Critical illness covers come of age

One in every 333 Indians suffers from heart stroke. Four million stroke victims continue to survive. Twenty per cent of the population can develop cancer, and at least 50 per cent of them will suffer from this disease for at least five years thereafter.

Today, the average age a person can experience a heart attack has come down from 40 years to 35 years on account of the changing lifestyles. Diabetes is equally more prevalent today.

All this means additional medical expenses that may not necessarily be adequately covered under a general mediclaim policy. Expenses that could be incurred even after discharge from the hospital. Add to this the fact that one may lose his/her job as a result of falling prey to any illness.

Covering the ills

Cancer Coronary artery graft surgery Heart attack Stroke Major organ transplant Complete renal failure Paralysis Valve replacement surgery Major surgery of the aorta

So any additional sum helps, especially since many a times such serious illnesses do not necessarily result in death, but rather prolonged stays in hospitals. Introduction of critical illness riders is the life insurance industry's response to developing long-term health care sector.

Today, the percentage of Indians purchasing critical illness coverage is relatively low, varying between 5 per cent and 20 per cent, stated Reinsurance Group of America India. This is far lower than countries such as the UK where the rate is around 25 per cent.

The South African market was the first to introduce the critical illness product back in 1984. But it was not until the opening up of the insurance sector that Indian customers could opt for long-term health coverage in the form of critical illness riders.

When opting for an insurance policy it would be wise to look at the various critical illness options in the market. Most private insurance companies offer critical illness coverage as a rider. Even the Life Insurance Corporation of India recently launched its critical illness rider for all its existing policies, covering 11 illnesses.

Birla Sun Life Insurance Company offers the maximum coverage of up to 17 illnesses, which it says covers 90 per cent of all illnesses. Compared to its earlier critical illness rider that covered just four illnesses, the recently launched critical illness plus rider covering the highest number of major illnesses in the industry, has been priced 20-25 per cent higher.

All insurance companies offering critical illness riders that cover the four key illnesses -- cancer, coronary artery graft surgery (bypass), heart attack and stroke. The coverage in the Indian market is kept at manageable levels unlike in some developed countries where the coverage could well be in excess of 30 illnesses/conditions.

Over 100,000 Indians have been detected to suffer from AIDS, and this is just the reported figure, which is fast spreading. Yet none of the insurers is willing to cover this illness.

This is primarily because of difficulty in assessment of the risk and therefore underwriting AIDS in India is not financially feasible.

Critical illness covers and long-term care are becoming more expensive than life insurance policies today, says Sanjay Parikh, heading product development at Birla Sun Life Insurance Company. This is because people are living longer on account of improvement in medical science and healthcare facilities.

The cost of buying a critical illness rider is not exactly cheap. It can amount to about 90 per cent of the cost of the base insurance cover.

For instance, a 25-year old buying a 20-year term cover will pay Rs 4.29 per Rs 1,000 sum assured. Should he opt for a critical illness cover for the same amount, he would have to shell out an additional Rs 4 per Rs 1,000 sum assured.

On account of advanced medical screening, it has become easier to detect illnesses. As these illnesses are treated, mortality improves, and with higher detection rates, claims are on the rise, stated RGA in its India report.

Tata AIG Life, ICICI Prudential Life are some of the insurers which offer accelerated critical illness riders. This means, that once the claim is put in, the base policy could be terminated.

This is unlike OM Kotak Mahindra Life, which reduces the sum assured and thereby brings down the annual premium payable. HDFC Standard Life and Birla Sun Life, on the other hand, offer standalone riders, whereby the base insurance cover continues to exist even after a claim has been established on the critical illness cover.

The rising detection of critical illnesses has resulted in the life insurance industry moving away from guaranteeing premium rates.

Most players are regularly reviewing the premium on this long-term health coverage based on the claims experience. Companies review the premium and guaranteed levels every five years as is the practice overseas. Few even review it on an annual basis.

"With incidence of critical illness on the rise there is a greater need for constant review of premium rates. As such, we propose to review the premium rates every five years," said Birla Sun Life vice-president (actuarial) K S Gopalakrishnanv.

This is not surprising considering the lack of centralised medical records, a problem that exists when providing life covers, and becomes even more acute when it comes to offering critical illness coverage.

"Most countries have vast databases of medical statistics that can be used for pricing. In India such information is limited," stated RGA officials.

More so this problem is acute when it comes to analysing the trend on a nationwide basis, as incidences of critical illnesses can vary significantly from one region to another -- differences that arise on the back of lifestyle, culture and genetic variances.