Introduction
India has witnessed a sharp rise in healthcare awareness and health insurance premiums in the post-COVID era. People are not only more health-conscious and keen to stay fit but also willing to insure against the contingency of falling sick. With the increase in lifestyle disorders and communicable diseases, health insurance has become an important mechanism to finance health care. As we look at the increased healthcare awareness and expanding health insurance market, it is evident that nearly all insurers in India, barring specialized entities such as the Agriculture Insurance Company and the Export Credit Guarantee Corporation of India, offer some form of health insurance cover. The health insurance sector is now the major business portfolio of the non-life insurance segment, representing 41.6% of business with the premium of 1.27 lakh crore. The tremendous growth of this sector is accompanied by an increase in customer grievances as well. Despite recognising the importance of adequate health coverage, a large section of the Indian population could not understand the complexities of health insurance contracts; they feel trapped in the technical jargon of the policy terms and conditions, thereby giving rise to disputes and grievances.
Health insurance primarily covers the risk associated with the uncertainty of human health and the increasing likelihood of falling sick over time; the health insurance policies thus provide coverage for the cost of treatment when one falls sick. As the likelihood of falling sick increases with age, health insurance policies are structured as renewable contracts, where coverage is provided for a specified period, usually one-year contracts, which are subsequently renewed every year. This therefore creates an expectation amongst the insuring policyholders that health insurance will continue to provide protection as one age over the years when the risks associated with health increase. Contrary to the expectations of the insured, when claims are denied by the insurer at the time of need, the customers feel dissatisfied and cheated.
There has been a surge in the consumer complaints related to health insurance, and a recurring cause of these disputes relates to the scope of disclosure of material facts obligations at the proposal as well as at the time of renewal of health insurance policies. The rising number of consumer grievances therefore highlights a broader structural concern within health insurance contracts. Insurers frequently invoke clauses that require policyholders to disclose changes in health status at the time of renewal to repudiate claims or refuse continuation of coverage. While such clauses are often justified based on the doctrine of utmost good faith, their application in the context of health insurance raises important questions regarding fairness and contractual balance. If renewal is allowed to be treated as an opportunity for insurers to reassess risk, based on developments in the insured’s health condition, the continuity of coverage that policyholders reasonably expect may be compromised. This concern forms the central focus of the present study, which examines the legal framework governing disclosure of material facts in insurance contracts in India, implications of renewal-stage disclosure clauses in health insurance policies and analyzes the evolving regulatory framework along with the judicial approach towards this obligation. The findings of this study aim to highlight the balance between insurers’ need for accurate information and the protection of policyholders’ rights. By exploring case law and regulatory updates the paper seeks to provide recommendations for enhancing transparency and fairness in health insurance practices.
What is material change clause in health insurance policies?
Insurance contracts are based on the principle of utmost good faith. This doctrine of utmost good faith (uberrimae fidei) traditionally requires the proposer to disclose all material facts at the time of proposal. A material fact is one which would influence the judgment of a prudent insurer in fixing the premium or determining whether he will accept the risk or not and on what terms. However, once the insurer has accepted the risk as per the disclosures given in the proposal form and issues the policy, the insurer is presumed to have conducted the necessary risk assessment and underwriting.
Many health insurance policies in India have disclosure obligations at the renewal stage also; therefore, insurers often incorporate a clause titled “Material Change” in the terms and conditions of a health insurance policy. This clause requires the policyholders to “notify any material change,” such as new illnesses or any new conditions contacted or developed during the term of the policy, to the insurer while renewing the policy.
Requiring policyholders to repeatedly disclose material facts at every renewal effectively transforms the renewal process into a fresh underwriting exercise, thereby undermining the principle of continuity that underlies health insurance contracts. More importantly, such clauses create the possibility that insurers, by invoking it, may
- Deny claims or
- Refuse renewal based on alleged non-disclosure of health conditions that arise during the policy period or
- Increase the premium or
- Alter or restrict the cover or
- Impose new exclusions or limitations at renewal
The obligation of disclosure at the renewal stage puts the insured customer in a dilemma and raises serious concerns for them. If they disclose the change in health status or any chronic illness acquired after the inception of the policy, the insurer might act against them, even though the very purpose of health insurance is to cover medical expenses resulting from deterioration or change in health status, and if not disclosed, they would be contravening the policy condition and will be again at fault, giving the insurer a right to repudiate the claim.
What risks does the health insurance policy cover?
Health insurance policies are designed to indemnify the insured against financial loss or medical expenses arising from illness. Illness necessarily involves a change in an individual’s health status, which would ordinarily constitute a material change. When such a change in health status is itself, the very risk covered under the insurance contract, requiring the insured to notify the insurer of changes in health even when no claim has been made undermines the protective intent of health insurance. This requirement is further rendered untenable in view of the IRDAI regulations mandating lifelong renewability of health insurance policies, which seeks to insulate consumers from adverse consequences arising solely from changes in their health condition.
