If you reside in a metropolitan area such as Delhi, Mumbai, or Bengaluru, there might be an increase in your health insurance premiums. Insurers are reportedly contemplating adjusting rates based on the specific city of residence, potentially leading to elevated premiums for Tier 1 city residents.
The rationale behind this potential change lies in the perception of urban living as a higher-risk factor in India. Escalating medical expenses, environmental pollution, and the prevalence of lifestyle-related ailments are driving up the claims ratio for insurers, prompting them to reassess their policy pricing strategies.
While the prospect of increased premiums may appear inequitable to urban dwellers, experts assert that it mirrors the widening health and cost differentials between metro areas and smaller towns, influenced by various factors.
REASONS BEHIND HIGHER METRO RESIDENT PREMIUMS
According to Shilpa Arora, Co-founder and COO of Insurance Samadhan, the variation in premiums is directly associated with the level of risk and cost of healthcare services.
“The disparity in health insurance premiums across cities is rooted in the divergent cost and risk landscapes. In Tier 1 cities, expenses for hospital stays, specialized treatments, diagnostic procedures, and room charges are elevated, particularly with the proliferation of corporate and multi-speciality hospitals that typically command higher fees. The frequency of claims is also heightened in metropolitan areas due to the greater accessibility to healthcare facilities,” she noted.
Arora emphasized that urban lifestyles significantly contribute to long-term health risks. “Ailments linked to lifestyle choices such as hypertension and diabetes are more prevalent in urban settings, amplifying the long-term claim potential. Insurers also factor in the accelerated medical cost inflation in larger cities. Therefore, premiums are determined based on anticipated treatment expenses and claim trends in each locality, rather than solely on the city category,” she explained.
IMPACT OF POLLUTION ON PREMIUMS
Experts also highlight pollution as a silent catalyst for increasing insurance claims in metropolitan regions.
“Illnesses attributed to pollution contribute to elevated claim ratios in metro areas. For instance, locations like Delhi witness a higher incidence of conditions like asthma, COPD, and heart complications linked to poor air quality, resulting in more frequent hospital admissions,” Arora stated.
She elaborated on the dual effect, stating, “there is an increase in both the number of claims and their monetary value.” Treatment costs in cities are inflated due to the dominance of corporate hospitals, whereas smaller towns experience lower instances and costs of treatments. “This explains why insurers often record higher claim ratios in Tier 1 cities compared to Tier 2 and 3 cities,” she added.
APPROACH TO RISK PRICING BY INSURERS
Abhishek Kumar, a Sebi-registered investment advisor and the founder of SahajMoney, elucidated that insurers categorize Indian cities into zones to maintain cost equilibrium. “Numerous insurers segment India into zones — Zone 1 for metros, Zone 2 for Tier 1 cities, and Zone 3 for other regions — and calibrate policy premiums based on actual healthcare expenditures, resulting in metro residents paying 10% to 20% higher premiums,” he outlined.
He further stated that pricing considerations encompass various aspects: “Insurers formulate