Irda Nov08

Volume VI, No. 11

November 2008

Riders in Insurance -
Enriching the Platter

’Ë◊Ê ÁﬂÁŸÿÊ◊∑§ •ı⁄U Áﬂ∑§Ê‚ ¬˝ÊÁœ∑§⁄UáÊ

Editorial Board
J. Hari Narayan
C.R. Muralidharan
S.V. Mony
K.N. Bhandari
Vepa Kamesam
Ashvin Parekh

Editor
U. Jawaharlal
Hindi Correspondent
Sanjeev Kumar Jain
Printed by Alapati Bapanna and
published by J. Hari Narayan on behalf of
Insurance Regulatory and Development Authority.
Editor: U. Jawaharlal
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e-mail: irdajournal@irda.gov.in

© 2007 Insurance Regulatory and Development Authority.
Please reproduce with due permission.
Unless explicitly stated, the information and views published in this
Journal may not be construed as those of the Insurance Regulatory
and Development Authority.

From the Publisher

H
istorically, the preference for endowment Although a few riders were offered even during
type of contracts in the Indian insurance the pre-liberalization period, the low levels of
industry has been very conspicuous. For customer awareness resulted in none of them
one thing, insurance has also been treated as an being popular except the accident benefit rider.
investment avenue; and for another, the In more advanced insurance markets, riders play
predominant tilt towards tangible benefits also such an important role that varying needs of the
contributed to such a phenomenon. Although policyholder at different times can all be taken
there were some pure insurance products in the care of by just one insurance policy. Risk
form of term insurance, they were not very coverage can be altered in tune with the changing
popular. In a domain which was devoid of milestones of one’s life; and this provides the
competition, it did not matter a great deal. cushion for planning an entire insurance portfolio.
However, with the opening up of the industry for It however presupposes a very high understanding
private participation, a dire need was felt for a of the basic concepts of insurance contracts.
wider range of products. While we still have a long way to go, it is good
that a beginning has been made and various riders
Further, the awareness levels of the public as
are gaining popularity in the Indian insurance field.
regards insurance have also been growing steadily
and in such a scenario, the importance of the ‘Riders in Insurance Contracts’ is the focus of
need for a wide repertoire of products needs no this issue of the Journal. While it is less risky for
emphasis. This necessitated product innovation a life insurer to underwrite every individual’s
by the insurers. But coming out with a product proposal before assuming the risk; group insurance
for each of the needs is easier said than done. provides several answers in a large, populous
An easier and a more viable alternative was the country like India, with diverse groups. The focus
introduction of riders. Being optional for the of the next issue of the Journal will be on ‘Group
policyholder, the riders provide great flexibility Insurance’.
and have come to be regarded as customized
solutions. Rather than buying a product for each
of their needs, the policyholders can develop a
wholesome portfolio by accessing the availability
of riders. J. Hari Narayan

The World of Riders
F O C U S
- Rajasekhar Mallela, Venkata Madhukar Kanagala
and Purnananda Kumar Divakaruni 10

Riding on Health Insurance
- Dr. Somil Nagpal and Richa N Gautam 14

Life Insurance 'Riders'
- David Chandrasekharan 17

Being Cost Effective
I S S U E

- Sai Srinivas Dhulipala 21

When Riders Ride...
- Gnanasundaram Krishnamurthy 24

Widening the Risk Coverage
- Anuradha Sharma 28

Riders in Life Insurance
- A.V. Rao 30
Statistics - Life Insurance 4
In the air 6
Vantage Point
U. Jawaharlal 9
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34 Solvency for Insurers
EÁF|.EÁ∫.gy.L. úu∫úﬁ 43 - Rajesh Khandelwal
Statistics - Non-Life Insurance 45
Round up 46

from the editor

Customized Solutions
in a Competitive Market

T
he hallmark of a competitive market in the financial services domain in general, and in insurance, in
particular; is the availability of a large variety of innovative products. For ages, insurance has largely
been treated as an instrument of long-term savings with a dash of tax incentives thrown in; and as long
as insurance business remained within the purview of government controlled organizations, it did not matter
a great deal. Further, as insurance itself remained a less-understood concept for the general masses, the
availability of only a limited number of products never appealed as insufficient. However, with the opening
up of the market and the formation of joint ventures with some of the leading global players, the absence of
world-class products came to be seen conspicuously. A natural consequence of this phenomenon was the
evolution of ‘riders’ or add-ons that add value to the base product. Several insurers leveraged the flexibility
associated with the riders to come up with customized solutions for their clientele, rather than looking at
the need for inventing a product for each of their needs.
Riders result in some advantages for both the parties in an insurance contract. For insurers, they result in
lessening their transaction costs and increasing their operational incomes. Further, by coming out with a
large portfolio of solutions, they can enlarge their business volumes. However, they should be conscious at
all times of the increased risk exposure on account of the rider-commitments. Some of the benefits for the
policyholder are guaranteed insurability at advanced ages – a factor that takes care of the uncertainty of
the future – and ensuring a wholesome package with just one policy. There are a few riders in more
advanced markets that offer protection against fall in investment values as well, something that is very
pertinent in times of financial turbulence – such as the present one. The progressive protection policies
that are in vogue in some markets offer differing risk coverage in tune with the needs at various milestones
of one’s life. Accessing all the advantages that riders provide presupposes that the insuring public is aware
of the nuances; and in this regard, one needs to emphasize the role of the distributor in spreading the
message.
‘Riders in Insurance Contracts’ is the focus of this issue of the Journal. Looking at the importance of this
very topical issue, we have several articles that talk about the flavour of various riders existing in the
insurance world. We open the issue with an article by a team of consultants at CSC – Mr. Rajasekhar Mallela,
Mr. Venkata Madhukar Kanagala and Mr. Purnananda Kumar Divakaruni – that analyzes the benefits of various
riders. Dr. Somil Nagpal and Ms. Richa N. Gautam talk about the value that riders can add to a basic health
insurance policy and how it can add to lowering the overall costs. The next article by Mr. David Chandrasekharan
discusses the genesis and the evolution of several riders in the Indian domain. Mr. Sai Srinivas Dhulipala
emphasizes the cost-effective nature of the riders and how it can lead to a win-win deal for the insurer and
the insured.
In the next article by Mr. Gnanasundaram Krishnamurthy, you get to see the limited progress that riders have
made in the Indian insurance domain and the need for consumer awareness for improvement in this area.
Ms. Anuradha Sharma, in her article that follows, brings in the global experience in the usage of riders in
insurance. In the last article of the issue focus, Mr. A.V. Rao gives a vivid account of various riders that are in
operation both in the Indian and the global markets. In the follow-through section, we have an article by
Mr. Rajesh Khandelwal that talks about the importance of solvency issues for an insurer and the challenges
associated with progressive transition in this area.
In a country with a large population and with low levels of financial literacy, group insurance can be the
answer to a certain extent in increasing insurance penetration. The focus of the next issue of the Journal
will be on ‘Group Insurance’.

