INSURANCE CLAIMS: INTENT POSITIVE, DELIVERY SUSPECT

A healthy and developing insurance sector is of vital importance to every modern economy. The growing size of the sector, the high level of sophistication in marketing and selling practices and forms of promotion like advertising, etc. have contributed to the increased need for protection of the insurance policy holders. Claim settlement is one of the most important services that an insurance company can provide to its customers. Insurance companies have an obligation to settle claims promptly. Most claims are settled by issuing a cheque within 7 days from the time they receive the documents. However, if your insurer is unable to deal with all or any part of the claim, the policyholder is notified in writing. The entire process is governed by the IRDA Protection of Policyholders’ Interests (PPHI) Regulations 2002. As part of this, the regulator had issued detailed guidelines specifying turnaround times in July 2010. Insurance is a contract as per the provisions of Indian Contract Act, 1872. In such a contract, a person who completes an insurance proposal form in applying for insurance cover must not only reply truthfully to all questions that are asked, but must of his own accord disclose all facts relevant to the policy. Failure to do so may entitle the insurer to repudiate the policy and refuse to pay a claim. The insurer is required to send a written acknowledgement to the complainant within three working days, mentioning the name and designation of the officer in charge of resolving the grievance, in addition to details of the redress process. The maximum turnaround time for resolving complaints is two weeks. If the complaint is rejected within two weeks, the insurer has to give reasons for the same and guide the policyholder on subsequent recourse options.

Rejection of a life insurance claim mainly happens due to two reasons. One, is wrong disclosure of health conditions and two, non disclosure of existing health ailments. For any insurance company the moment of truth is the claim settlement. The idea is always to settle the maximum number of claims possible but when one sees the number of rejections which are mainly due to couple of reasons or mistake that the customer commits at the time of taking the policy. First is essentially wrong disclosure of health conditions and second, is possibly no disclosure of health conditions. For example, if one has some kind of cardiac vascular disease or some kind of ailment and if he does not disclose that in the policy then that leads to rejection. Because at the time of claims insurance companies will call for the medical reports, the reason of death and if it is found that the reasons were not even mentioned in the policy then it calls for cancellations. Therefore, almost 95 percent of the rejections arise out of this non disclosure or wrong disclosure. In motor insurance, claims are often rejected because of negligence. Some common questions are: Did you leave the keys in the car? Start the engine when it was flooded? Similarly Home insurance claims don’t get paid because of specific exclusions relating to normal wear and tear, seepage and short circuits. Fires caused by short circuits, wall damage due to seepage are common rejections. The other issue in property insurance is that they are incorrectly placed. These common mistakes deprive a policyholder from a genuine claim.

NON-STANDARD CLAIMS:

Wherever there is a breach of policy conditions, a claim can be settled as non standard claim. The Hon’ble Supreme Court of India in Civil Appeal No. 2703 of 2010 “Amalendu Sahoo Vs. Oriental Insurance Co. Ltd.”, decided on 25.3.2010 held in paras No. 11 to 15 as follows:-

“Reference in this case may be made to the decision of National Commission rendered in the case of United India Insurance Company Limited v. Gian Singhreported in 2006 CTJ 221 (CP) (NCDRC). In that decision of the National Consumer Disputes Redressal Commission (NCDRC) it has been held that in a case of violation of condition of the policy as to the nature of use of the vehicle, the claim ought to be settled on a non-standard basis. The said decision of the National Commission has been referred to by this Court in the case of National Insurance Company Limited v. Nitin Khandelwal reported in 2008 (7) SCALE 351. In para 12 of the judgment in Nitin Khandelwal (supra) this Court held:-

“…The appellant Insurance Company is liable to indemnify the owner of the vehicle when the insurer has obtained comprehensive policy for the loss caused to the insurer. The respondent submitted that even assuming that there was a breach of condition of the insurance policy, the appellant Insurance Company ought to have settled the claim on non-standard basis.

In Nitin Khandelwal the State Commission allowed 75% of the claim of the claimant on non-standard basis. The said order was upheld by the National Commission and this Court refused to interfere with the decision of the National Commission. In this connection reference may be made to a decision of National Commission in the case of New India Assurance Company Limited v. Narayan Prasad Appaprasad Pathak reported in (2006) CPJ 144 (NC). In that case also the question was, whether the insurance company can repudiate the claims in a case where the vehicle carrying passengers and the driver did not have a proper driving licence and met with an accident. While granting claim on non-standard basis the National Commission set out in its judgment, the guidelines issued by the insurance company about settling all such non-standard claims. The said guidelines are set out below:-

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REJECTION OF CLAIMS:

The bigger problem is rejection of claims because the insurance company believes that pertinent facts were deliberately suppressed by the policyholder at the time of buying the cover. The most common reason for claim rejection is material non-disclosure of facts pertaining to an individual’s health. An insurance company sizes up the risk of covering an individual on the basis of his health, medical history of his family, income, occupation and existing insurance cover. The information disclosed ensures that the risk is properly assessed and priced accordingly. If an insurance company has reason to believe that any information pertaining to these parameters was suppressed, it can reject the claim. This reliance on voluntary disclosures lets inaccuracies and mistakes creep into the proposal form. Unfortunately, not many insurance buyers look at it in the same way. The general mindset is that by keeping the health problem under wraps, one can buy life insurance at a lower cost. In case of Max New York Life, of the 76 claims rejected because of non-disclosure of medical conditions, 86% of the claims were for below Rs 2 lakh. Insurance companies squarely blame the policyholders for withholding or suppressing the information about their health condition. Sometimes an insurer may “REPUDIATE A CLAIM”, this means they are advising that your claim is not covered under the terms and conditions of your policy. You need to ask your insurer , under what part of your policy are they advising your claim is repudiated?