When does the duty of disclosure of material facts exist in insurance contracts?
In all insurance contracts, the duty of disclosure continues throughout the period of negotiations and up to the time ‘the contract is concluded.’ If there is any alteration in the risk disclosed in the proposal during the negotiation stage, that must be brought to the notice of the insurer; otherwise, it is presumed that the risk that is accepted is the risk as disclosed in the proposal form.
Once the contract is concluded and comes into force, there is no duty to inform the insurer about changes taking place in the nature of risk unless the contract specifically requires it.
Revival of duty to disclose
The duty to disclose revives when the policy ends and is renewed for a further period as in fire and motor insurance. In life insurance it arises if the policy lapses and is to be revived.
Renewal of health insurance policy: Continuity of the existing contract or new contract
In the case of health insurance policies, short-term contracts, usually one year (maximum up to 3 years), are issued by non-life and standalone health insurers. Unlike life insurance, the insurers revise the health insurance premium depending on the age slab at renewal, and a new contract with a revised premium and continuity benefits is provided to the insured if the policy is renewed without any break, i.e., if the policy is renewed on or before the due date or within days of grace. Contrary to this, if there is a break in the policy, then the insured loses all the continuity benefits under the policy, viz., no claim bonus, initial waiting period, timebound exclusion related to coverage for specific procedures/surgeries/conditions, and preexisting diseases exclusion. The insurer, therefore, resorts to fresh underwriting, and all waiting periods are freshly imposed.
Renewal of a health insurance policy is called a new contract as the original contract period ends, but the renewed policy is in fact a continuity of the same contract, extending the term (duration) of the contract with all continuity benefits. At the time of renewal, if the insured requests any increase in the sum assured or any alterations or changes in the policy, it is then
that the insurer reserves the right to accept or reject the risk or alter the policy by fresh underwriting. Regulatory mandates also treat the renewal of a health insurance policy as the continuation of the existing contract, unless terms are altered.
Health insurance contracts are fundamentally designed to provide continuous financial protection against unforeseen medical expenses arising from changes in an individual’s health condition. Unlike many other forms of insurance, health insurance is inherently long-term and is continuity-based, where annual renewal is generally treated as a continuation of the original contract rather than the creation of a completely new contract. In this context, the incorporation of clauses requiring policyholders to disclose “material facts” again at the stage of renewal raises significant practical concerns for the policyholders.
Regulatory safeguards given by IRDAI for health Insurance customers
IRDAI, through its master circular on health insurance (May 29, 2024) and Protection of Policyholders Regulations, 2024, has clearly laid out the following:
- A health insurance policy must be renewable provided the product is not withdrawn, except in case of established fraud or non-disclosure or misrepresentation by the insured. If the product is withdrawn, the policyholder shall be provided with suitable options to migrate.
- An insurer cannot deny the renewal on the ground that the policyholder had made a claim (s) in the preceding policy years.
- An insurer cannot resort to fresh underwriting unless there is an increase in the sum insured. In case an increase in sum insured is requested by the policyholder, the insurer can underwrite only to the extent of the increased sum insured.
Legal perspective related to renewal of health insurance policies and disclosure obligations at the Renewal Stage
Many disputes arising from repudiation of claims or denial of renewal of health insurance policies on the ground of alleged non-disclosure of material facts are increasingly being reported before the consumer forums, the council of insurance ombudsmen, and courts in recent years. Judicial ruling concerning these aspects indicates an evolving effort by the judiciary to balance the traditional doctrine of uberrimae fidei (utmost good faith) with the need to protect the policyholders from unfair business practices in health insurance contracts. The courts have emphasized that health insurance policies are intended to provide continuity of coverage, and the duty of disclosure cannot be interpreted in a manner that undermines this fundamental objective of protection provided by the contract.
A significant case in this regard is the pronouncement of the Supreme Court in Om Prakash Ahuja v. Reliance General Insurance Co. Ltd., where the insurer repudiated the claim and declined to renew the health insurance policy on the ground that the insured had allegedly failed to disclose a pre-existing ailment of the insured’s spouse. The Court examined whether such non-disclosure could justify the insurer’s refusal to renew the policy. The Supreme
Court held that once an insurer has accepted the risk and the policy has been renewed continuously over the years, the insurer cannot arbitrarily refuse renewal later after a claim unless there is clear evidence of fraud, misrepresentation, or suppression of material facts that directly affect the underwriting risk. The judgment underscored that health insurance policies create a legitimate expectation of continuity of coverage for policyholders, so disclosure clauses cannot be applied by the insurer in an overly expansive manner that would allow them to discontinue coverage merely because the insured has developed a health condition during the policy period. The decision certainly reflects the interpretation of insurance contracts to protect the customer’s rights and restricts the insurers from repudiation of claims relying on broad disclosure requirements at the stage of renewal.