U. Jawaharlal

Report Card:LIFE
First Year Premium of Life Insurers for the Period Ended September, 2008
Sl
Premium u/w (Rs. in Crores) No. of Policies / Schemes No. of lives covered under Group Schemes
No. Insurer
Sept, 08 Up to Sept, 08 Up to Sept, 07 Sept, 08 Up to Sept, 08 Up to Sept, 07 Sept, 08 Up to Sept, 08 Up to Sept, 07
1 Bajaj Allianz
Individual Single Premium 26.38 166.26 242.22 6715 39310 40112
Individual Non-Single Premium 388.02 1792.59 2011.97 234467 1159628 1503901
Group Single Premium 0.41 1.36 5.89 0 0 0 5077 6150 4198
statistics - life insurance

Group Non-Single Premium 13.87 56.15 11.02 91 311 137 1022781 2881200 374838
2 ING Vysya
3 Reliance Life

irda journal
4 SBI Life

4
5 Tata AIG

Nov 2008
6 HDFC Standard
7 ICICI Prudential
8 Birla Sunlife
9 Aviva
10 Kotak Mahindra Old Mutual

11 Max New York
12 Met Life
13 Sahara Life
14 Shriram Life
15 Bharti Axa Life
statistics - life insurance

16 Future Generali Life
Individual Single Premium 0.25 0.68 53 144
Individual Non-Single Premium 2.31 7.93 2473 11225
Group Single Premium 0.00 0.00 0 0 0 0
Group Non-Single Premium 0.24 6.89 2 31 10309 211790
17 IDBI Fortis Life

irda journal
18 Canara HSBC OBC Life

5
19 Aegon Religare

Nov 2008
20 DLF Pramerica#
Private Total
21 LIC
Grand Total

Note: 1.Cumulative premium / No.of policies upto the month is net of cancellations which may occur during the free look period.
2. Compiled on the basis of data submitted by the Insurance companies
3. # Started operations in September, 2008

in the air

CIRCULAR
October 10, 2008 Circular No.15 IRDA/ORD/October 2008-10-10

To rksharma@irda.gov.in with copy marked to Mr. K Subrahmanyam,
All CEOs of Insurers & Reinsurer Executive Director at edadm@irda.gov.in and Mr. Suresh Mathur,
Joint Director at suresh@irda.gov.in indicating the following
Re: Remittance of Agency / Corporate Agency fee
details:
At present, the fee for agency including corporate agency is
1. Reference of transfer (UTR Number)
being paid by demand draft. The credit for the amount is given
2. Name of the Insurance Company
in the portal on receipt of the demand draft in hard copy from
3. Name of the Official remitting the Amount
the insurers. This procedure is slightly time consuming. As an
4. Name of the Transferor Bank & Branch
improvement in the system, the insurers are required to follow
5. Amount Remitted
the following procedure with regard to payments to IRDA towards
6. Purpose of Remittance
replenishment of web wallet (for the purpose of issue, renewal
7. Date of Remittance
of license and others).
In future, we would require you to send such payment on
Hereafter, you are requested to send the payment using Real
annual basis after estimating the approximate number of licenses
Time Gross Settlement (RTGS) for transferring the funds to the
you would be generating in each financial year including
following account of the Authority
renewals.
Bank of the Bank : Bank of India
This circular supercedes all the circulars issued earlier in this
Branch : Basheer Bagh, Hyderabad
regard and comes into effect immediately.
Account Number : 860120100001938
RTGS Code : BKID0008601 (K. Subrahmanyam)
Executive Director (Admn)
Once the remittance is done through RTGS, you are required
to send an email to Mr. R K Sharma, Chief Accounts Officer at

