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.