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IRDA's tough love for health insurance market

IRDA shows tough love to health insurance market by issuing directions to the insurers to remain transparent with the consumers

Harsh Roongta

14 Apr 2009

mediclaim market in India has grown at a fast pace in India since the last couple of years; still the health insurance coverage is abysmally low at 4%. Now IRDA has provided tough love to the health insurance market to make it grow further by issuing directions to the insurers to remain transparent with the consumers.

This non-transparency and confusion has led to number of consumer disputes, with most of these disputes revolving around the following factors:

  1. Denial of claims as the insurance companies contend that such claims are due to pre-existing disease (or complications arising from the pre-existing disease), hence not covered. This is the single biggest area of dispute between the consumers and the insurance companies.

  2. Denial of renewal on grounds that claims have been made in the past

  3. Non-transparency on the age upto which the policy can be renewed

  4. Significant loading of renewal premiums, denial of no-claim discounts/bonus on a non-transparent basis.

  5. Substantial changes in the policy document to the detriment of the consumer on renewal

  6. Non clarity about the premium slabs charged by the insurance company at various age slabs

  7. Non transparency on premium increases on renewal

  8. Denial of advantages of continuous coverage even if the consumer delays by a single day at renewal time

As far as the biggest item of pre-existing disease is concerned, the General Insurance Council (of which every general insurance company is a member) had agreed on a common definition of pre-existing disease and its compulsory coverage in the fifth continuous year of policy with the same company. It had come out with specific wordings that were supposed to be incorporated in every Mediclaim policy to be issued after June 1, 2008. Unfortunately, to date, not a single insurance company has incorporated the suggested wordings. Clearly even a statutory self-regulatory body has no real ability to enforce what it recommends and it still needs tough and clear action on the part of the regulator (IRDA) to make the insurance companies fall in line.

IRDA has finally acted and issued a fairly comprehensive circular dated March 31, 2009 which clearly lays down the fact that all general insurance companies will have to be completely transparent with consumers on the matters listed in serial no. 2 to 8 above and any changes will either have to be informed to the consumer upfront while he is buying the policy for the first time (after they are approved by IRDA) and conveyed to the consumer well in advance of his renewal date. This will be effective for all policies issued or renewed after June 1, 2009.

The only thing that seems to be still open is the definition of pre-existing disease and when it will be covered.

The impact of this path breaking circular is to make the consumers have more faith in their Mediclaim policies and drive large-scale adoption. In a society that is just growing out of the "what will be will be, the future's not our to see" fatalistic mode having faith in the policy document and its fairness and enforceability is vital to drive large-scale coverage.

Whilst genuine consumers will benefit from the certainty of coverage and the cost, it also makes the insurance companies more vulnerable to fraudulent claims given the way the health care industry is structured in India. Implementation of this directive is therefore likely to result in an increase in premiums across the board as also a general tightening of entry-level standards, as Insurance companies no longer will be able to deny renewals or increase premiums substantially.

If only IRDA also provides for enforcing the GIC directive on pre-existing disease definition and coverage than genuine consumers would not mind an increase in premiums in exchange for the certainty of coverage and cost.