CIRCULAR
October 17th, 2008 Circular No. 018/ IRDA/ORD/ October, 2008

TO Branch : Parishram Bhavan
ALL CEOs of Insurers & Reinsurer Account Number : 30010694902
1FSC Code : SBIN0002769
Re: Remittance of renewal of Certificate of Registration fee -
Regulation 20 of IRDA (Registration of companies) Regulations, Once, the remittance is done through RTGS, you are required
2000. [Please see section 3A of the Insurance Act, 1938] to send an email of pdf file (which contains signature of the
officer) to Mr. R K Sharma, Chief Accounts Officer at
At present, the fee for renewal is being paid by demand draft /
rksharma@irda.gov.in with a copy marked to Mr. K Subrahmanyam,
pay order along with application in Form IRDA/R5 for the renewal
Executive Director at edadm@irda.gov.in indicating the following
of the certificate of registration in hard copy by the insurers.
details :
As an improvement in the system, the insurers are requested to
follow the following procedure with regard to payment of the 1. Reference No. (UTR Number)
renewal fee to IRDA. 2. Name of the Insurance Company
3. Registration Number (allotted by the IRDA)
Hereafter, you are requested to send the payment using Real
4. Name of the Transfer Bank & Branch
Time Gross Settlement (RTGS) for transferring the funds to the
5. Amount Remitted
following account of the Authority.
6. Date of Remittance
Name of the Bank : State Bank of India

irda journal 6 Nov 2008

in the air

7. Remittance for the financial year ended 31st March__ (Specify CAO, Insurance Regulatory and Development Authority,
the year). Parishramabhavanam, Fateh Maidan Road, Basheer Bagh,
8. How the Amount Remitted has been determined (furnish Hyderabad, 500004 in this regard.
details)?
This circular supercedes all the circular issued earlier in this
9. Name and Signature of the Officer remitting the Amount
regard and comes into effect immediately.
Apart from the above, the application for renewal in Form IRDA/
(K. Subrahmanyam)
R5 as prescribed in IRDA (Registration of Indian Insurance
Executive Director (Admn)
Companies) Regulations, 2000 should be sent separately to the

CIRCULAR
11th Nov, 2008 Circular No. INV/CIR/020/2008-09

Re: IRDA (Investment) (4th Amendment) Regulations, 2008 - 8 Outsourcing of (Existing Circular
Reg. Investment No. INV/CIR/031/2004-05 &
To Function Circular No. INV/CIR/058/2004-05)
All Insurers 9 Investment in (New Guideline
MBS, PTC & SRs No. INV/GLN/009/2008-09)
It may be recalled that IRDA vide Notification F.No. IRDA/Reg/5/
47/2008 dated 30th Jul, 2008 published the 4th Amendment of
Points A to F accordingly detail the changes under the respective
Investment Regulations on 22nd Aug, 2008. Consequently the
aspect of investment management. The revised instructions
extant Guidelines / Circulars either require amendments /
would supersede the extant requirements stipulated in Circulars/
clarifications to give effect to the following amended regulations
Guidelines referred to therein. We further clarify that the points
/ changes.
# 2, 3, 9 and 10 in Annexure II of Circular INV/CIR/008/2008-09
1 Category of (Existing Guideline dated 22nd Aug, 2008 are self explanatory and hence are not
Investments No. INV/GLN/001/2003-04) covered now.
2 Market Value (Existing Guideline We also refer to Circular INV/CIR/008/2008-09 dated 22nd Aug,
- for FORM-3A/ No. INV/GLN/003/2003-04) 2008 under Point # 1 Annexure II, where in IRDA had directed all
FORM-3B insurers to file a compliance certificate of a Chartered
3 Investment in (Existing Circular Accountant [not later than 1st week of Jan, 2009] to the effect
Venture Fund No. INV/CIR/007/2003-04) that Investment Risk Management Systems and Process [as per
4 Investment in (Existing Guideline Annexure III of the above referred Circular] are in place and are
Mutual Funds No. INV/GLN/004/2003-04) working effectively.

5 Statement of (Existing Guideline The Institute of Chartered Accountants of India, in consultation
Investment No. INV/GLN/005/2003-04) with IRDA, is in the process of issuing a technical guide to
Reconciliation Chartered Accountants, to cover both Investment Operation
6 Equity Investment (Existing Circular and IT Systems. Insurers are advised to provide all the requisite
through IPOs No. INV/CIR/046/2004-05) information to the Chartered Accountants to facilitate an
objective assessment for finalizing the compliance certificate.
7 Investment in (Existing Circular
Perpetual Bonds No. IRDA/INV/CIR/005/2006-07) (C R Muralidharan)
Member


in the air

CIRCULAR
October 17th, 2008 Circular No. 019/IRDA/NL/F&U/Oct-08

To 2. Insurers are permitted to file add-on covers over and above
CEOs of all General Insurance Companies the erstwhile tariff covers in fire, engineering, IAR and motor
OD with appropriate additional premiums. 'Loss of use' and
Re: File Use Guidelines for General Insurance Products -
waiver of depreciation' under motor OD insurance are some
Relaxation of Terms & Conditions of Coverages.
examples.
Insurer's attention drawn to Para '2' of the Authority's Circular 3. Insurers are permitted to extend engineering insurances to
No.021/IRDA/F&U/SEP-08 dated 28th September 2006, which reads movable / portable equipments.
as under: 4. Minimum TSI limit of Rs.100 crores under erstwhile IAR tariffs
Insurers shall not vary the coverage, terms and conditions, are removed and insurers are permitted to file IAR products
wordings, warranties, clauses and may file their proposals for for all industries including petrochemical industry.
changes in cover, terms, wordings, etc 31 March 2008. In respect 5. Save as mentioned in (1), (3), and (4) above, insurers are not
of products currently governed by tariffs, deductibles other permitted to abridge the scope of standard covers available
than the deductibles set out in the unless permitted under under the erstwhile fire, engineering, IAR and motor (OD)
current tariffs shall not be permitted before 31.03.2008. Covers tariffs, beyond the options permitted in the erstwhile tariffs.
not permitted under tariffs should not be granted by way of 6. Revised products, subject to approvable under File & Use
'difference in conditions' in insurance hill 31.03.2008. Guidelines may be offered to the present policy holders on
renewal. In other words, insurers are not permitted to cancel
The Authority vide its circular no. 066/IRDA/F&U/Mar-08 dated
existing insurances to replace them by the revised products.
March 26, 2008 advised all insures to continue to use the
However, insureds shall have the option to cancel their existing
coverage, terms & conditions, wordings, warranties clauses and
policies on short period scales and go in for the revised
endorsements of the erstwhile tariff classes of business in fire,
products.
engineering, IAR and motor (OD) effective 1st January 2009.
7. While filing revisions, insures will also file projections of the
1. Insurers are permitted to file variations in deductibles from volumes and the expected profit margins to be generated
those prescribed under the erstwhile fire, engineering, IAR from the revised products.
and motor OD tariffs subject to written disclosures and
acceptance by the insured prior to finalization of the (Prabodh Chander)
insurance policy. Executive Director


