Explained: How the “Use and Classify” system will bring new health insurance products faster

Indian Insurance Regulatory and Development Authority (IRDAI) decided to extend the “Use and deposit” procedure to all health insurance products. This move should facilitate faster customer access to health policies.

What is “Use and Classify”?

Under “Use and File”, insurers are allowed to market products without prior approval from the regulator, thus avoiding a long wait. Under the existing “File and Use” system, an insurer wishing to introduce a new product must first file an application with IRDAI and use the product for sale in the market only after obtaining all regulatory approvals. “The insurer’s product management committee should ensure adherence to board policy when signing new products or modifying products,” IRDAI said.

“This reform allows insurers to launch innovative products adapted to buyers, avoiding a long waiting period,” said Sylvester Carvalho, Lead-Product, Riskcovry.

What does it mean?

General and health insurance companies launch, modify or revise all categories of products and supplements or endorsements in the field of health insurance through the “Use and archive” method. This means insurance companies can quickly introduce new plans with innovative features, allowing people to participate and cover their health expenses. Previously, companies used to file draft schemes with the regulator and wait weeks and months for approval.

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The new initiative comes at a time when demand for health coverage products has increased significantly as a result of the pandemic. “IRDAI’s proactive initiative will provide some necessary mechanisms for insurance companies to get innovative products to market faster,” said Tapan Singhel, Managing Director and CEO of Bajaj Allianz General Insurance. Customers have the flexibility to choose from a range of insurance products that best suit their needs and thus protect themselves against any requirement, Singhel said.

“This will foster customer centricity and fuel product innovation, which is expected to help increase insurance penetration in our country,” said Rakesh Jain, CEO of Reliance General Insurance.

This decision offers insurers the flexibility to offer products likely to cover the immediate needs of customers due to a changing environment. If a new disease emerges, “Use and File” will allow insurers to design a product covering that disease and offer it immediately, rather than waiting for approval.

What if the regulator raises concerns about such a product later?

If a client has already purchased an insurance policy initiated under “Use and Deposit”, and IRDAI later raises concerns about this, this may lead to reflection. The customer will continue to receive the benefits of the policy for the first year, and if the insurance company makes changes in accordance with the apprehensions of the regulator, the customer will still receive these benefits. However, if the policy is withdrawn following the intervention of IRDAI, the product cannot be renewed in the second year. In such a case, the insurance company may offer the policyholder similar options from its existing policies, and the customer may agree to take one.

What is the procedure?

Insurers must file the proposed name of the product, the date of approval by the Product Management Committee, and they must obtain a UIN. “Thereafter, insurers must file the product with all others with the authority within 7 days of the product launch,” the circular says.

Insurers must ensure that product pricing is viable, self-sufficient and affordable for the target market. A price revision, if any, should be made solely on the basis of the underlying claims experience (occurred loss ratio or ICR) and to make the product viable and self-sufficient. Insurers must disclose on their website the rationale for the review as well as the KPI that led to the review.

Pricing of products or supplements should be based on generally accepted actuarial principles. Premium rates should appropriately reflect the benefits, terms and conditions of the underlying products or add-ons and should not be discriminatory.

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How is the health insurance business doing?

The health insurance business is the fastest growing segment in the insurance industry and accounts for a market share of 33.33% in the general insurance industry. Premium income in the health insurance category increased by 25.39% to reach Rs 73,582 crore in the financial year ending March 2022. Autonomous health insurers reported a growth of 32.55% the mobilization of premiums during the financial year, according to data from the General Insurance Council.

There were 26.54 lakh claims for Rs 24,255 crore in the Covid health insurance category till April. These requests are the reimbursement of treatment and hospitalization costs. Many insurers recorded more than 100% claims at the height of the pandemic.

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