Friday, August 26, 2011

Money back Health Insurance: A huge Misperception & a blunder



Never go by the name: It doesn't mean that a girl named "Santhi/Shanti"(meaning Peace) would be a peaceful person. She could be as dangerous as the notorious killer in your mom's never ending TV serial or She can be as cute as your girlfriend during Kindergarten days who always knew S for Sugar but, never knew S for Shopping.

Many (including the so called regulators) always say that Financial Literacy levels in India need to move north at a better pace than what it is currently moving at. However, irrespective of the level it reaches people need to understand some basic facts. One of them is to “Never go by the name”.

There has been a recent advertisement from IndiaFirst Life Insurance company that shows a person eager to injure himself in order to avail Health Insurance benefits at least on the last day of the policy. And the VO says "Are akalmand IndiaFirst ka moneyback health insurance nahi suna. Ye deta hai protection ke saath returns claim kiye bina." (Haven't you heard about moneyback health insurance from IndiaFirst. It gives returns without claims along with protection)

The perception about this product from the ad that many customers carry is that, "this product will give all the money back as well as a health cover". But, hardly is there a customer who's trying to ask a basic question "At what cost will I get the money back?"

The kind of uneducated sales that happened in the Life Insurance Industry in the past is majorly responsible for the misunderstanding or the misperception the customers have today with words which turned into nouns over a period of time. You say Moneyback and the customer heard it as "a guaranteed product which gives all the money back irrespective of any happenings in the environment / market and the risk that the company takes on his/her Life/Health."

The primary fact is everything in this world has a visible or an invisible price tag hanging around it’s neck. And the risk that any company in the world takes on a person's health via a health policy has a price to it as well. Let's say the industry average price is "X" for a cover of "Y" for your age. So, Would IndiaFirst Life give all the money back by charging you only "X" and at the same time take risk on your health for an amount "Y"?? Not Unless RBI has given a franchisee of minting press to it allowing it to print as many notes it needs.

Hence, the extra cost (quantitative) that you would pay to get the money back is a primary factor to be considered. How much is this extra cost? And are there any extra benefits by paying this extra cost that you can get out of this product that, other products don't have (Qualitative) would be a secondary factor. And "Is this the only product in the market and If not, Is this the best product in that category?" would decide if it is a marketing blunder from IndiaFirst Life.

As far as my understanding goes, the extra amount that you would pay in this product is definitely not worth it from the view of both Quantitative and Qualitative factors. And, this is not the only product in this already born but recently rediscovered category. If you are trying to market a product into an already born but recently rediscovered category, you need to ensure that your product is the best. Else, your balance sheet shows the marketing costs for profits shown in someone else's balance sheets. This is something similar to what happened with Aegon Religare in 2008. It has marketed heavily on K.I.L.B (Kam Insurance Lene ki Bimari) to make customers understand Human Life Value concept and the actual Life cover a person needs which made customers rediscover the term plans category. But, the bad part was Aegon Religare was a new player in the market with hardly any credibility and it's quotes for term plans were not among the lowest in the Industry.

Similarly, ICICI Prudential Life has at least a 10times better product called "Heath Saver"(launched in 2008) that can be compared to Moneyback Health Insurance from IndiaFirst Life in the so called already born but recently rediscovered category. A small ad/viral campaign with a fraction of cost by ICICI Prudential at this stage can make huge holes in the marketing balance sheet of IndiaFirst Life.

The product to keep it simple is a Health ULIP. The money that you pay is divided into two parts: Charges and Net Investmenet. It has 3-4 charges under various heads. Premium Allocation charge which is 13% in the 1st year and 2% from 2nd year. Admin charge of 1.8% which increases at 5% per Annum. Fund Management Charges of 1.35% across all funds irrespective of Equity or Debt (1.35% is too high for debt). And it's Morbidity charges are around the average Industry health insurance costs but, it charges you for morbidity charges of everyone under the floater plan although it gives you a floater cover only. This means if you opt for a 3Lakhs floater cover, you pay the sum of morbidity charges for all the members covered calculated on 3Lakhs each as per their age although all the members can in total only claim 3Lakhs. Hence, the primary factor which is quantitative suggests that you can get a better Health Insurance product in the market easily for a lower cost.

I use the word "better" since this product of IndiaFirst Life comes with a number of limitations and conditions which you don't see in a normal Health Insurance plan. To list a few: Limitation on maximum cover during the plan term, Co-pay of 20%, limitation on Surgery fee, etc., Limitation of maximum cover during the term as 5times the Annual Sum Insured is the worst part which means, if you take an annual cover of 2Lakhs the sum of amounts you can claim in this policy is maximum of 10Lakhs over the years post which it automatically gets terminated. Hence, you can decide if there is a need to pay higher morbidity for lesser benefits and other extra charges to manage your Net Invested funds that gives you back the market value of money which is not guaranteed as the actual perception is??

But, India is still a country with a very minor population under the category of financially literate and many of those who are slightly financially literate also do not understand the basic facts: “Never go by the name”.

We need to really wait and see if ICICI Prudential Life will get(if it doesn't take) advantage of the marketing blunder from IndiaFirst Life or will IndiaFirst Life use the misperception to it's advantage and sell a product in the same way as the uneducated sales of past decades.


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