The underinsurance problem

Even as the awareness on importance of insurance in general, and health insurance in particular is on the rise, a study by a health insurance provider in India has found that over half of policyholders do not have adequate cover. According to Apollo Munich Health Insurance, 51% of health insurance policyholders in India have purchased low sum insured health insurance policies, which would not suffice in case of medical emergencies.

"Underinsurance is a sombre problem as it not only results in increased stress and sudden out-of-pocket expenditure for policyholders during times of medical exigencies, but also gives them a false sense of assurance of being covered," said Antony Jacob, chief executive officer, Apollo Munich Health Insurance.

According to Mahavir Chopra, director-health, life and strategic initiatives at Coverfox.com, an online insurance broker, around 20% of the population is covered today with some health insurance. This includes government-backed programmes such as Central Government Health Scheme, employee group programmes and retail health insurance. "Every country has looked at health care and health-care financing differently. For instance, China has 95% penetration of health insurance, although the coverage of the population through government schemes is inadequate," he added.

Although the number of health insurance policyholders in India is increasing, people most often choose the lowest-sum insured policy. Some of the reasons are: lack of awareness about how to pick the right sum insured, overdependence on corporate health insurance coverage and willingness to pay a premium that is only up to the highest limit of deduction under section 80D of the income tax Act. "People must understand that health insurance is not just a tax-saving tool, and therefore be mindful while choosing a sum insured for themselves and their family," said Jacob.

Another factor that leads to low penetration of insurance and underinsurance is low confidence among consumers regarding both insurance and insurers. "Honestly, the health insurance products available in the market today are built with the assumption that an adviser or agent will advise on them or sell them. They cannot be understood by an average person on the street on his own," said Chopra. So when claims get rejected, even with valid reasons, it leads to bad experience; again due to limited understanding of the terms and conditions.

According to the Apollo Munich study, underinsurance is more prevalent in the higher age brackets as 62% of the policyholders above 45 years of age are underinsured. In contrast, only 38% people between 18-35 years are underinsured. The underinsurance percentage of people between 61-65 years is 75%. "One of the main reasons for this alarming underinsurance statistic is that policyholders do not upgrade their sum insured on the basis of their increasing age, changing needs and medical inflation," the study said. Individuals in their 20s should ideally have a sum insured cover of Rs5 lakh, while those above the age of 60 years should own health insurance coverage of at least Rs10 lakh, it said.

While industry needs to invest more on product and consumer awareness and less on agents and distribution, customers can now make an informed decision, by comparing insurance products online.

"Fintech and online insurance policies have done their bit in making the decision to buy health insurance transparent and objective for the customers," said Chopra.

In arrangement with HT Syndication | MINT