Will colour-coded health insurance policies ease buying for customers?

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The insurance regulator’s proposal to colour code health insurance policies may be a welcome approach, but a few kinks will need to be ironed out before the plan can become effective.

In yet another proactive move, the insurance regulator, Insurance Regulatory and Development Authority of India (Irdai), has come out with a proposal to segregate health insurance plans with colour coding and has asked the insurers for their feedback. In an attempt to “make product choice easier for the customer”, Irdai has suggested that all individual health plans by health and general insurers be accompanied by a diagramatic representation of colour coding.

“It is meant to address the complexity of the product. Most dissatisfaction among customers and denials of claims are due to lack of understanding of the policy terms and conditions. Colour coding can help a person choose a suitable product,” says Dr S. Prakash, Managing Director, Star Health & Allied Insurance.

What is colour coding? All individual health plans will be allotted three colours— green, orange and red—to indicate the level of complexity of the product. The colour shall be decided on the basis of scores, which shall be on a scale of 0-6, and the scores will be assigned on seven parameters
(see graphic). These include cover options, waiting period, deductible, co-pay, sub-limits, exclusions and terms & conditions, and all will be given an equal weightage of 14.28%. So if a health plan has four optional covers, it will have a score of 2.4 (0.6 x 4); and if the co-pay of the plan is 10%, it’s score will be 1.5 (0.3 x 5).

Parameters for scoring
Scoring will be based on seven parameters, each of which will be given a weightage of 14.28% and scored as follows:
1. Number of months of waiting period
0.15 score for every month of waiting period.

2. Deductible
0.3 score for every 1% of deductible.

3. Number of optional covers
0.6 score for each optional cover.

4. Percentage of co-pay in the product

0.3 score for each 1% rise above 5% of co-pay.

5. Number of treatment procedures / diseases under sub-limits
0.6 score for every illness that has a sub-limit.

6. Number of permanent exclusions
0.6 score for each permanent exclusion.

7. Simplicity of terms & conditions
0.1 for each definition, term, exclusion other than the standardised ones.

All scores shall be subject to a maximum of 6 points.

The weighted average score of each parameter will be calculated by multiplying each parameter score with its weightage of 14.28%. These will then be added to get the final score of the product on a scale of 0 to 6. The products with scores of 2 or less will be simple and green in colour; those with scores of 2-4 will be moderate and orange in colour; and those with scores of 4-6 will be complex and coloured red.

Will colour coding help? The new approach can be of help in the rural and semi-urban areas, where the penetration and knowledge about health insurance is abysmal. It will not only promote ease of buying but also prevent misselling, while helping the insurers further simplify their products. However, the concept may need to be finetuned further and several kinks ironed out before it is offered to the customers. For one, the seven parameters may not be fully representative of the product and the company. For instance, these do not include the serviceability or reach of the company, it’s claim ratio, premium loading, among others. Also, colour coding is only applicable to individual plans, not group plans. Besides, there are various other types of plans which may not garner appropriate scores on account of their format and structures. So the customer may have to wait till the final guidelines are specified before deciding on the utility of the concept.

Renewability, portability & migration of Corona covers

Catering to another customer need, Irdai issued a circular on 13 October 2020, allowing customers to renew their existing standard Covid-specific health plans, Corona Kavach and Corona Rakshak, or even migrate (switch plans with the same insurer) or port (switch plans with a new insurer) to other plans.

The standard plans are available in three tenure options of 3.5 months, 6.5 months and 9.5 months. In bringing out these plans, Irdai’s intent was to offer protection against Covid to those who had no insurance at all. But with the pandemic showing no sign of phasing out, the customers who had bought these plans will now have the option of continuing to be insured by either extending the term or moving to a more comprehensive health plan from the same or a new insurer.

“Since the pandemic does not seem to be ending and there is no vaccine in the market yet, the regulator has allowed the insurers to provide continuity to the coverage, which was not allowed earlier,” says Gurdeep Batra, Head, Retail Underwriting, Bajaj Allianz General Insurance. The accrued benefits of the standard plan will be carried over to the renewed or new plan. However, if you already have a Corona Kavach plan, it will make sense to move to a more comprehensive plan that offers a wider protection against a range of diseases instead of renewing the existing one. “The disease-specific plan can never be a replacement for a comprehensive plan, and if affordability is not an issue (since bigger plans come at a higher premium), one should consider buying a comprehensive plan,” says Prasun Sikdar, Managing Director & CEO, ManipalCigna Health Insurance.

“One can also consider migrating to the more comprehensive Arogya Sanjeevani plan as it costs less,” says Dr Prakash.

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