The issue of disclosure obligations in the context of policy renewal has also been addressed in Jacob Punnen v. United India Insurance Co. Ltd. by the apex court. In this case, the insured had a mediclaim policy that was renewed annually for several years. When a claim was made under the policy for a medical procedure, the insurer restricted the reimbursement amount by relying on a revised clause introduced in the policy that imposed a cap on the payable amount. The insured contended that no notice had been provided regarding the change in policy conditions at the time of renewal. The Supreme Court held that insurers have a duty to clearly inform policyholders about any material modifications or restrictive conditions introduced at the stage of renewal. The Court observed that insurance policies are typically unilateral contracts drafted by insurers, and policyholders cannot reasonably be expected to independently know or infer changes in policy terms unless they are explicitly communicated. The failure of the insurer to disclose the changes introduced in the policy at the renewal of the policy was therefore held as a deficiency in service by the insurer. The decision highlights that disclosure obligations in insurance contracts are not unilateral. While policyholders are expected to disclose material facts affecting risk, insurers must also disclose changes that may affect the scope of coverage.
These two decisions indicate a broader judicial perspective that the renewal of a health insurance policy should not operate as a mechanism for insurers to reassess risk after the contract has already come into force. Instead, renewal is generally understood as a continuation of the existing contractual relationship, subject to exceptions such as fraud or deliberate misrepresentation. Courts have therefore increasingly emphasized fairness, transparency, and the protection of policyholder expectations when interpreting disclosure obligations in health insurance contracts.
The jurisprudence advancing from these cases suggests that material change disclosure clauses incorporated in health insurance policies need to be re-evaluated by the insurers and should be interpreted in a manner which is consistent with the purpose of health insurance to provide financial protection against the cost of medical treatment arising from changes in health status after taking the policy. Allowing insurance companies to re-underwrite the risk, based on disclosure at the renewal stage, and thereby deny claims or disallow renewals or unilaterally change the policy benefits, would effectively undermine the purpose of health insurance. Hence, judicial interpretation in India discourages post-contractual reassessment and underwriting by insurers and is fostering a more balanced approach that recognizes both
the duty of utmost good faith and the need to maintain the continuity of health insurance coverage for policyholders.
Critical analysis and Inference
Health insurance grievances on the rise—Implications for customers’ trust in health Insurance
The ambiguity related to health insurance contracts has led to a sharp rise in health insurance grievances. The Annual Report 2023-24 of the Council of Insurance Ombudsmen revealed a significant rise in complaints against health insurance companies in India. The report reveals that the total number of complaints against health insurance companies increased by 21.7% in FY 2023-24, with 31,490 complaints, compared to 25,873 in FY 22-23. Private insurers accounted for 26,064 grievances, while public sector insurers had 5,298 complaints.
The recent IRDAI annual report 2024-2025 also conveys some harsh realities about health insurance in India. It indicates that grievances relating to health and general insurance have been rising steadily in recent years. Grievances against General and Health Insurers increased by 41 percent to 1,37,361 cases, compared with 97,503 complaints in the previous year. A large proportion of these complaints (69%) are claim related complaints – claim refusals, delays in claim settlement, partial claim payments, and disputes regarding documentation or policy terms, thus highlighting the distress of the hapless customers at the time of claim.
Such data clearly suggests that the Insurers undertake the task of scrutiny of proposals and medical records at the claims stage, rather than at the time of policy purchase. Claims have become the principal point of conflict between insurers and policyholders and reflect a growing trust deficit between insurers and consumers, particularly where claims are rejected on the ground of non-disclosure of material facts at the inception or at the stage of renewal or policy exclusions. When policyholders perceive that their valid claims may be denied on technical grounds, confidence in the insurance system is weakened.
In a system that is fundamentally based on the utmost good faith of both the parties, the presence of such disputes highlights the necessity of clearer contractual standards and regulatory mandates to ensure that health insurance continues to function as a reliable mechanism of financing healthcare.
Judicial decisions such as Jacob Punnen v. United India Insurance Co. Ltd. and Om Prakash Ahuja v. Reliance General Insurance Co. Ltd. highlighted that while the doctrine of utmost good faith remains important, repudiation must be based on clear and material nondisclosure and not on minor or technical omissions. These decisions, by emphasizing balanced interpretation of disclosure obligations, help to ensure that insurance contracts fulfil their fundamental objective of providing financial protection during illness.
Fresh underwriting cannot be done at renewal.