COMMON CAUSES OF CLAIM REPUDIATION:

At common law, where a party to a contract of insurance contract gives a “warranty”, that is to say, binds himself to an essential term of the contract, then such warrant of term must be strictly complied with. If the warrant is breached, the insurer, at common law, was entitled to repudiate the contract and refuse to pay the claim, irrespective of whether or not the breach of the warrant had any bearing on the actual loss that had been suffered. Marine insurance covers goods in transit, when the policyholder relocates or sends material elsewhere. These claims are rejected because standard insurance covers accidents whereas claims often relate to pilferage or damages without an accident. Motor insurance claims are rejected due to wear and tear losses and mechanical failure. The contracts are stringent and there is ample opportunity to reject claims. The key is to describe the scale and nature of the business accurately in the proposal form. Small businesses buy insurance to cover losses to computers and phones. These claims are denied mainly because the damage was caused by negligence. Laptops are most prone to such denials. Generally, laptops get spoilt due to rough use, which is not claimable. Insurers look for signs of negligence in police or medico-legal reports. Description of the accident needs to be consistent to the insurer, surveyor, investigator and anyone else who calls. Another reason for rejections is that the vehicle is in commercial use but the insurance is for personal. In many cases the root cause of hospitalisation is subjective. For example, was the sharp drop in haemoglobin because of pre-existing piles or newly-discovered ulcers? Once the insurer takes a position on this, generally in its own favour, it is hard to convince it otherwise. Life insurance and overseas travel claims are also rejected primarily due to non-disclosure of pre-existing medical problems. When a fact influencing the underwriting decision is not disclosed in the proposal, it is termed as “non disclosure”. Similarly, withholding information or providing incorrect information while answering questions in the proposal form is “mis-statement” e.g. when an applicant who is suffering from kidney failure answers in the negative to a question on kidney ailment, it is non disclosure of material fact. When an applicant states that he is salaried but does not mention that his job is highly hazardous, it is a mis-statement

FIRST STOP- YOUR INSURER:

In case of life insurance, grievances pertain to unilateral change of policy terms and conditions after issuing a policy and rejection of claims on grounds of suppression of material facts by the insured. In general insurance, the list includes non-settlement or partial settlement of claims, delay in approving the claim, refusal to renew health insurance policies and loading of premium. Whatever be the grievance, your first stop for redressal has to be your insurance company. You can register your complaint through a branch office, phone, e-mail, website, etc. You can also approach the company’s grievance redressal officer. Insurers are required to acknowledge your complaint in writing within three working days of its receipt. The grievance redressal norms also require the company to specify the period by when it is likely to be resolved. If a resolution is affected within three days, you will be intimated. If not, the company will have two weeks to send a final letter of resolution. But, if your complaint is rejected, the company has to disclose the reason and also inform the policyholder about other redressal avenues available. Remember, before you proceed with escalating the complaint, you need to inform the insurance company of your dissatisfaction. Else, the insurer will treat the complaint as resolved.

APPROACHING THE REGULATOR

The next step is to take your grievance to the regulator through IGMS, IRDA Grievance Redressal Cell. Most companies barring a dozen are now integrated on the IGMS platform. The idea behind setting up the IGMS is to monitor complaints and analyse patterns. The nature of the complaints varies, but the most common complaint in life insurance is that of policy bond not reaching customers. In case of non-life, it is non-settlement of claims. With IGMS, you can route your complaint through the newly launched website (www.igms.irda.gov.in). You need to register yourself on the portal to file and, later, track your complaints. Once lodged, the complaint is forwarded to the insurer concerned. The details of the complaint can be viewed online by the consumer, the insurance company and the IRDA. A token number is provided for subsequent follow-up. However, no action is taken on the complaint by IRDA, and it is for the insurance company concerned to deal with the grievance. Remember, you can take this route only after bringing your grievance to the company’s notice – if you do not receive a response within 15 days, you can log on to IGMS..

