Insurers float 2-year health plans

As customer retention continues to be a big issue among insurance companies, some general insurance companies such as ICICI Lombard, HDFC Ergo and Royal Sundaram General Insurance are offering auto renewal of health insurance policies by taking premiums of two years at one go.

Insurance experts say such an arrangement will not only help insurance companies retain customers for at least two years, but will also help reduce their service cost. Usually, health insurance schemes offered by general insurance companies have one-year term and they are renewed every year. However, life insurance companies offer health insurance-cum-savings policies that have five to 10 years’ tenure.

For customers, two-year policies have both advantages and disadvantages. The two-year policy comes at 10-20 per cent lower premium and the insurer cannot raise the premium in the second year if there is some major claim in the first year. One of disadvantages of these policies is that the customer cannot leave the insurer in the second year even if it is not happy with its service in the first year.

Karan Chopra, head of retail business at HDFC Ergo, said the company is offering two-year policies and that the premium in such policies are lower than in the normal case where the policies are renewed every year.

“In two-year policies, the premium is not increased in the second year under any circumstances,” he added.

Royal Sundaram confirmed that it is offering two-year health policies. ICICI Lombard executives could not be contacted for comment on the issue.

Yashish Dahiya, CEO of Policybazaar, said in case of two-year health policies the premium could be 10-20 per cent lower, besides there are no hassles of remembering the renewal dates.

“In such policies if we take a claim due to any health problem, the next year’s coverage and premium (prepaid) is not affected. In case of renewals of a normal policy, when a claim is taken in the first year, the next year’s premium is calculated with some loading charges included. There may also be a medical check-up required in certain cases, which is not required for a two-year plan. The medical condition that appeared during the first year will continue to be covered without additional charges,” he added.

Normally, every company has its age bands — 18-25, 26-35, 36-45 — for deciding premium amounts. The premium remains the same for all ages in the same age band. If a person buys a policy at the age of 34, the next year when he turns 35, the premium for the same policy both in case of renewals and new policy will be higher than the previous year as her age now falls in a different band. However, in case of a two-year policy, the premium doesn’t change.

This is especially beneficial in the case of people who are 44 years old. Normally, companies make medical check-up mandatory for people over 45. If the person buys a two-year policy at the age of 44, he can pull through another year without a medical check-up and can avoid possible loading charges.

Girish Batra, chairman and managing director of financial products distributor NetAmbit, said, “Such products are good for customers and we have been telling insurance companies (whose products we sell) to come out with longer-term health insurance plans. But so far the response hasn’t been very good from most of them,” he added.

However, there are a few disadvantages with such auto-renewal deals.

“The money is blocked for two years. Suppose you change your job where you get free insurance benefits from your new employers, you are not going to need your existing cover,” said Yashish Dahiya, CEO of Policybazaar.

Financial planner Anil Rego said, “You are stuck with the same company for two years even if you are not happy with the present company’s customer support or claims handling procedure.”

From insurers’ perspective, a two-year contract will reduce the cost of servicing, as it need not go to the customer asking for renewal again in the second year. “It ensures higher cash flow for the insurer and the cost of operations is also low for them, said Rahul Agarwal, CEO of Optima Insurance Brokers.

Online insurance sales

More and more life insurance companies are aggressively looking to sell policies online in an effort to make their operations more cost effective and keep a check on expenses. The Insurance Regulatory and Development Authority (Irda) has been sending reminders to insurance companies time and again asking them to tighten their expense management.

In order to encourage online sales, life insurance companies are offering various incentives to customers including policies at cheaper premium, easier and hassle-free buying procedures and instant verification. Some insurers have launched products to be sold exclusively through the online mode.

While Bajaj Allianz Life Insurance and Aegon Religare Life have launched products for exclusive online sales, companies such as ICICI Prudential Life, HDFC Life and Reliance Life Insurance have been offering their existing products for sale online.

Akshay Mehrotra, head, marketing, Bajaj Allianz Life, told Financial Chronicle, the insurer among the first life insurance companies in India to launch a unit-linked insurance policy – iGain – to be exclusively sold online. “The response to online sales has been so good that we have to create an entirely new vertical to handle the business generated from online sales,” he added. Bajaj Allianz’s Shield Plus plan is also sold online.

Aegon Religare Life’s iTerm Plan is also sold exclusively online. Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance, said the iTerm Plan is available for a premium that is 70 per cent cheaper than the one being offered offline. “Pricing is key to the popularity of online products besides the convenience factor. We have ensured that the process of buying online does not take more than 10 minutes and the customer get instant verification. For instant verification, we send the policy statement through mail once the buying procedure is over,” he added.
HDFC Life Insurance is offering its Ulips for online customers at a special discount of 40 per cent on the first and second-year allocation charges, allowing a larger part of the premium to be invested

It also pays back the first-year annualised premium through a bumper addition. For policies with a term of 11 years and more, the customer gets the entire annual premium base and for policies with a term of 10 years, he gets 50 per cent of the original annual premium as bumper addition.

An easier and hassle-free process is a great sales pitch for online products. ICICI Prudential Life, which is offering term, wealth, health and retirement plans online, claims to that a customer can buy insurance plans in four easy steps with minimum paperwork. HDFC offers products in five simple steps with no medical information requirement.

Abraham Allapatt, head of branding, Future Generali Life Insurance, which is going to roll out its online sales model in first week of May, said from the insurance company's standpoint also, online products have many advantages. “Online sales is a wholly-owned and controlled channel, it allows the companies to have direct contact with the customer, besides improving the efficiency of process and turnaround time,” he added.