Reliance General Insurance which till last year had lowest premiums among its competitors now charges the highest premium. The jump in most cases has been an incredible 400% to 500%. Is IRDA listening?

Reliance General Insurance has offered a policyholder of a HealthWise floater (aged 44 and spouse aged 40) a renewal for a hefty premium increase of more than five times. The policy was purchased three years ago and the policyholders have no claims till date. The renewal offer has 'no claim bonus', but still has outrageous premium increase. The prior year gross premium was Rs3,229, the current year gross premium offered is Rs17,108 (a 530% increase).

The net payable premium after 10% 'no claim bonus' is Rs15,397 (477% increase). The sum insured of Rs3,00,000 has remained the same. The only reason for increase specified in the offer letter is, "We would like to inform you that the premium rates have undergone revision as a result of an upswing in the illnesses and the inflationary trend in medical costs." Luckily we don't have any epidemic in India at this time. Inflation is raising its ugly head in India, but it cannot explain five times hike in mediclaim premium. What's really going on?

There has been much talk about losses incurred by insurance companies due to inflated bills from some hospitals for cashless facility. It certainly cannot explain such a steep premium rise. The real reason for the drastic action seems to be poor underwriting when the company started mediclaim policies three years ago with aggressive pricing of Rs999 'Gold Plan' for Rs1 lakh sum insured for age up to 35. The intention at that time was market penetration in the younger segment with hopes of few claims. After three years of being unable to sustain low premiums, the company has jacked up the premium price by 400% to 500%. A hefty increase in mediclaim premium seems to be a desperate measure from Reliance General Insurance to cover up for losses due to bad underwriting. Under the no-tariff segment, an insurance company can offer its own premium based on past claims ratio, future expectations, etc. In the case of mediclaim for senior citizens, IRDA (Insurance Regulatory and Development Authority) regulations require that the maximum increase in one year is restricted to 150% to 175% of the previous year's premium.

We tried calling Sharad Goel, from Reliance Life Insurance's public relations department for the past three days, but have been unable to get any answer on the issue, though he told us that renewal policy details were forwarded to the business department of the company.

A policy renewal offer with five times increase in premium certainly throws the financial planning of a family out of gear. It is a shock for policyholders who are already anxious about industry changes in cashless facilities. It is also difficult for policyholders to change insurance companies because of factors related to age and exclusion of pre-existing conditions for the period which is normally 4 years of continuous coverage. Reliance General Insurance is aware of customer reluctance over change and hence enticed customers to sign up for the policy that saw steep increase in 3 years.

According to Mahavir Chopra, head, e-business and personal line of www.medimanage.com, "Insurance companies should avoid such ad hoc increase in premiums. Customers are happy when their costs are fairly predictable. Any disproportionate increase will batter the confidence of an already insignificant size of the Indian population who believe in buying health insurance for themselves. To avoid such a rise in premium, we feel premiums for health insurance products should be carefully underwritten taking into account available data, demography, medical inflation estimates and the Indian healthcare ecosystem. While pricing, we should also take into account that health policies in India are primarily policies underwritten based on declarations by the customer, which by their very nature are subjective and hence have many loopholes."

IRDA penalised Reliance General Insurance on 23 July 2009 for Rs20 lakh. The IRDA order can be accessed at www.irdaindia.org. Click on 'Warnings and Penalties', 'General Insurers', and 'S. no 11'. The product filed before IRDA for which the prior clearance of the regulator was obtained was 'Reliance health care policy' and instead Reliance introduced a product named 'Reliance HealthWise policy'. Reliance contended that the change in the name and premium of its product was followed by refund of Rs1.07 crore to various policyholders of the original product. As per the order, the refund is not supported by any documentary evidence.

With the trend of exponential increase in claims amount, if there is steep increase in premium across insurers, it will drive away young policyholders who would rather take a risk by not buying mediclaim than paying exorbitant premium. This would inadvertently reduce the number of policyholders that is already only 2% of the population. In the past, there have been cases where IRDA acceptance of group insurance loading was overruled by consumer courts. The recourse for a Reliance policyholder may be knocking at the doors of IRDA, consumer courts or the insurance ombudsman.

An insurance broker has indicated to us that his customers with Reliance General Insurance had similar steep increases and had no other option but to let the policy lapse and move to another insurer, because Reliance would not bargain. Is IRDA listening?