Group health covers of PSBs to continue post-merger as well

The mega bank merger of ten public sector banks, announced in August 2019, is set to take effect from April 1. While Oriental Bank of Commerce (OBC) and United Bank of India (UBI) will be merged with Punjab National Bank (PNB), Syndicate Bank will be merged with Canara Bank. Likewise, Andhra Bank and Corporation Bank will be taken over by Union Bank of India, while Indian Bank and Allahabad Bank will become one consolidated entity from April 1. This follows the Cabinet Committee on Economic Affairs (CCEA) go-ahead that came through on Wednesday.

These grand mergers have implications for merged entities’ account holders and borrowers, including those who are covered under group insurance policies. Last year, the merger of Vijaya Bank and Dena Bank with Bank of Baroda (BoB) caused a lot of heartburn for the former’s customers who had signed up for their group health insurance schemes. Many group policyholders, particularly senior citizen account holders, had to port to individual health policies or lose cover after the one-year term expired, as the acquiring bank had tie-ups with other insurers.

Succour on offer

To alleviate their distress, the Insurance Regulatory and Development Authority of India (IRDAI) in January outlined certain relaxations that can be extended in such cases. It gave acquiring banks the option to continue with the acquired bank’s insurer even after the end of the policy tenure. “At the end of the current policy period of the group insurance cover of the merged bank, the acquiring bank, at its option, may continue with the same group insurance policy with the same insurance company, for the customers of the merged bank,” the IRDAI stated.

The current corporate agency guidelines allow a bank to have a tie-up with three life, three general and three standalone health insurers. The acquired bank’s group policies offered through partnership with other insurers were discontinued, leaving the latter’s customers in a lurch. “Thanks to the insurance regulator’s guidelines, banks will be free to continue with the erstwhile bank’s insurance partner and the group policy, in order to safeguard customers’ interests,” says Amit Chhabra, Business Head, Health, Policybazaar.com.

The acquiring bank’s group covers through its existing insurance partners, too, can continue. “The acquiring bank can also offer this insurance coverage to customers of the merged bank with the consent of its insurer,” IRDAI added.

Several state-owned banks offer group health insurance schemes to their account holders, credit card holders and also borrowers at rates much cheaper than regular, individual health covers.

For example, a 51-year-old account holder of Corporation Bank, enrolled under its Corp Mediclaim plan, offered through a tie-up with New India Assurance, has to pay a premium of just Rs 6,757 for a Rs 5-lakh cover. If she were to buy an independent cover from the same insurer, she would have to shell out Rs 14,418. Moreover, such covers tend to be lenient when it comes to medical check-ups and pre-existing diseases coverage. For example, Corp Mediclaim exempts those up to the age of 55 years from pre-issuance medical check-ups. The group plans offered comfort to such policyholders.

Partial grievance redressal

This, however, does not mean that all concerns of such customers have been addressed. The final decision on continuing with the merged bank’s policy still rests with the acquirer. The insurance regulator has not issued a directive, but has given an option to the new entity to continue with the older group policies and the insurer.

“The arrangements of the merged banks can be continued with the respective insurance companies for a period of twelve months from the date of merger, subject to willingness of the acquiring bank to function as the corporate agent for the respective insurance companies,” IRDAI’s guidelines say. Finally, it will boil down to the bank’s negotiations with the insurer, and the terms, including commissions, they agree upon.

The real recourse

The acquired PSB customers’ plight holds important lessons for other insurance buyers. The former, especially senior citizens, find themselves in a bind. They will find the option to port to the same insurer’s individual policy expensive compared to premiums they had been paying. At the same time, they are likely to find it difficult to buy a fresh individual cover, given their age and history of ailments. Moreover, the new policy will cover their pre-existing illnesses only after a waiting period of one to four years, depending on ailment and the insurer. So, they can either switch to the retail policy offered or hope that IRDAI’s guidelines will prompt the acquiring banks to continue with the old cover.

“Group policies come with their set of advantages. For example, a bank could extend the group cover to its fixed deposit holders, irrespective of their age. The premiums will be uniform, as also relatively lower,” says consumer activist Jehangir Gai. Also, usually, such policies have no waiting period for coverage of pre-existing diseases. However, there is a flipside to relying on group health covers to finance your medical needs. For one, it does not come with lifelong renewal assurance, unlike individual policies, so it can be withdrawn after the one-year tenure draws to a close.

The terms and conditions, too, can change drastically when it comes up for renewal. “It is a good idea to have an independent health cover in place. The regulatory safeguards that apply to these standalone policies are not applicable for group covers,” says Gai. Group policies can supplement your protection portfolio. "They can come in handy. You should, however, always remember you cannot rely on solely on group policies as they can be discontinued in the subsequent years," says Chhabra.