vantage point

Leveraging Group Strengths
KEY FOR HIGHER PENETRATION

IN A COUNTRY WHERE INSURANCE HAS TO BE SOLD, ONE FORM OF INSURANCE THAT CAN BE USED AS A STRONG MEDIUM

TO INCREASE THE PENETRATION LEVELS IS GROUP INSURANCE’ OPINES U. JAWAHARLAL.

T
wo factors associated with a person feared can be totally warded off. One of In India, group insurance made a late start
obtaining insurance are insurability the basic underwriting factors associated when some employers offered it as a
and affordability. While both these with group insurance is that the group benefit to their employees during
factors are extremely crucial, the second should be a subsisting one; and insurance the years immediately preceding inde-
one plays a major role in a country like should only be incidental to it. By pendence. Even after that, the progress
India where priorities are elsewhere. ensuring this, the ‘health’ of the group has not been very encouraging, owing
In such a scenario, one dynamic concept can be taken for granted and the usual partially to the fact that the
that could provide some plausible answers underwriting strengths fall in place remuneration for the distributors was not
is ‘Group Insurance’. As the insurability automatically. Insurers also may insist on very high. The fact that the high levels of
a certain minimum number of participants service associated with individual
factor is applied to the group and not to
in a group in order that any possibility of insurance are not required to be
the individual, it brings a larger number
anti-selection is kept at bay. rendered did not appeal to the
of people under the umbrella; and being
distributors. Of late, group insurance has
cost-effective on account of group One limitation that group insurance
been making a steady progress although
dynamics, it also renders easier suffers from is that the employees, when
we are yet to reach the levels that would
affordability. It also assumes higher they attain superannuation, may be left
without any insurance that would make otherwise put us on the list of
importance in emerging markets in view
it detrimental to their interests. However, forerunners. In a country with poor
of the low levels of insurance education.
by ensuring that they opt for voluntary penetration levels, group insurance can
The emergence of group insurance, insurance during their working age, this work as a very dynamic medium to
despite the foregoing advantages, was on problem can be overcome. Further, promote insurance among a larger
a low-key and a few reservations that insurers may design products that number of people.
were paraded were that it will affect the continue to offer risk coverage even after ‘Group Insurance’ will be the focus of
progress of individual business and further the retirement of the individual, although the next issue of the Journal. There will
that it dampens the spirit of proper at a higher price. Insurers should also look be articles from different practitioners
selection. Group insurance acts as a at the possibility of offering group and others that will throw light on the
strong supplement to individual insurance insurance products to employers on a finer aspects of this very important area
and does not erode its potential. Further, layered basis – by offering varying risk of insurance.
by taking certain precautionary coverage for different levels of
measures, the adverse selection that is employees.

The Dynamics of
Group Insurance
in the next issue...


issue focus

The World of Riders
ADDING VALUE

RAJASEKHAR MALLELA, VENKATA MADHUKAR KANAGALA AND PURNANANDA KUMAR DIVAKARUNI COMMENT THAT RIDERS
ADD A GREAT DEAL OF FLEXIBILITY FOR THE CLIENT AND AS A RESULT, THEY AFFORD THE EASE OF TAKING CARE OF ALL

THEIR INSURANCE NEEDS; RATHER THAN HAVING TO BUY A POLICY FOR EACH.

P
roduct innovation is one of the because they do not include cost for • offer ease in serviceability of portfolio
conspicuous developments in post inherent benefits that are not useful by insurance companies or advisors
liberalization era of Indian • provide cost advantage because savings Today, with the availability of diverse
insurance industry. Traditional off-the- in transaction costs are passed on to riders, customers have an opportunity to
shelf products have given way to tailor- customers shop around for them and choose the
made and market sensitive products that • provide flexibility in timing for increase best ones that can serve their present
have been overwhelmingly appreciated by or decrease in protection and future needs. Table-1 below
customers. Riders helped this transition describes some of the commonly known
• provide flexibility to add or cease
by garnishing the menu of products to riders and highlights the Unique Value
benefit according to usability
serve unique needs of customers. Proposition they can offer to customers.
• help providing suitable and While the generic rider names are listed
Rider is an additional coverage added to comprehensive protection for family here, it may be noted that they may be
any insurance product to provide more christened differently by different
• help easily manage insurance portfolio
insurance protection. It can be added insurance companies.
in terms of financing premium payments
to the insured's coverage or can bring in
other insureds such as spouse or children
Table-1: UVP of Typical Riders
too. Some type of riders help making life
insurance policy a package of 'benefits' Rider Brief Description UVP
a) Additional/Extended Coverages
to suit every life event for an individual
Term Adding term insurance a) Can be added to any plan such as
or his family; while yet another type Riders coverage on insured endowment, ULIP
provides protection to investment value under different plan b) Can be added at issue or later while
of the policy. The terms 'Riders' and policy is in force
c) With little additional cost, coverage can
'Benefits' are often interchangeable, but be increased manifold
more importantly, both of them serve as d) Useful for customers with Housing Loan
to get insurance coverage to the extent
valuable add-ons to the base product.
of outstanding mortgage loan
From customers' perspective, riders have b) Contingent Benefits
become part of their insurance solutions Accidental Pays additional amount a) Available as add-on for every product to
as they provide great value additions as Death in the event of insured’s cover risk of accident
Benefit death due to accident b) Low cost for a high benefit
indicated below:
Rider
Waiver of In case of disability, a) Ensures that policy does not lapse in
Riders Premium premiums on policy are the unfortunate event of Payor death in
• enhance product configurability Rider waived case of children policies or insured’s
own disability
according to changing needs b) Proves promising addition for high
• provide better economic value, premium policies


