standardisation and higher levels of efficiency that come with scale.