As the “material change” clause cannot override IRDAI’s renewability protections, any selective premium increase or reduction in coverage post-illness at renewal by Insurer is
challengeable and against the judicial pronouncements as well as the regulatory norms. Hence, incorporating a material change clause in health insurance policies is not justified. Unlike other insurances, the health insurance policy should not require such a continuing obligation to report material change. Diseases contracted after taking the policy are covered except for the ailments which have a specific initial waiting period and general exclusions mentioned in the policy. When re-underwriting cannot be done at renewal, this requirement for disclosure of medical conditions after taking the policy each year may operate as a means of risk selection and post-contractual underwriting, enabling insurers to selectively discontinue coverage for individuals who develop health conditions during the policy period.
As the Insurance companies do not seek any fresh proposal form or any other form for renewal of policy, the insured usually do not communicate the change in health status to the company and are even apprehensive that disclosure might work against them.
The insurers’ perspective to reward for positive health status on renewal
It is usually argued and opined by the Insurers and policymakers that the material change clause and renewal clause are designed to work together in a way that benefits customers. If health improves, the customer might get a reduction in premiums at renewal. When health details are shared, it helps to offer free health check-ups and wellness programs to keep the customer healthy.
As these clauses create ambiguity and apprehension about the future coverage, a clear mention of the Insurer’s intent would help to continue the trust of the Insured in the Insurer. In a contract based on the principle of utmost good faith, there should be no scope for such uncertainty. Moreover, if the insured is to be incentivized or rewarded, the benefits should be explicitly stated in the policy. This transparency would encourage policyholders to adopt healthier lifestyles to qualify for such discounts and to willingly disclose any material changes.
Recommendations
For Policyholders
- If a disclosure at renewal is required in the policy condition, ask the insurer for a standard form in which disclosure is to be done and what constitutes a material disclosure on renewal and whether any changes in the policy will be done post disclosure.
- Whenever any change is done by the Insurer in a health Insurance policy, the policyholder should ask for a written justification from the insurer and an IRDAI approval reference for the change. The policyholder should also verify that the change in his policy is due to any change at the policy portfolio level for all the policyholders of that product and is solely not being applied to his individual policy.
- If the Insurer has taken any unfair action, the policyholder should escalate the matter to IRDAI or the Insurance Ombudsman.
- Policyholder should read the sales brochure of the product before purchase and read the policy details and the clauses thoroughly on receiving the policy bond.
For Insurers and Regulators
Restrict the incorporation of disclosure of a material change clause in health policies. For the Insurers and Regulators to build the trust of the insuring public, it is inevitable to maintain a healthy health insurance portfolio. It is expected from the Insurers to re-evaluate the role of the material change clause in health insurance policies and stop using such confusing clauses in the policy wordings, which might shake the trust of the public at large. When the right to renew a policy is established by the Regulator as per the Protection of Policyholders interest, requiring the insured to disclose any material change at the time of renewal is neither desirable nor justified.
Clearer policy wordings and standard forms for disclosure Insurance policies should contain simple and unambiguous language regarding disclosure requirements, if any disclosure is required at renewal at all. A standardised format for capturing the
details of material change (if it is required to be disclosed) should be provided to the insured at renewal. The fact that the insured will not lose any benefits under the contract and the insurer will not resort to any fresh underwriting on disclosure should be explicitly communicated to the insured in the clause/form seeking disclosure. Rewards, if any are to be given to the insured on positive health findings, too, should be explicitly communicated to the insured, while capturing the details in a standard renewal form.
Strengthen underwriting practices Insurers should establish robust underwriting and medical screening at the proposal stage rather than depending solely on post claim investigations and underwriting at renewal stage.
Consumer awareness initiatives Policyholders should be educated regarding their disclosure obligations and rights under the policy.
Conclusion
Insurers, by re-underwriting the risk at the time of renewal of a health insurance policy, are not only acting against the IRDAI’s “Protection of Policyholders’ Interest Regulations,” but they also erode the fundamental promise of health insurance to provide financial protection when an individual needs it. Thus, the role of the “Material change clause” in health insurance policies should be re-evaluated and avoided by the Insurers to build transparency in the contract and maintain the trust of the insured policyholders. If the intent of the Insurer is to reward the insured policyholders for any positive health findings, it needs to be explicitly mentioned in the contract.
Renewal of a health insurance policy should be treated as a continuation of the existing contractual relationship, subject only to exceptions in cases of fraud, deliberate misrepresentation, or non-payment of premium or enhancement of the sum assured. This
approach would align the contractual framework of health insurance with its underlying social objective of ensuring continuous access to financial protection for healthcare expenses.
Authored by:
Dr. Seema Arora, Joint Director, School of Insurance Studies, National Law University, Jodhpur
