Loading in Health insurance: Know about it!

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Suraj's father suffered from a heart attack last year and had to undergo an emergency bypass surgery. Fortunately the surgery was a success. Suraj recovered most of his medical expenses from the family health insurance he had. Suraj was relieved; in fact he was thankful that he had a health insurance policy. But nothing prepared him for the jolt he got 8 months later when the renewal notice for his health insurance policy arrived; he found that his premium was hiked by almost 50%! From Rs.10, 000 premium p.a. he now had to pay Rs.15, 000. After checking with his agent and the policy wordings, Suraj was informed that something called as Loading' was the reason behind the hike.

In several cases, the hike in the premium after a claim makes it quite difficult for many customers to renew their policy and, not being prepared for such a hike could result in them not having a health cover for sometime or miss out the continuation benefit of their original policy. To ensure that you don't get a rude shock on renewal of your policy after a claim, understand loading and what to look out for while buying the policy.

What is Loading?

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Loading is the amount charged by the health insurance company on your renewal premium when you make claims in your policy. Almost all health insurance companies include loading in their policies. There are different ways in which loading is calculated by the companies.

The different kind of systems for calculating Loading:

1) Loading for every year of claim

Oriental insurance's Happy Family has loading according to this system. For every year you claim, you will have to pay 5% more premium the next year which will go away if you do not claim that year or again increase by a further 5% for every year in which you make a claim. The maximum loading in this plan is 20%.

2) Loading depending upon the amount claimed

In United's Family Medicare Policy, the claimant is subjected to loading if he claims 3 or more timesin two consecutive years. Amount loaded on the premium depends on the percentage of the Sum Insured that was claimed. Here is their table which explains the calculation.

Upto 25% of Sum Insured - 25% loading on applicable premium

26 to 50% of Sum Insured - 50% loading on applicable premium

51 to 75% of Sum Insured - 75% loading on applicable premium

Above 75% ` - 100% loading on applicable premium

Even in United's Family Medicare policy, loading will be removed after three continuous claim-free years. The No Claim Discount' will be applicable only after completion of four claim-free years.

3) Loading depending on the claim ratio

Some policies calculate their premiums according to the ratio of claims to the premium paid. That is if you claimed Rs.20, 000 when you had paid a premium of Rs.10, 000, the claim ratio for the policy is 200%, and hence here the premium would be loaded as per a table according to this claim ratio.

In Star health's Family health optima plan, this type of loading is applied. It is also mentioned that the loading ratio would not exceed 100% of the premium amount.

Claims ratio between 100-125%- 30% loading on premium

Claims ratio between 126-150%- 50% loading on premium

Claims ratio >150%up-to200%- 80% loading on basic premium

Mahavir Chopra, Head, e-business of Medimanage Insurance Broking Pvt. Ltd., says "Ideally, it (loading) isn't supposed to be applicable for individual policies. Claim ratio is actually meant to be calculated on the business portfolio level of an insurance company or in group insurance. It seems, due to lack of significant personal as well as macro level health premium and claims data that would have helped Insurance companies to price premiums scientifically, a reactive system of loading premium based on claim ratio was introduced, where the premium depends on the past claims experience. No retail insurance product (other than Health Insurance) compares what is paid (as premium), with what claims have been made, it defeats the entire purpose of insurance".

While the above are loadings at renewal based on previous year's claim/s, there are some loadings applicable even at inception based on the risk factors:

4) Loading on certain Pre-existing diseases

National's Varishta Mediclaim has a system of loading for Diabetes and Hypertension. You will have to pay an extra of 10% on your total premium for each of these diseases or an additional 20% for both these together. There is also loading for other diseases like Paralysis and Blindness.

5) Loading on your age

Many health insurance companies, especially Senior citizen policies have a system of loading not on the event of claim but after a particular age. New India Assurance's Senior Citizen Mediclaim has the following system-

Loading for renewal between 81- 85 years 10% of the premium for age band of76-80 yrs.

Loading for renewal between 86- 90 years 20% of the premium for age band of76-80 yrs.

6) No Clear Cut definition: Stay away!

There are many policies which do not have a method of calculating the loading but which mention in the policy wordings that they may load the premium in case of adverse claim experience. This is very dangerous as the loading can be anywhere from 5% to 100% of the premium and the customer can do nothing about it. So if you are buying a policy withsuch vague conditions, it would be wise to reconsider the decision to buy it.

Max Bupa: A New Approach

Max Bupa is one of the few companies that do not load the premium because of claims. Max Bupa's CEO Dr. Damien Marmion had said in an interview that they do not want to give the customers the wrong idea that they care more about the money than people by giving discounts for no claim or loading after claims. They have premiums that depend on your age and your locality rather than discounts for claim free years or loading after claims.

What you should look out for?

Now that you have seen most of the methods of Loading, we suggest the following tips:

Ask your health insurance agent or broker about loading before you buy a policy.

Select a policy with a clear method of calculating the loading.

Other things being equal, companies which do not have loading as part of the company policy are the best.

Other than that select a policy from a company where the loading remains constant irrespective of the amount and which goes away after some claim free period of time like oriental's happy family floater.

It is risky to buy a policy where loading is calculated from the claims ratio as it is going to be heavy on your pocket after a claim since even a minor hospitalization will result in a very high claims ratio.

IRDA's Stand:

Insurance Regulatory Development Authority (IRDA) has not passed any directive on Loading per se but on receiving several complaints from senior citizens has issued this following advice:

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 loading.

Senior citizens shall not be compelled by the insurance companies to migrate to other health insurance products of the same company, if it is to the disadvantage of senior citizens.

Is loading justified?
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Sudhir Sarnobat, Director, Medimanage Insurance Broking Pvt. Ltd, says "The loading on individual client is absolutely unfair when they have claims in expiring policy year as it principally defeats the purpose of insurance that is risk transfer. Loading is a concept which is acceptable for Group Risks where the policy conditions are liberalized due to group business".

To know more about Loading in Health insurance: Know about it!

Loading in Health insurance: Know about it!

By: Niyatijs

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