Health insurance: Policyholders in smaller cities pay up to 40% lower premium

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Niraj Singh is a 30-year-old resident in Begusarai, Bihar with no health issues. Manoj Kumar, of Singh’s same age, stays in New Delhi and has no health issues either. When they buy a life insurance policy for the same amount of coverage, the policy premium comes out almost equal. However, when it comes to health insurance, Kumar is charged a couple of thousand extra for Rs 10 lakh cover compared to what Singh is charged.

Why so?

The location of the policyholder plays a major role when fixing premium on a health insurance policy. “Most of the insurance companies have a geographical premium differential. People living in cities such as Delhi-NCR, Bengaluru, Mumbai, Surat, Ahmedabad pay regular premium, while those living in non-metro cities will be charged a discounted premium,” says Avdesh Mishra, founder, Caterpillar Insurance & Investments.

Explaining the reason, Mishra says that due to the lower cost of treatment in smaller cities, the average claims amount remains lower.

He cites an example of Sanjay Pandey who is a 58-year-old man living in Khatauli, Uttar Pradesh. He needs a family floater health insurance policy. The premium charged in Khatauli comes out at Rs 27,234 for Rs 10 lakh coverage. Had he been in Delhi-NCR, he would have had to shell out Rs 35,000 annual premium for the same coverage.

Subrata Mondal, Executive Vice President (Health Underwriting), IFFCO Tokio General Insurance Company says that the premium in smaller cities varies by 25% to 40% depending on the age group of the insured member.

“The average claim size for metros is nearly Rs 70,000, whereas that of smaller towns is Rs 55,000. This is because the cost of medical care is higher in metro cities than in smaller cities. We have designed a specific product, Swasthya Raksha Bima, an affordable health insurance plan for people located in smaller cities and towns,” says Mondal.

However, in case of comprehensive health insurance policies, most health insurers charge the same premium across the country for the same risk profile. “The exception to differential pricing is comprehensive insurance plans. For instance, Star Health Comprehensive is a premium product and has uniform premium across-the-country,” says Mishra.

Even though the size of the claim is lower in smaller cities in the case of life insurance, geography doesn’t play a role in premium. “We do not differentiate premium rates based on the city or location of a customer. Premium rates are a function of the customer’s risk profile, that is, his age, gender, health, habits, etc,” says Arvind Shahi, Chief Risk Officer, Ageas Federal Life Insurance.