Page 10 - Ebook health insurance IC27

The Insurance Times

risk. So it tries to insurer lives where the risk is minimal. We may term it as cherry
picking or cream skimming. For example the insurer would like to choose lives where
previous history of diseases is less.

Similarly if we take the point of the insured they purchase insurance when they fear that
they may be affected from any disease or ailment. This results into adverse selection
whereby the persons seeking insurance are not so healthy. Insurers have to apply strict
underwriting rules in order to see that there is no adverse selection and the prospective
insured does not have any pre-existing diseases.

Though an insured is required to submit details of all medical tests to show that he is fine
and is not having health problems before taking the policy, but still it is very difficult on
the part of the insurers to find the exact nature of disease which might not have been
disclosed by the medical tests.

Apart from this moral hazard is a major factor which affects health portfolio. The health
insurance policy is generally granted for one year and thereafter it is renewed. Once the
policyholder takes a new policy and does not file any claim during the year he feels that
premium paid by him was a total loss since he did not suffer from any disease during the
year. So in order to realise that premium many times policyholders resort to filing of
false claims.

In order to stop the trend of false claim insurers take extra precaution to weed out the
fraud and in the result the honest policyholders who have genuine claims suffers.

The moral hazard may be of demand-side and supply-side. In demand-side the consumer
seeks to accept more health care services than they would if they did not have health
insurance, meaning had the policyholders did not have health insurance they would not

1 4 Guide for Health Insurance