Health Insurance Portability

IRDA in its recent circular approved the portability of health insurance, allowing the customers to carry forward all the benefits of health insurance of previous policy to the new policy with different insurer.  This is really a good news for all of us, since choosing any particular health insurance is anyway an onerous task.

What exactly is portability?

To understand the benefits of portability, it is important to understand “what are the benefits health insurers provide for renewing the policy with same insurer”?

1. Waiting period of pre-existing illness: Most health insurers in India have a waiting period of 2-4 years for inclusion of pre-existing illness. So if you take a policy today, expenses related to any pre-existing illness will not be covered till you continuously renew the policy for next 2-4 years.
2. No claim bonus: Most health insurers offer a no claim bonus of 5-10% (discount) on the premium if you continue with the same insurer and have not made any claim for any medical expenses. Some insurers have introduced this discount on premiums irrespective of claim status.
3. Initial waiting period after policy starts: Most insurers have a waiting period of 1-3 months when the policy comes into force, during which time only the accidental expenses will be covered but no other medical expenses can be covered. This waiting period does not exist if you re-new the policy with the same insurer.
4. Waiting period of coverage of certain exclusions: Some insurers have a waiting period of 2-4 years for specific illness or for senior citizens. As an example, stone in kidney or cataract are excluded for 2-4 years if a senior citizen starts a new health insurance policy.

In essence, these are the benefits of remaining loyal to the same insurance company. In the current scenario, these benefits are lapsed if you try to switch to another insurance company, which is unfair as far as customers are concerned.

Why customers want to switch from one insurer to another?

There are several reasons why a person may want to switch to another insurer:

1. Poor Service Record: This is the most common reason for switching to another insurer.
2. Premium amount saving: Another insurance company may provide higher sum assured at lower premiums than the current insurance company.
3. Specific coverage: The other insurance company may be providing coverage of any specific illness which the current insurance company is not providing. As an example, most personal health insurance policies does not provide cover for maternity expenses but Max Bupa policy provide that cover after a waiting period of 24 months.

So, IRDA plans to ensure that if a customer is not happy with his current insurance provider and wants to switch to another insurance provider, all the benefits accrued for continuing with the current insurance provider will remain intact and can be carry forward to new insurance policy. For example, if your current insurance policy has a waiting period of one year for pre-existing illness and if you switch to a new insurance company with new policy that has a waiting period of two years for pre-existing illness then with portability in place, you only have to waiting period of one year in the new policy for the pre-existing illness coverage. 

Issues with portability

The portability concept is definitely good for disgruntled customers but I think that it does come with some issues:

1. The credit for the waiting period is limited to the sum assured under the previous policy. So for example your existing policy has sum assured at 2 lakhs and if you want to take up new policy of sum assured at 5 Lakhs with a different insurance company, the credit will only be applicable for the 2 Lakhs basis. This calculation can be very confusing for end customers.
2. It will be a huge task for the end customer to find another policy that has all the benefits of his existing policy and some more at the same premium rate to motivate for a switch. For example, if a person wants to switch to insurance company B from insurance company A, say due to lot of paperwork and poor service related to claim settlement, he needs to ensure that insurance company B not only provides good service but also has similar benefits (similar coverage etc) of the policy as provided by company A. If that is not true, there is no point for making the switch.
3. I believe that most insurance companies will close older policies and bring new policies to ensure that they do not loose due to the new portability rules from IRDA. This is because the entire concept of waiting period  came from the fact that companies wanted to retain their existing policy holders. This waiting period is typically useful in cases where the company increases the premium rates but the end customer has no choice to move to another insurance company since otherwise he would loose all the benefits. But with portability, most insurance companies loose this advantage. Hence, I think the policies will be changed. 
4. There would definitely be cases where the current insurance companies will be reluctant to let the customer make a switch and may cause operational delays or may cause policies to expire due to variety of reasons. This may result in increase of complaints. [Similar thing has been observed in mobile number portability]
5. Some insurance companies may try to ask customers to use credit cards to renew their policies. The trick is that in the “Terms and Conditions” section (one of the rarely read part) it could easily add a clause to give the right to the company to renew the policy (say one month before expiry) by charging the credit card automatically. This is typically done by web-hosting companies. This ensures that onus of cancelling the renewal payment lies with the customer who in majority of cases will forget the policy expiry dates.

I do think that portability game will bring some standard into the health policies and it will be easier to compare them but it will also bring some of its own issues.