Should premium be calculated on completed age or running age?

Should premium be calculated on completed age or running age basis?

Most of the Insurance Companies take completed age in calculating premium.

On Aug 16, 2007 New India Assurance Company Ltd. had switched over from completed age to running age concept.

At present this type of information is not advertised in the form of a statutory ad therefore no one comes to know about this.

Mr. B K Shah, a medical practitioner for Mumbai realized the difference due to change over at the time of renewal of his policy and took up matter with New India.

Rucha has written a nice news story on this in Times Business of May 16 and it is as follows;

Insurance firms calculate running age for premium

Senior citizens, who are already grappling with steep premium rate hikes, have yet another reason to be miffed with the controversial health insurance sector. In what could perhaps be a first instance of its kind, last year, a public sector insurer started calculating and charging premium on the basis of an insurance applicant’s running age, against the normal practice of completed age.

Mumbai’s B K Shah, himself a medical practitioner, discovered this when he applied for his Mediclaim policy renewal. “In a nutshell,” says Shah, “When I went for renewal at the New India Assurance Company in October, the policy showed up my age as 74, although it should have been 73....I was told that they had introduced a ‘running age’ concept.” Shah says he thus had to shell out a higher loading (increase) on the premium than if his actual age were taken into account. He paid Rs. 700 extra. “With this additional amount, my renewal premium rose to a total of Rs. 23,052 last year from Rs. 11,053 in 2006.” Subsequently, Shah made a right to information (RTI) application, which confirmed the company had shifted to this structure since August 16, 2007, “as a corporate decision”. Bimalendu Chakrabarti, CMD at New India Assurance, corroborates this development. The RTI document assured that as and when the policy was due for renewal, policyholders would be intimated along with premium calculation. Shah denies receiving any such intimation. The document also mentioned that “the product” was approved by the sectoral watchdog – Insurance Regulatory Development Authority of India (Irda). Shah now approached the Irda to verify the claim. “I received a ridiculous reply that the method of calculating age is an internal underwriting issue to be decided by the concerned insurer.” In the absence of Irda chairman C S Rao, who retired earlier this week, a detailed discussion on the subject was not possible. However, an Irda official admits that the regulator has not issued specific instructions in this regard. “Most companies follow (the concept of) completed age and one follows running age…Companies’ policies are disclosed in their documents.”
Another official adds, “In a detariffed market, the premium has to be decided by the insurance company.”
The ombudsman’s office too washes its hands of the issue. “This is not an area of dispute. We don’t look at issues such as age. We come into the picture only when a claim is denied.” says an official. Blaming this laxity for the situation, K S (Kaka) Samant, general secretary at the General Insurance Pensioners’ Association, Western Zone, says: “Since the Irda has not taken any objection, it is taken as a sign of approval.” The consumer organizations TOI spoke to said this was a case of commercial considerations overriding logic. As Mumbai activist Jehangir Gai asks, “Would someone who is 17 and running 18 be allowed to vote?”
Shah also made RTI requests to other public sector general insurers – Oriental Insurance Company, United India Insurance Company and National Insurance Company. They charge premium according to the applicant’s actual age.

Our comments:

1. If all the Insurance Companies are following one definition/norm then why did New India decide to go it for new definition?

2. Should Insurance companies advertise in the form of a statutory ad so that customers as well as insurance intermediaries are made aware of this type of change?


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