A Caution note to Insurance Startups

Thanks to the congenial atmosphere created for starting an insurance company in Indian market, we see a lot of activity from potential new entrants. We have been assisting some of them in designing business plan, products and various inputs / forms for regulatory licensing process.

Few months back, someone contacted me seeking support in designing and pricing an insurance product. He said it was an innovative product and first of its kind in India. He wanted to come up with a Health Insurance product without any exclusions. No questions should be asked at the time of claim. “You price the additional cost, if any, in such a way that the additional risk is taken care through pricing”, he said.

Insurance is a contract of good faith. Insurance is for covering uncertain risk. If a person is already ill and seeking insurance, that’s not insurance. The claim is certain in the near future and the price accordingly should be the cost of treatment of known illness + expenses + few other loadings (including the probability of other illnesses). Would any policyholder be willing to pay more than the cost of treatment for health insurance? So, its difficult to take care of the extra risk through pricing. It took some effort for me to explain this to my client and he thankfully understood and appreciated the risks involved.

On similar lines, there were many discussions in the past about claim payment guarantee, in the context of life insurance. Well, once the insurance contract is issued, the claim payment is guaranteed. That’s what the insurance contract is all about. But the guarantee is for genuine claims and not for fraudulent claims. The claims are rejected mainly on the grounds of fraud or other relevant provisions as per contract. So, when we discuss about guarantee, are we discussing about guaranteeing payment to fraudulent claims? Genuine claims are anyway guaranteed through insurance contract.

Out of box thinking is very much required in any industry to come up with better products. So, this note is not to discourage any innovation. But at the same time, critically evaluate your thoughts from a fraud and anti-selection point of view. The industry is already handling many cases of fraud / anti-selection and there are many learnings from the same. So, please be aware of these learnings before spending a lot of time, energy and money in coming up with innovative products / proposition. I have few other instances of people approaching me with thoughts those may not be viable. Therefore, I felt, it would be useful to give this caution.

We will always be happy to help you in brainstorming your innovative thoughts and coming up with a sensible proposition. You can write to me at sai@lifegurusolutions.com

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