issue focus

Disability Monthly/periodical a) Saves insured from possible financial rider renews every five years without
Benefit benefits, typically as a hardship in case of permanent/ any need for satisfying insurability
Rider percentage of Sum temporary loss of employment
Assured, paid in the requirements on the insured.
b) Premiums are waived
event of disability Convertible Term riders provide

In case of life assured’s a) Helps family in securing income during opportunity to insured to convert term
Income
Benefit death, claim proceeds the period of adjustment after death of insurance into any other form of
Rider are paid in installments breadwinner insurance such as endowment or whole
Critical Lump-sum or periodical a) Proves very useful for covering high cost life, again without the need for meeting
Illness benefits are paid when treatment diseases like cancer, heart insurability requirements. Flexible
Rider contracted with attack, and end stage renal diseases features include
specified diseases b) Can be added to different types of policies
renewal intervals of one, five or ten
c) Investment value Protection years
Investment If market returns are a) Provides much needed protection to
Guarantee negative, then claim down-side risk of Unit Linked Insurance number of renewals like two renewals
Riders value is guaranteed to Plans (ULIPs) every ten years
the extent of total b) Customers can still have access to policy
premiums paid renewal until insured reaches a
values in case of high returns
c) Available for Top-up premiums paid in ULIPs specified age
d) Enhances customer confidence and option to terminate instead of
encourages investments with peace of renewing or converting to any
mind
permanent insurance.
• Coverage applicability to other lives
in the family: Customers have
Rider Diversity happening of certain events like
An insurance product offered with a marriage or child birth. For example,
variety of riders to choose from would for an insured of age 20, rider may
be as much a treat to customers as a pizza provide this option at the ages 25, 30,
served with one’s own choice of salads 35 and 40. This means, insured can
and dressings. We can see a world of purchase more coverage on four
choices for customers when we glance occasions at the respective ages,
An insurance
at various riders available in western without providing proof of insurability.
insurance markets such as US and Canada. Generally, there will be a maximum limit
product offered
The diversity of their features described on number of times that such an option with a variety of
here, will present us with an overview of is provided by insurer, and, on coverage riders to choose
riders that can be made widely available amount that can be purchased at one from would be as
and popularized for the benefit of time or all occasions put together.
much a treat to
customers in India. Applying this rider to Indian context,
consider a GIR on Endowment policy at
customers as a
• Guaranteed Insurability: People tend to
become less insurable as age advances age 20. This rider would help the pizza served with
thus making it difficult to get a new insured to purchase coverage such as one’s own choice of
policy. In this context, Guaranteed endowment or whole life at specified salads and
ages – all without need for further
Insurability Riders could be a useful dressings.
addition to base product to allow an insurability checks.
option to purchase additional coverages • Coverage Renewability & Convertibility:
of any class without providing proof of Some riders guarantee renewability of
insurability. Such options will be given coverage at defined intervals. For
on insured’s specified ages or on example, a five year renewable term


issue focus

convenience of providing insurance annuities. In this context, the
coverage to spouse and children too customers can evaluate cost impact
by adding term riders thus securing between two options of choosing
complete protection to family. Spouse bundled product offered by insurers
and Child Riders that are renewable and and their own assortment of coverages.
convertible Term riders bring in several
• Health Care Riders: Health care riders In order to afford
other choices as discussed earlier. In
like Long Term Care (LTC), provide more flexibility,
case of insured’s death, riders on
additional insured can be continued as
periodical benefit payments for long customer may be
individual coverages on respective lives.
term rehabilitation or prolonged allowed to choose
nursing care. We have Critical Illness
• Coverage variability: Customers may their own
riders available in India that cater to
prefer to have increasing or decreasing financial needs of major medical
assortment of
death benefit over a period to suit their procedures for specified medical assurances and
specific circumstances. Increasing/ conditions. And certain hospital annuities.
Decreasing death benefit riders provide benefit riders provide a fixed amount
such options to customers. On each of benefit for few days of
policy anniversary or at specified hospitalization. LTC rider is an extension
intervals, death benefit would increase of such benefits, possibly for longer
or decrease by an amount specified at durations. Some enhanced features
the outset. They do not call for include option to choose amount of
insurability evidence for increases. Cost benefit, duration of benefit, benefit • tap huge market potential for growth
of Living Adjustment (COLA) riders also amount linked to cost of living index. in premium income
fall in this category. In this case, the
• Investment Value Protection: • help spreading insurance coverage
amount of addition to coverage will be
in line with increase in chosen price Customers of ULIPs would have to pass
• help improving persistency of policies
index. With this adjustment in through rough weathers in stock
• help field force by providing greater
coverage, this rider ensures that the market climate. Various guarantees
business opportunity
original intended coverage does not offered on variable products such as
Guaranteed Minimum Withdrawal • help shorten sales process for repeat
lose its monetary value due to high
Benefit, Guaranteed Minimum sales; closing the sale with existing
inflation.
Accumulation Benefit widely available customers is much easier than closing
• Coverage Assortment: A Universal Life a sale with new customer
in western markets as riders protect
(UL) product can take another UL or a
the investment value in the policy. • save policy administration transactions
participating Paid up Addition (PUA)
These riders would prove valuable costs from initial sale of riders through
coverage as rider. Similarly, Variable
additions to ULIPs purchases. their claims
Universal Life can have a Renewable
Term Rider. More generally, one class As more variety of riders become
Service Delivery Mechanism available, there will be growing need to
of insurance could be added as rider
to another class of insurance, subject Gearing up for further product expansion strengthen service delivery mechanism
to product design feasibility as per through riders seems to be a business for riders during their life cycle – from
actuarial considerations. In India, we imperative for insurers. By making issue through claims. A high level check
have only term riders that can be added available wider variety of riders and list of key aspects to ensure rider
to other coverages such as Endowment, popularizing them, insurers not only marketing and serviceability readiness is
Unit Linked or Pension products. In overwhelm customers but also - presented here:
order to afford more flexibility, • satisfy product differentiation • Actuarial: Can explore the riders
customer may be allowed to choose objective and stay current with available across the globe and customize
their own assortment of assurances and competition for Indian environment. Design product


