Zero waiting period: Why are insurers denying customers this benefit?

Health insurance is a critical protection coverage for individuals and families to mitigate their financial burden against healthcare expenses. However, most health insurance plans come with terms and conditions stated in the policy document. ‘Waiting period’ is one such term that many insurance companies incorporate in their health plans. The implication: such insurance policies do not come into effect immediately after its purchase. It also means that a policyholder can make a claim only after the waiting period is over. Insurers incorporate different waiting periods in their plans, starting from a 30-day initial waiting period for all non-accidental claims and between one and four years for specific diseases and surgeries.

Policies that have a waiting period of 30 days will not cover any illness during this time unless it is for hospitalization due to an accident. Policies with a two-year waiting period will not cover hospitalization and surgeries for kidney stones, hernias, cataracts, hysterectomy, and joint replacements for the first two years. At present, 14 of the top 15 health plans recognized by Mint Beshak insurance ratings have a 30-day wait period for any claim apart from an accident. This means even hospitalization due to fever, malaria, dengue, etc. is not covered in the first 30 days. These 14 companies also have a two-year waiting period for ailments such as cataract, hernia, hysterectomy, etc.

A zero-waiting period is a feature that enables customers to get full coverage the moment they buy a health insurance plan. Besides hospitalization due to accidents, a policy with a zero-waiting period will provide coverage for all diseases with an immediate effect. While such a policy has benefits for customers, many insurers avoid this feature. The primary reason is the lack of trust due to information asymmetry across buyers and sellers of insurance products. Many customers look to buy health insurance only when they are diagnosed with a disease. However, the business model of insurance companies depends on spreading a measurable risk across a bigger pool of customers—they need a good mix of healthy customers as well. Currently, insurers maintain this balance by creating such wait periods in their policies. In a zero waiting period regime, this delicate balance breaks as many customers who are diagnosed with a disease will want to buy insurance just before the treatment. This will lead to a significant surge in the proportion of unhealthy customers in the portfolio, resulting in higher risk exposure to the insurers and more expensive insurance policies.

In the lending industry, this trust issue has been resolved by the launch of industry-wide trust-markers like the CIBIL score which indicates the creditworthiness of the customer based on past transactions. CIBIL score has not only democratized data across stakeholders but also ensured that it drives the right customer behavior and also allows companies to innovate. Lenders are now able to weed out the bad customers (a small minority) and offer superior customer experiences to the good ones.

How can insurance companies strike the right balance between risk exposure and customer benefits? For insurance companies to offer coverage from day zero, they must have a robust system in place to assess the health of their customers. Mandating medical tests for all eligible customers can help insurers accurately determine the health of the individual and thereby offer rates accordingly. The digitization of health records and the ease of customer data flow across various ecosystem players as part of the Ayushman Bharat Digital Mission (ABDM) charter can further help insurance companies underwrite better and offer better rates to customers based on their health.

Lastly, the regulatory authority should allow insurers to reject claims of customers who lie about their health conditions. This will coax customers to be honest about their health condition. Combining all these data points, we can have an industry-wide health index score, which drives the right behavior for the customer and allows insurers to bring in superior customer propositions. Technology, coupled with the right expertise and partnerships, can sow early seeds to equip insurance companies to deliver zero-waiting periods in their health plans. We then only need a few insurance companies to stick their necks out and do what is right for the customers.

Rupinderjit Singh is vice-president of retail health at ACKO.

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