Senior citizens should go for 2-3 small mediclaim policies

When Champaklal Shah and his wife bought two mediclaim policies of Rs 3 lakh each more than 20 years ago, the total annual premium for the policies was Rs 3,000. Now they pay close to Rs 25,000 on these policies. Shah, 70, and his 65-year-old wife are facing a familiar dilemma that comes with old age.

While they cannot surrender their policies fearing a medical emergency, the premiums are way too steep for them; they have risen over the decades thanks to loading—the amount insurance companies add to the basic premium to cover costs of maintaining the business.

After a long wait, Irda replied: "Health insurance premium rates are decided by insurers based on the claims experience of the relevant age groups and inflation towards medical costs. As you may be aware, the authority had already intervened on the premium issue in respect of renewal of senior citizens' mediclaim policies...

Irda's guidelines on mediclaim policies for senior citizens says, "The loading of premiums if justified for renewals of mediclaim policies issued to senior citizens shall not exceed 50-75% of the premiums charged prior to the revision."

Why are such policies expensive?

The premiums of mediclaim policies have increased by almost 30% in the past 2-3 years, mainly due to two reasons. The first one is the emergence of real-time pricing based on industry claims and the second, high health care inflation. Medical costs in the country have escalated by up to 30% in the past two years.

It is obvious that senior citizens are bearing the brunt since most treatments incurred at this age require intensive care, say insurers.

From an insurer's perspective, it's a challenge to offer the right cover at the right price for senior citizens. In the underwriting process, insurance companies price the senior citizens' premium as a percentage of a standard life risk.

For example, if you paid 1.5% of the cover as a premium at the age of 25 years, the premium amount can shoot up to 8% of the cover when you become 60.

The concept of differential loading

Loading is the increase in premiums, triggered either by a claim due to serious surgery or hospitalisation. By this definition, it's the elderly who will experience massive loading in mediclaim premiums. This loading is not standardised. It depends on a policyholder's age, medical history, number of claims and the insurers underwriting practices.