INSURANCE OMBUDSMAN

Claims under Rs 20 lakh in personal accident and health, are directed to the Insurance Ombudsman unlike the Grievance Cell, the Ombudsman has the power to pass orders. It addresses issues related to rejection or delay in settlement of claims, disputes on premiums, and non-issuance of a document after collecting the premium. Complaints have to be filed with the Ombudsman office under whose jurisdiction your complaint will fall. Cases entailing a value of up to Rs 20 lakh fall in the ambit of Ombudsman’s powers. Recommendations can be made within a month of the receipt of the complaint, while a verdict has to be given within three months. If need be, the Ombudsman can also award compensation to the policyholder. The Ombudsman is appointed by the Insurance Council and is supposed to be independent; the order passed by the Ombudsman is binding on the insurance company, but it is open to the insured whether to accept the award or file a consumer complaint if is dissatisfied with such an award. Insured can also approach consumer forums or civil courts for relief if the insurer fails to comply with the Ombudsman’s order or you are not satisfied with it. The ombudsman primarily comes into the picture for complaints that involve monetary compensation.

GRIEVANCE REDRESSAL FRAMEWORK:

The Insurance Regulatory and Development Authority of India (IRDAI) is also cracking down on insurers not handling customer grievances as per procedure, bringing the redressal framework into focus.  The policyholder need to understand how it works as well as the recourse available if it fails to satisfy. The entire process is governed by the IRDA Protection of Policyholders’ Interests (PPHI) Regulations 2002. The first point of contact for a policyholder is always the insurer. If not satisfied, the policyholder can approach the insurance ombudsman in his city 30 days after he first lodged the complaint with the insurer. It is a quasijudicial body which deals with cases up to a value of `20 lakh and has the power to award compensation to aggrieved policyholders. IGMS is the way to go for simpler complaints.

FINAL RECOURSE:

Consumer courts are the last resort for a policyholder. Customer need not approach the ombudsman before knocking on the consumer courts’ doors—he can do so directly. Approaching the consumer forum would be the simplest, fastest and most economical remedy. The forum is better accessible and awards compensation and costs.

Most of us buy insurances with a single-minded focus on price. Claim rejections can be prevented if we had a single-minded focus on product features instead, such as mediclaim with low waiting periods, home insurance with an accurate description of structure and contents, marine insurance that covers all-risks rather than just accidents. These cost more but make the insurance meaningful. No insurance company can deny a claim three years after issuance of life insurance policy. It does not matter if proposer hid any material information or committed fraud. The insurance company must pay. They have no recourse. The onus is on the insurance company find out any irregularity in the information shared within the first three years. The path for this ground breaking move was laid in the amendment to Insurance Act early this year. IRDA recently issued a further clarification in a notice to all the insurance companies. This is applicable for only life insurance policies. Section 45 of the Insurance Act clearly states:

“No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e., from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later.”

This law is without ambiguity. It does not matter if the insured or his agent suppressed material information or even indulged in fraud. The life insurance company only has three years to find irregularity. If it cannot, there is no recourse available to the insurance company. After three years, they cannot do anything. They have to honor the death claim. They cannot even withdraw the policy on their own.  It is extremely important to establish what constitutes a fraud under a life insurance contract. Insurance companies often require a policyholder to submit claims within a certain time frame. If the company rejects the initial claim, there is a time window within which one can resubmit. Insurance companies used to dig deeper at the time of claims only or tried to find faults. The insurers could reject insurance claim (after any number of years) in case of material suppression of information or in case of fraud. Nobody parts with money easily. And the insurance companies are not different. However, with life insurance, the insured event i.e. death is an objective event. There is not much insurance company can do beyond a point.  But yes, you can expect the claims process to be a lot faster. Insurance is sharing of risk by creating a pool of funds out of the premium paid by the policyholders. This means that when a claim arises, the payout takes place from the common fund which belongs to all the policyholders. Therefore, an Insurer has a duty to protect the interests of the policyholders at large and cannot pay fraudulent claims out of the common fund thereby penalizing the other policyholders. Based on this principle, claim can be repudiated by the insurer on account of non disclosure or mis statement. In legal terms, if one party commits breach of contract by not maintaining the declaration (in the proposal form) of having replied truly and correctly, the other party i.e. the insurer is not liable to honor the claim. The Indian insurance market is a huge business opportunity waiting to be harnessed. India currently accounts for less than 1.5 per cent of the world’s total insurance premiums and about 2 per cent of the world’s life insurance premiums despite being the second most populous nation. The country is the fifteenth largest insurance market in the world in terms of premium volume, and has the potential to grow exponentially in the coming years. The future looks promising for the insurance industry with several changes in regulatory framework which will lead to further change in the way the industry conducts its business and engages with its customers. In this growing market insurers have to make their intent very clear to provide hassle free claim services for the protection of interest of policyholders.

About the Author 

JAGENDRA KUMAR
Ex. CEO, Pearl Insurance Brokers
71/143, “Ramashram” Paramhans Marg,
Mansarovar, JAIPUR-302020

References:

1. https://www.irda.gov.in
2. http://economictimes.indiatimes.com/opinion/interviews/industry
3. IRDA Annual Report 2014-15
4. http://www.moneycontrol.com/news/life-insurance/here-is-how-to-avoid-rejection
5. http://www.policyholder.gov.in/warnings_and_penalties.aspx
6. Newspapers & Journals.