Short-term Covid-19 Policy: Pricing, Unpredictability Key Challenges For Insurers

The decision of the insurance regulator to permit specific, short-term health insurance products for Covid-19 treatment is timely. It will go a long way in providing relief to scores of people who are now worried over the financial implications of the dreaded virus.

The Insurance Regulatory and Development Authority of India (IRDAI) had on Tuesday framed guidelines for short-term health insurance products for Covid-19. According to the guidelines, insurers can now offer cover against Covid-19 for a minimum period of three months to a maximum of 11 months.

Optional covers that enhance health insurance coverage are permitted to be offered for the same duration, but no separate add-ons are allowed.

General insurers and health insurers are now allowed to offer both indemnity-based and benefit-based short-term health cover. Life insurers, however, are permitted to offer only benefit-based policies. They could be both individual and group products.

Uncertain situation

With over 4.5 lakh Covid-19 cases active, and the number growing at an alarming rate, providing insurance cover to the general public is the ‘need of the hour’, observed by the IRDAI.

However, as insurers are now working on designing the products to file for necessary approvals, some key challenges remain.

“At the outset, we are fighting an enemy without any knowledge about its strength. Given the wider possibilities of community spread, I will have to be very cautious before jumping to offer a short-term policy for Covid-19 in view of possible financial implications,” the CEO of a private insurer told BusinessLine.

This line of thought actually sums up the way forward for insurers. Pricing of any insurance product will have to be decided on the basis of actuarial calculations. But there is no tangible data for insurers as far as Covid-19 is concerned.

Pricing problem

The pricing will have to be low given the short-term nature of the product and the affordability issues. As per certain indications, the premium could be in the range of ₹500-5,000, as the IRDAI has permitted optional covers that enhance the health insurance coverage.

If the sum assured is between ₹50,000-5 lakh for a period of 11 months, the cost of Covid-19 treatment in private hospitals as seen today is almost double in many cases, and insurance may only cover a part of the expenses.

Insurers will also have to factor in the reinsurance factor in the pricing. The main worry for insurers is the adverse financial implications of Covid-19 policies, if there is a flood of claims going forward.

The integration of existing health policies with Covid-19 cover is also key, even though its now clear that all health insurance policies will cover the virus.

Notwithstanding these challenges, Covid-19 cover is an urgent social need for the common man which has to be provided given the socio-economic fabric of the country.

It remains to be seen how insurers will address these hassles, as the product has to be made available by June 30.