A group of GI actuaries, part of the IFoA's Covid-19 Action Task Force, have been trying to identify changes in exposures and claims experience and their potential impact on reserving. This blog looks at the impact on the health insurance market in India.
Insurance penetration in India is about 3.7% of the country’s GDP. Although this has been increasing steadily in recent years, it is still about half the global average. Over the last five years, the insurance sector in India has been growing at a robust pace of about 10-12% and predictions were that this trend would continue into 2020. However, since the pandemic struck and lockdowns came into place, there has been a growth of only 1.39% in the six-month period ending September. Nearly 30% of all non-life premiums in this period are from health insurance which typically covers hospitalisation expenses and may include critical illness as an option. Traditionally Motor has been the largest contributor to premiums, but this year the period from April – September saw the rising demand for health insurance propel it to the number one spot.
The pandemic has impacted the Indian insurance market in several ways, one of which has been a rising awareness of, and demand for, health insurance. A recent survey in a national daily, The Indian Express1 showed that the number of people interested in buying health insurance had shot up to 71% from around 10% in the previous year largely because of the pandemic. Insurers have responded to this increased demand with a number of Covid-19-specific products. The regulator too has stepped in and issued guidelines for two products with standard wordings and benefits that cover Covid-19. It has mandated that all non-life insurers should offer the cover. These have become the hottest products in the last few months as admitted by the chairman of IRDAI (the regulatory body in India) and later quoted in a leading financial daily, The Economic Times2, estimating that the market for these has gone up from INR 1.5 million (approx. GBP 15,000) to INR 11 million (approx. GBP 110,000) and 6 million lives have been covered so far.
Although attitudes towards insurance in general and health insurance, in particular, have been changing and there was already reasonable growth in the health insurance sector, one important question is “How long is this likely to continue?”
Much of the growth in health premiums in the early months of the lockdown, was due to employers renewing or purchasing cover for their employees. There were some employers, especially in the essential products and services industries, who took out group policies as an incentive to encourage employees to return to the office when lockdown restrictions slowly began to unwind.
In the retail health segment, demand for Covid-19-specific policies was spurred when media reports began to surface regarding exorbitant treatment costs. Rising insecurity due to news of job losses also had many people looking for comprehensive health policies. The Covid-19-specific products are very short term, 3- 9 months or at most annual. Once the infections begin to decline and normalcy returns, how many of these policyholders are likely to renew or purchase fresh cover is uncertain.
Economic recovery is also another important factor that would determine if health premiums are affordable and hence if this demand is going to be sustained.
India’s insurance regulator had early on instructed insurers to admit Covid-19 claims in all active health policies, none of which had a pandemic factored into their price. Although the country has had about 8.4 million confirmed Covid-19 cases, only 6% amounting to 0.5 million of these have resulted in health insurance claims. These half-a million claims have amounted to INR 77 billion5 (approx. GBP 0.77 billion). Nearly 40%3 of all health insurance claims were Covid-19 claims in September 2020. This number has been creeping up in the months since the first few cases were detected, from 8% in May, 23% in July and 34% in August 3. Claims frequency in health insurance has nearly doubled from the previous year from 8% to 15%.
For Covid-19 claims, there has been considerable variability in the claim costs between government and private hospitals, the methods of treatment (home isolation or hospitalisation, oxygen support, ventilators or plasma therapy), capping/ sub-limits for room rents and whether costs of PPE kits are included. Although there have been differences in what has been covered, there is now a move to standardise billing for Covid-19 claims in terms of what is, or is not, paid. Most young and healthy people getting infected with Covid-19 are not getting hospitalised in India. The majority of Covid-19 hospitalisations are for elderly people with co-morbidities, which generally results in high claim amounts. Thus, compared to the normal flu, Covid-19 seems to have a longer time to recover with a small proportion of survivors having long-lasting systems and requiring further hospitalisation and care. This adds to the uncertainty in estimating claims severity for Covid-19.
Earlier this year as infections began increasing and healthcare systems came under stress, most elective procedures were postponed which led to fewer claims at that time. However, in recent months, these delayed procedures have resulted in claims. In some of these cases, the delays have led to health complications leading to longer hospitalisation and higher claims cost.
There has therefore been a general increase in claims severity from INR 160,000 to INR 200,000 under health policies for both Covid-19 and other claims.
Medical inflation in India in 2018-19, according to various estimates published in reports by government and private sector companies was between 7.14% to 10% and insurers have been known to increase rates by 15% - 35% every 2-4 years to adjust for medical inflation. This is one area that the pandemic has significantly impacted and post Covid-19 renewals are costing anywhere from 5-200% more. The wide range for price increases reflects the practice of pricing by age bands rather than by exact age. The increase is sharp when an individual moves to the next higher age band. The increase is also steeper for those above 50 and people with comorbidities.
The rate increase is partly because of increased healthcare costs that have resulted from the shortage of beds, equipment and staff and additional costs of sanitisation due to rising number of Covid-19 infections. Another factor is the widening of cover to include mental health, some genetic disorders, congenital diseases, artificial life maintenance and standardisation of exclusions which are new regulatory requirements.
The pandemic has created a number of challenges for actuaries working in non-life insurance in terms of changing exposures, spikes in frequency and severity in some classes, reporting and settlement delays and the possibility of court awards. Specifically, for the health insurance sector in India, there has been a sudden increased demand in health insurance policies causing a sudden increase in exposure that may or may not last beyond the pandemic phase.
Claims frequency and severity have both shot up in this year for both Covid-19 and non-Covid-19 claims. Medical inflation which has always been significantly higher than retail inflation has increased further and consequently premiums have risen too. There are now a number of tests and treatments being offered at patients’ homes and tele-consultation is becoming more commonplace in Covid-times. If these trends continue in the future, they may push down costs as well as increase access for patients.
A positive development has been the increased awareness among individuals of the need and benefit of having the right kind of health insurance. Insurers have also adapted to changing times and needs with disease-specific policies, customisable covers, a focus on wellness and an increased digital presence. Only time will tell if these will result in higher and sustained health insurance penetration.
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