Too much choice is not always desirable. For instance, in case of health insurance, the variety in terms features such as coverage, exclusion, waiting periods, etc, can make it a daunting task for individual customers to select one that's suitable for them. This is one big reason that many of us, especially if we an employer-provided health insurance product, simply don't buy an individual retail health plan, and then end up with no coverage if we change jobs or retire. Or some of us may end up buying a product that does not meet our needs and pay for features that are not relevant for us.

Keeping this in mind, the Insurance Regulatory and Development Authority of India (Irdai) last week released draft guidelines on standardisation of individual health products. The need for such a product was felt because at times prospective customers have no option but to choose products which have embedded features whether or not they are needed, the regulator said.

This product would have basic mandatory covers and would be uniform across the market. It would not include any additional add-ons or optional covers, but will have features like coverage for Out Patient Department (OPD) and Ayush (alternate treatments) built into it. It would also offer incentives for customers who buy the policy at a young age and those who renew it regularly.

Let us see how what benefits the basic health indemnity product is likely to offer

Buying health insurance will become easy

Since the basic product will have standard features across companies it will make it easy for customers to compare and buy. According to S Prakash, chief operating officer, Star Health and Allied Insurance, one of the most common grievance that customers have is about the information asymmetry, which means that different products have different features, for instance waiting period and exclusion criteria. "It is difficult even even for a person in the insurance industry to understand all policy terms and conditions, leave alone customers. So insurers tend to ask additional questions at the time of claim settlement. So standardisation of policy conditions is a boon to the industry and it will definitely help in the protection of policyholders,'' he says.

Standardisation will also provide a benchmark for customers to compare features of various products, which is missing today, points out Puneet Sahni, head product development, SBI General Insurance.

"In the health insurance space, on the one hand, in the last six to seven years a lot of products and options have been made available to customers. But on the other hand, customer awareness is very low. They are probably not aware of 10% of what the features are. Many buy it for the sake of having health insurance. There is no benchmark on the basis of which customers can find out whether their product this is good or bad. Today customer cannot benchmark product features and price because it varies and is confusing for them. Standardisation will simplify this for customers.,'' he says.

In the standard product, which is quite comprehensive and wide in terms of coverage, customers will get one benchmark. Then the parameters for them to compare would be price, post-sales service such as claim settlement, reach of the insurance company or the hospital network, says Prakash.

The plan would bring customers currently uninsured, come under the purview of basic yet effective and affordable health insurance, thus helping in higher penetration that is conducive for the industry on the overall, says Anuj Gulati, MD & CEO, Religare Health Insurance.

"It will ensure an easy and quick buying decision. But to customers who might be looking for additional benefits from their health insurance policy this product might feel limited,'' he says.

Inbuilt benefits could push up costs

A lot of benefits have been built into the standard product, such as OPD, fitness linked discounts, etc. A lot of these things cost money and would add to the product, points out Ashish Mehrotra, MD and CEO, Max Bupa Health Insurance.

"You need to find a balance between features and price. Since this product is targeting the first-time buyer, affordability becomes an important factor and that has to be kept in mind,'' he says.

Some benefits, like OPD, are more susceptible to fraud and over-utilisation which might make the product expensive since insurers would need to accommodate the price for the same, says Gulati

The proposal includes benefits like Ayush and wellness to be offered with the basic policy. While these will definitely help in making the product comprehensive, guidelines around the same should be defined in a detailed manner in order ensure standardisation, since every insurance company's interpretation could be different if these are kept broad based, Gulati adds.

One option could be to introduce sub-limits for these features so that the product does not become very expensive for customers, says Sahni.

Incentives for early entry, continued renewals

Penetration of retail health insurance in India will increase only when more young and healthy people will buy it, and this can be encouraged by incorporating discounts and wellness measures in the policy. "Companies will have to design products in such a way that customers who come in before 35 years and continues for 20 years would get benefit of discount on premium or sum insured,'' says Prakash.

Max Bupa already offers this in their plan Go Active, says Mehrotra. If someone buys the policy before 35 years, then he gets a discount of 10% every time he renews it. It is a discount for life.

"Once you join early, you would get discount even at a higher age, which would subsidise the premium,'' he explains.

Some of the key points around which these incentives can be defined could be entry age, cumulative bonus in terms of no-claim in a year or even discounts on renewal and upon availing wellness benefits, says Gulati.

While selecting health cover

While selecting a health insurance, customers must buy as much as coverage as they can afford, because the increase in the cost of health care or medical inflation, is about 15-18 %, and buy it as early as you can, says Ravi Vishwanath, CEO and executive director, Reliance Health Insurance.

"You must also future-proof your policy. Avoid plans that have a list of day care procedures, because more and more ailments today don't require hospitalisation. So if your policy restricts the diseases that can be covered under day-care procedures, you will be at a loss. Similarly, ensure your health cover provides coverage for robotic surgeries, which is also on the rise,'' he says.

EASIER SELCTION PROCESS

• The basic health cover will have standard features in terms of coverage, pre- and post-hospitalistion waiting periods, exclusions, sub-limits for ailments, etc  
• Features like OPD, wellness benefits will be inbuilt, which could add to the cost of the policy   
• Buying health insurance at an early age, continued renewals and favourable claims experience will be incentivised