American insurance industry has the knack of finding insurance products for all seasons and reasons as well as for looking for a risk-sharer. While reinsurance is the time-tested practice of passing on the risk undertaken to someone else like the famous Lloyds acting as reinsurer for shipping companies, catastrophe bonds are an innovative product for high-risk taking investors. Since these investors subscribe to their bonds salivating at the prospect of huge interest if no natural calamity happens in a given area during a given period, face the dim and grim prospect of losing their shirts i.e., the bond investment going up in smoke. In other words, in the event of a specified calamity, the insurer would have successfully passed on the buck to the bondholders.
Just as insurers hone their skills and come up with risk-mitigating measures like catastrophe bonds and giving treadmill free to the family that has taken health cover from it in the enlightening realization that there is a mutuality of interest for both in staying fit, on the flip side there are enlightened people who try to avoid insurance. Thus, was born self-insurance.
When insurance premium assumes enormous proportion, it is time to rethink the need for insurance. To wit, Indian Railways has huge investments in rolling stock and machinery. While a family car is advisedly insured, rolling stock of railways need not be because the premium could be staggering. Wisdom lies in setting aside a specified percentage of profits or revenue to the self-insurance fund. Airlines too are tempted to embrace the self-insurance model especially if the insurer insists on insuring each aircraft separately and refuse to view the entire fleet as his oyster. In any case, aircrafts, flying as they do in the air, attract very heavy premium.
Senior citizens are similarly placed when it comes to their health insurance. In India, one approaches an insurer for health cover at the age of say 55 with trepidation because he is viewed as a health risk almost as a reflex action and given the cover at huge premium. And those with a ‘history’ are meant to be fleeced as if history repeats itself whereas the medical community avers that a coronary bypass surgery for example prolongs one’s life or gives a new lease of life. Yet, insurers continue to view him as a great potential risk and squeeze the maximum possible out of him. Yours truly had the mortification of undergoing urgent coronary bypass surgery in 2016 at the age of 59. Ever since he has been enjoying good health, touchwood, but he hasn’t begotten any sympathy from the insurers. In 2018, he took a cardiac health insurance policy for which he has to pay about Rs 30,000 per annum for a measly cover of Rs 4 lakh.
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Such experience chastens one at the sunset years of their lives. Why not embrace the self-insurance? Yours truly has so far paid Rs 1.50 lakh as insurance premium since 2018 which he could have safely invested in a self-styled self-insurance fund to be dipped into for meeting medical exigencies. In other words, the premium could have been for example put in a recurring deposit scheme. In any case ageing brings with it numerous impairments from time to time. Loss of bite with teeth falling with alarming regularity necessitates implants but dental treatment is typically the first to figure in the long list of exclusions mentioned in fine-print as an adjunct to the health insurance policy. Cataract is covered grudgingly by insurers---a typical clause for example saying maximum Rs 20,000 for both eyes when typically, it costs Rs 1 lac in a good hospital. One wonders if there is a cap for kneecaps also, another ailment that afflicts the aged.
It would perhaps be advisedly better as one approaches the age of 50 to start squirrelling away tidy sums every year from one’s savings to be stashed away from normal temptations and strictly used only for medical exigencies. The government on its part can play the role of the facilitator by for example asking PSBs to operate schemes tailor-made for the purpose----higher rate of interest but payment to be made direct to the hospital. Withdrawal only in the sad event of death of the depositor.
Prevention is better than cure. So, the better proposition perhaps would be to stay fit a regular exercise regimen and strict diet control. But diseases and ailments strike unexpectedly even the fittest. Hence the need for health insurance or self-insurance.
—S Murlidharan is a CA by qualification, and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own.
