Page 203 - Ebook health insurance IC27

Sashi Publications

Important Points to Remember

Need for health insurance regulation

An insurance company faces lots of risk while operating in an
insurance market. Apart from the insurance risk that is transferred
to the company from the policyholder it is also subject to many
other risks. Insurance company may suffer from the following
risks:-
a. Insurance risk: The first and foremost risk in health insurance

underwriting is the insurance risk itself. Once the policyholder
transfers the risk to the insurer it becomes the liability of the insurer to honour the
claim. If the underwriting is not proper the company may have to pay huge claims
which may wipe out the solvency margin. Though by a reinsurance this risk is
somewhat mitigated but is still there is no substitute to good underwriting as
reinsurance rates might increase after continuous loss cycles.

b. Investment risk: The surplus that the insurer is generating must be invested in
recognised securities. Many insurers depend a lot on their investment income. In
such case if the income is not proper the company may show underwriting losses.
Similarly the risk of stakeholders will increase. So insurer must invest the surplus
prudentlyingood investment funds. InIndiaregulationsspecify theinsurancecompany
to invest a particular amount of money in specified funds compulsorily.

c. Credit risk: Any business is susceptible to risk of default by the business associates.
In insurance also there may be default by providers, suppliers and the reinsurers. In
insurance since business associates are varied the chances of complete default is
less.

d. Liquidity risk: Liquidity risk may affect any insurer even if the insurer has huge

Website : www.bimabazaar.com, PH: 033 22184184/40078428 207