May 28, 2015

Health insurance will soon be more accessible to people living in rural areas as insurers will have to fulfil the exclusive rural business obligation.

The Insurance Regulatory and Development Authority of India (IRDAI) has proposed to prescribe a separate set of obligations in its new Rural and Social Sectors Regulations 2015 which are to be notified sometime next month.

IRDA to soon prescribe rural business obligations for health insurers

Till now, there have been no separate obligations for rural health insurance business as it was one of the verticals of general insurers. However, the recent amendments to the Insurance Act have changed the dynamics.

“As the Insurance Act has now defined health insurance as a separate class of insurance business, it is now proposed to stipulate rural and social sector obligations specifically to health insurers,” the regulator said in the proposed draft norms.

As general insurance companies have a wider range of retail product portfolios — motor, household and shopkeeper, among others — than health insurers, the IRDAI thinks that health insurers’ obligations towards the rural sector should only be 50 per cent of general insurers.

The proposed rural sector obligations will vary on the basis of years of operations for general as well as life insurers. The new norms to be notified propose a mandatory rural business of 2 per cent in the first financial year (of operations) for general insurers, which goes up gradually to 3 per cent in the second financial year. From the third to the seventh year it is pegged at 5 per cent, which again goes up to 7 per cent in the ninth year and thereafter.

This is calculated as a percentage of total gross premiums written in that year.

The move is expected to benefit the spread of health insurance in semi-urban and rural locations. “The rural business is actually more viable because the frequency of people going to hospitals is lesser compared to urban areas and the cost is also lower than at multi-specialty hospitals,” says V Jagannathan, Chairman and Managing Director of Star Health and Allied Insurance Company. IRDA’s move will encourage the spread of health insurance, he added.

Health insurance premium of about ₹20,450 crore was mopped up during the last financial year, a 15.6 per cent growth over the previous year. Of this, the rural sector’s contribution was less than 20 per cent, and hence there is good scope for expansion of health cover in rural areas.

(This article was published on May 26, 2015)