issue focus

specifications and guidelines especially claims. It has to be evaluated by premiums for exemption under different
to consider risks contributed by riders insurers if free look provision can be sections. Proper appropriation of
due to additional protection and other made available for new riders added. premium and certificates of payment
key aspects like moral hazard, insurable Policyholders must feel satisfied that for premiums and claims will be required
interest and financial underwriting. they made a good economic choice to comply with the regulations.
• Sales Training: To leverage on the with riders than buying independent Guidelines have to be established to
flexibility brought in by riders, sales coverages for each need. In case of any handle these servicing needs.
force requires special training. Advisors dissonance, they can consider making • Claims: Processing claims on the riders
should be well equipped to plug in necessary changes to the contract needs special focus, because the policy
riders that suit customer circumstances during free look period. is still active while a claim is processed
and conveniences. They primarily need • Policy Servicing: Riders can be added on one part of the policy. Conventional
to ensure that there is no overlap of at issue or later while policy is active. claim procedures would need revision
benefits and that all the disparate Similarly, they may be ceased prior to to process specific type of claims on
insurance needs are satisfactorily base coverage. Participating riders may riders. Operating guidelines and claims
covered. They should be thoroughly need additional servicing in the form payment mechanism for Disability,
trained in using illustration software in of requests for loans, withdrawals, premium waiver benefit, Long Term
sales which readily assist customer non-forfeiture, lapses, revivals, Care, Cost of Living Adjustment need
visualize the benefits of riders. surrenders and other coverage level to be established or enhanced as
• Underwriting & Reinsurance: Riders transactions. A few other riders require appropriate.
would call for additional check points sending notices and apply the options • Information Technology upgrades:
in underwriting process especially in chosen by policyholders. Also, income Existing IT applications would need
terms of insurability checks and tax regulations require categorizing great deal of upgrade and maintenance
financial underwriting. Some riders may to support rider functionality. This
be available at modified terms or may would position servicing staff to process
not be available at all while a base customer requests effectively and help
product can still be offered. For them realize the product benefits.
example, accident benefit rider may be
declined to a risky life but a base Conclusion
The process of
product may still be offered, on Traditionally, insurance has been serving
modified terms though. Similarly, a gathering
‘Protection’ as well as ‘Savings’ needs of
Spouse/Child rider would call for additional customers with a variety of products.
insurability check on other lives too. requirements due Riders have facilitated packaging these
For the purposes of financial to riders may need two elements to offer more beneficial and
underwriting and reinsurance
assessment, total sum at risk should
to be refined so comprehensive solution to customers.
It is a win-win situation when customers
consider all rider coverages too. The that customer has a
appreciate the nuances of product
process of gathering additional pleasant and hassle configurability and insurers ensure
requirements due to riders may need free experience in preparedness of their service delivery
to be refined so that customer has a
meeting them. mechanism.
pleasant and hassle free experience in
meeting them.
• Policy Issue & Free Look: All the
exclusions and clauses on account of
riders have to be properly attached so The authors are Consultants at Computer
Science Corporation. All implicit or
as to avoid any inconvenience and
explicit views expressed in this paper are
unpleasant experience in case of of authors only and not of their employers.


issue focus

Riding on Health Insurance
MULTI-TIERED PROTECTION FOR COMPREHENSIVE COVERAGE

DR. SOMIL NAGPAL AND RICHA N GAUTAM EMPHASIZE THAT LEVERAGING THE ADD-ONS AVAILABLE TO BASIC HEALTH

INSURANCE POLICIES WOULD GO A LONG WAY IN ALLEVIATING THE DIFFICULTIES ASSOCIATED WITH HUGE HEALTH-
RELATED EXPENSES IN THE INDIAN DOMAIN.

W
ith ever-increasing costs of could also be expenses on foreseeable interchangeably with health insurance.
healthcare, newer and more events like maternity and infant care or These products protect individuals from
expensive health technology the chronic ailment of a family member; the high expenditure they may need to
and also the higher costs of newer and on unforeseeable events like
generations of pharmaceuticals; bearing accidents and injuries. Plans have also to
the financial dent of a major health be made to deal with the possible, but
episode is becoming increasingly difficult often unpredictable, major illnesses Health related
the world over, even for the relatively well- which may require substantial amounts expenses do have
off individuals and countries. When this of money. Illnesses are, in fact, estimated
the potential for
expenditure arises in a context where to be impoverishing 2.2% of India’s
we, as Indians, spend about 70% of all population every year3,4 and health related
catastrophic
health expenditure in the country from expenses do have the potential for effects on the
our personal resources 1,2 , the catastrophic effects on the finances of finances of
importance of adequate planning for individuals and their families; and hence
individuals and
health contingencies cannot be over- the importance of providing multi-tiered
emphasized. protection for comprehensive health
their families; and
insurance coverage. hence the
The various health-related expenses
importance of
which a person would need to provide Since the 1980s, when the product
for could include the expenses on Mediclaim was introduced in India by the providing multi-
episodes of minor ailments treated on four PSU insurers, health insurance tiered protection
outpatient or domiciliary basis, the more products available in the Indian market for comprehensive
serious ones of these could require have been dominated by hospitalization
health insurance
hospitalization which would ensure indemnity products, to the extent that
substantially higher expenses. There the word Mediclaim was often used coverage.

