In a bid to control the mounting losses on group health insurance covers, insurance companies are reducing the commissions paid to insurance brokers.
State-owned Oriental Insurance Company has sent out an internal circular stating that effective September 1 this year, the maximum commission paid to a broker on a group health insurance policy will be capped up to 5 per cent of the premium paid by the corporate from the current upper limit of 17.5 per cent.
Confirming the move, M Ramadoss, chairman and managing director, Oriental Insurance said, “This decision may result in we losing business to competitors who offer higher commission to brokers, but we are not worried as our focus is profitability and not just topline.”
“Brokers used to approach different branch offices of Oriental Insurance for getting the lowest quotes (for corporates) and earn more than 10 to 11 per cent commission even on loss-making group health policies. We wanted to restrict this practice,” explained Ramadoss.
Oriental Insurance had an underwriting loss of Rs 1,106 crore and a net loss of Rs 53 crore for the year 2008-09.
On the same lines, a senior official of New India Assurance said that since a year, the company has reduced the broker’s commission to 12.5 per cent. “In case the past claim experience of a corporate is adverse, we load the premium or reduce the commission for the broker,” said the New India official.
Rajive Kumaraswami, Head Reinsurance, ICICI Lombard General Insurance said, “We would review brokerage on a case to case basis depending on the risk profile and the premium rates.”
Recently, J Hari Narayan, chairman, Insurance Regulatory & Development Authority, expressed his concern on corporate health business growing at 60 per cent despite being a bleeding portfolio compared to retail and other profitable lines of businesses.
“One thing striking in health insurance is that the portfolio has a negative claims ratio of 110 per cent, (excluding the distribution and administrative cost). We find that for the individual health insurance products, the claims ratio is 80 to 90 per cent whereas it is 120 per cent for the group health covers. So obviously, group policy management is not as effective as individual policies,” said Narayan.
“I strongly suggest for overlooking the underwriting practices followed by industry and get the balance right (group vs individual). Otherwise in our drive for numbers, we might be doing disservice to the industry,” warned Narayan.