Explained: How ‘Use and File’ system will bring new health insurance products faster

The Insurance Regulatory and Development Authority of India (IRDAI) has decided to extend the ‘Use and File’ procedure to all health insurance products. The move is expected to facilitate faster customer access to health policies.

What is ‘Use and File’?

Under ‘Use and File’, insurers are permitted to market products without the regulator’s prior approval, thus avoiding a long wait. Under the existing ‘File and Use’ system, an insurer wishing to introduce a new product has to first file an application with the IRDAI and use the product for sale in the market only after getting all regulatory approvals. “The Insurer’s Product Management Committee should ensure compliance with the board’s policy while signing the new products or modification of products,” IRDAI said.

“This reform authorizes insurers to launch innovative and customized products to buyers, avoiding a long waiting duration,” said Sylvester Carvalho, Lead-Product, Riskcovry.

What does it mean?

General and health insurance companies launch, modify or revise all categories of products and add-ons or riders in the health insurance business through the ‘Use and File’ method. This means insurance firms can quickly introduce new schemes with innovative features, enabling people to participate and cover their health expenses. Earlier, companies used to file scheme drafts with the regulator and wait for weeks and months to get clearance.

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The new initiative has come at a time when demand for health coverage products has risen significantly in the wake of the pandemic. “The proactive initiative by IRDAI will provide some necessary mechanisms to insurance companies which wish to bring out more innovative products in the market at a faster frequency,” said Tapan Singhel, MD and CEO, Bajaj Allianz General Insurance. Customers have the opportunity to choose from a range of insurance products that best suit their needs and thus secure themselves against any exigencies, Singhel said.

“This will help customer centricity and fuel product innovation which should help increase insurance penetration in our country,” said Rakesh Jain, CEO of Reliance General Insurance.

The move offers flexibility to insurers to offer products that may cover the immediate needs of customers on account of a changing environment. If there is a new disease that emerges, ‘Use and File’ will allow insurers to design a product covering that disease and offer it immediately, rather then waiting for approval.

What if the regulator raises concerns over such a product later?

If a customer has already taken an insurance policy launched under ‘Use and File’, and the IRDAI later raises concerns about it, then it can lead to some rethinking. The customer will continue to get the benefits of the policy for the first year, and if the insurance company makes amendments in line with regulator’s apprehensions, the customer will still get these benefits. However, if the policy is withdrawn as a result of IRDAI’s intervention, the product will no longer be available for renewal in the second year. In such a case, the insurance company may provide the policyholder with similar options from its existing policies, and the customer may agree to taking one.

What is the procedure?

Insurers should file the proposed name of the product, date of approval by the Product Management Committee, and they should obtain a UIN. “Thereafter, insurers should file the product along with all others with the authority within 7 days of launch of the product,” the circular said.

Insurers should ensure that product pricing is viable, self-sustainable and affordable to the targeted market. A revision in the price, if any, should be effected only based on the underlying claims experience (Incurred Claims Ratio, or ICR), and to make the product viable and self-sustainable. Insurers should disclose on their website the rationale for the revision along with the ICR that led to the revision.

Pricing of products or add-ons should be based on generally accepted actuarial principles. The premium rates should appropriately reflect the benefits, terms and conditions of the underlying products or add-ons and should not be discriminatory.

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How is the health cover business doing?

The health insurance business is the fastest growing segment in the insurance sector, and accounts for a 33.33% market share in the general insurance industry. Premium income under the health insurance category rose by 25.39% to Rs 73,582 crore during the financial year ended March 2022. Standalone health insurers reported a 32.55% growth in premium mobilization during the fiscal, according to data from the General Insurance Council.

There were 26.54 lakh claims for Rs 24,255 crore under the Covid health insurance category until April. These claims are reimbursement towards treatment and hospitalization expenses. Many insurers have seen over 100% claims during the peak of the pandemic.

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