1 Mahal A, Sakthivel S, Nagpal S. National Health Accounts for India. In: Rao Sujatha, editor. Financing and delivery of health care services in India. New Delhi: Ministry
of Health and Family welfare, 2005: 256-263
2 Ministry of Health & Family Welfare. National Health Accounts, India. New Delhi: Government of India, 2006
3 Peters D, Yazbeck A, Sharma R, Ramana G, Pritchett L, Wagstaff A. Better Health Systems for India‘s poor. Washington: World Bank, 2002
4 van Doorslaer E, O’Donnell O, Rannan-Eliya RP, Samanathan A, Adhikari SR, Garg CC et al. Effect of payments for health care on poverty estimates in 11 countries
in Asia: an analysis of household survey data. Lancet 2006


issue focus

incur in the event of a hospitalization and or there could be need for long term
thus do take care of most such events of nursing care or home-based nursing. Such
illnesses requiring higher amounts of expenses can thus be financially
money. But there are limitations to what devastating to the household where such
such products can cover, and a multi-
The Personal a critical illness may occur. Availing of
tiered approach to one’s health insurance Accident policies, Critical Illness Benefit products, which
needs can provide a more comprehensive which can again be provide a lump sum amount on the
protection. This article briefly discusses availed on a diagnosis of a critical illness, thus provides
the supplementary covers (though some for a cushion against such expenses.
of these may not yet be available as riders
standalone basis or Critical illness benefit products, again, are
to existing health insurance policies, but in a packaged available as standalone products or as
could be available on a standalone basis) product with health riders to life and non-life policies, or as a
which could be availed of by the insured insurance, are also a component of a packaged health
in addition to his hospitalization indemnity insurance product; and provide for high
useful supplement to
policy, for enhancing the protection sum insured limits, ranging up to several
available to him. the hospitalization lakh rupees of lump sum payout. Another
indemnity products. product, the Cancer Insurance policy,
There are now various products available
protects from only the dread of cancer
which provide a Daily Hospital Cash benefit
and not from other critical illnesses, but
which is in the form of a daily fixed
is priced attractively for a high amount
allowance which could be used to cover
of coverage, and is on indemnity basis and
the incidental costs associated with
not as a lump sum payout. There are also
hospitalization (such incidental costs products. They provide for features like
Critical Illness Indemnity products which
could include the travel and stay costs compensation for loss of wages, and even
reimburse some of the costs due to
of an attendant, for example). This is some outpatient coverage for accidents
critical illnesses, rather than a lump sum
available on a standalone basis, and also in addition to inpatient coverage, without
payout, and are priced lower than benefit
as an optional component of a packaged using the sum insured of the health policy.
products for this reason.
health insurance policy. The Hospital Cash The provision for a benefit payout in the
products can also be considered useful event of death or permanent disablement For patients already suffering from
to pay for expenses not covered under is also of value, especially as it comes at chronic diseases like Diabetes, products
the hospitalization indemnity product. a small premium. Thus, an amount of are now available which are based on the
Thus, for example, where the hospital Rs.1000 per year could buy a Rs.5 lakh PA disease management platform, and include
indemnity product has a sub-limit on the cover which includes coverage for death, coverage for some medicines and regular
room rent, this allowance could well be permanent disablement and temporary laboratory tests on OPD basis, in addition
utilized to avail of a higher category room. disablement in addition to Medical to other coverage in the product. This
Thus, at a nominal premium, this product benefits in the event of an accident. category of products on the platform for
provides an allowance which is in addition management of a chronic disease may
Dreaded diseases like cancer, heart
to the indemnity claim and is unlinked to develop further in the days to come and
attack, coma or major organ failure may
expenditure incurred. Products with daily will be a useful supplement to the
be quite infrequent, but are associated
allowance ranging from Rs.100 to Rs.5000 hospitalization indemnity coverage for a
with extremely high costs of healthcare;
are already available in the market, which person who is affected with such a
and such costs include a substantial
can be availed as per the specific needs chronic ailment.
component which would not be covered
of the insured.
under the hospitalization indemnity There are also riders now available, which,
The Personal Accident policies, which can products. This could be due to exceeding for a fixed upfront premium, allow free
again be availed on a standalone basis or of the sum insured due to the very high dental or OPD consultations from the
in a packaged product with health costs involved, or there could be high provider network of the insurance
insurance, are also a useful supplement outpatient (domiciliary) expenditure not company and thus cover dental
to the hospitalization indemnity covered under hospitalization insurance, treatment or OPD treatment in a limited


issue focus

exception of Personal Accident products, in health insurance, which has been
only provide coverage in India. Thus, marketed by the public sector insurers
when traveling out of India, yet another as ‘Bhavishya Arogya’. It is also a
tier available for protection against health hospitalization product, but can be
Health Insurance is a contingencies is Overseas Medical effectively used in younger ages (availing
need which cannot Insurance plans, which are sometimes of tax advantages, too) to build up health
be overlooked any packaged as Overseas Travel plans by protection for older age. It is also likely
including other components like loss of that we see more savings-related
more, and it is no
baggage. The cost of unexpected medical products offering more innovations and
wonder that it now treatment during an overseas visit can be options, in the days to come.
constitutes the fastest very high and could indeed be beyond
Health Insurance is a need which cannot
growing segment of the means of the overseas traveler. Just
be overlooked any more, and it is no
to illustrate the difference in costs, an
general insurance, wonder that it now constitutes the
Ultrasound investigation which costs
having grown 60% in Rs.300 to Rs.1000 in India, could cost a
fastest growing segment of general
2007-08 alone. similar amount in dollars, in many western
insurance, having grown 60% in 2007-08
alone. However, with increasing choices
countries; while a physician consultation
available in the market, the decision is
itself may costs thousands of rupees.
no longer whether to buy health
Some countries even insist on having a
insurance, but also as to which products
valid medical insurance as part of the visa
way. Although no medicines or to buy, and how to package the existing
documentation. Although the sum insured
investigations are covered in this rider, products for the best ‘fit’ with the
is high by Indian standards (like USD
it is one step towards coverage of protection needs of oneself. A multi-tiered
50,000 in many products), it is in line with
OPD costs. approach, carefully choosing a
the expected high costs in foreign travel,
combination of hospitalization indemnity
Another option now available are the top- but as the probability is low and the
products with supplementary covers,
up or high-deductible covers for duration of cover is short (often in days
riders or additional policies, as discussed
individuals (and families) who are already or weeks), it does not cost a fortune
above to meet the specific needs of the
covered for certain risks by their existing to buy.
household, would lead to more
insurers or employers. Such individuals
Another product for health needs is what comprehensive protection against health
can buy such top-up covers which
is known as a Medical Savings Account eventualities.
provide them coverage beyond the
(MSA) or a Healthcare Savings Account.
deductible chosen, which could be from
MSAs are not a new concept amongst
Rs.2 lakh to Rs.5 lakh per episode in the
international health financing models; and
various products currently available; and
in fact, for over two decades in Dr. Somil Nagpal is Special Officer (Health
the coverage of these products only Insurance), Insurance Regulatory and
Singapore, and for over a decade in China, Development Authority. Mrs Richa N
starts after this amount. These products
Medical Savings Accounts have found wide Gautam was formerly a Chief Manager with
are cost-effective and do not duplicate one of the private life insurers and is
acceptance; and these are also
the coverage already available, for presently Associate VP in a media
operational in South Africa, US and many corporate. This article is contributed in
example through employer-provided
other countries5. While full-fledged MSAs their personal capacity and views provided
group health insurance. herein do not reflect those of any
are not yet available in India, we too have organizations to which they are currently
All the above products, with the a little known form of an MSA-type model or previously affiliated.

5 Nagpal S, Gautam RN, Singh P. Medical Savings Accounts. In: Planning and Implementing Health Insurance Programmes in India - An Operational Guide. IPH/ WHO
India. 2006


issue focus

Life Insurance 'Riders'
IN TUNE WITH THE CHANGING TIMES

DAVID CHANDRASEKHARAN WRITES THAT THE LEVERAGE THAT THE RIDERS IN A LIFE INSURANCE POLICY PROVIDE IS AKIN
TO WHAT A CAR MANUFACTURER CUSTOMIZES A MODEL IN TUNE WITH THE DEMANDS OF THE BUYER.

Introduction past years before the opening up of the Benefit’. But the thinking then fostered
Riders, as the name itself suggests, come insurance sector. The word ‘Rider’ itself by the monopoly status of the insurer was
riding ‘piggyback’ on the basic life is new in the Indian insurance industry. some what like ‘Henry Ford’s who is

insurance product. The rider is an add We of course had a few add on features known to have told his customers that

on benefit which enables a policy holder (what we now call riders) like double they can have their car in any colour of

of life insurance to secure for himself an Accident Benefit, Extended Permanent their choice, as long as it was black!

additional cover of his choice along with Disability Benefit and the‘ Premium Waiver
Yes, we have to acknowledge that the
the main life policy. credit for launching a number of new
riders from day one into the Indian
Life insurers today offer a number of
Insurance market and giving them wide
riders in our country and they come at
publicity clearly goes to the new entrant.
an additional cost. The policy holder can, The policy holder
The state owned life insurer was of course
by paying the appropriate premium, can, by paying the quick to follow suit and today all life
choose one or more riders which he
appropriate insurance companies in India offer more
needs. The riders thus help a customer
premium, choose or less the same riders and the Indian life
of insurance to customize the plain vanilla
life insurance product to some extent by
one or more riders insurance customer is spoilt for choice

adding on the riders which he requires. which he needs. as never before.

The riders thus help
Buying a life insurance product today has Riders Defined
a customer of
become some what like buying a car. Riders are special additions to the
You choose the basic model that appeals
insurance to
standard policy provisions that confer
to you and then ask for additional features customize the plain benefits to the policy holders which are
you want that do not come as standard vanilla life not available in the basic policy contract.
equipment and the dealer provides a insurance product These provisions, when rider benefit is
model with the additional features at to some extent by made available, become part of the
extra cost. The insurer today offers a
adding on the contract. Insurers do not offer riders with
wide variety of additional features like the all types of life insurance policies.
riders which he
car manufacturer and the additional All riders have costs, limitations and other
features which are on offer are the riders
requires. stipulations that should be met for the
the customers of insurance can pick and relevant benefits to be made available by
choose for a price. the insurer under the policy contract.

However it was not quite like this in the The ‘Rider’ is somewhat similar in many


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