IRDAI mandates shorter claim settlement timelines, need analysis in policy documents to check mis-selling

“Any delay in settlement of claim requires the insurer to pay interest at bank rate plus two percentage points. This was the case earlier too, but no insurer ever paid. Now the circular says that the insurer should pay without the customer even asking for the same. One has to see how many insurers will recognise the delay, quantify the interest and pay it,” says Hari Radhakrishnan, Regional Director, First Policy Insurance Brokers, adding that clarity is needed on certain rules, though they are in favour of customers.

"(The master circular says that) ‘No health claim shall be rejected or closed for want of documents or delay in intimation. While this is good for the customer, where does this leave the insurer if no papers are received at all? Does the insurer keep the claim open for eternity?,” says Radhakrishnan.

In the case of health insurance, cashless authorisation has to be given within one hour of having received the request. The final authorisation has to be granted within three hours of having received the discharge authorization request from the hospital. “In no case, the policyholder shall be made to wait to be discharged from the hospital,” the IRDAI circular says. Reimbursement claims have to be settled within 15 days.

Also read: Assess whether savings-cum-insurance policies suit customers’ needs before issuing them, says IRDAI

Insurers cannot collect premiums in advance

The insurance regulator has said that insurers cannot collect premiums before taking a call on whether to issue the policy or not. “Health insurance premiums can be collected only after the underwriting decision is taken. One cannot take premium and hold it in deposit till the underwriting decision is taken,” Radhakrishnan says.

In line with regulations announced in March, the free-look period for insurance policies has been increased from 15 days to 30 days. To be sure, many companies, particularly life insurers, already offer longer free-look periods for 30 days.

Since insurers now have to give a simple customer information sheet (CIS) for policyholders to understand the key terms and conditions, they can use it to ascertain whether the insurance company is meeting its commitment. “Looking at this CIS document, if there is a variation between what the insured was told versus what is written in policy, he/she can either get the same modified or get the policy cancelled and get a refund in the free-look period,” says Shashi Kant Dahuja, executive director and chief underwriting officer, Shriram General Insurance.

Also read: Decoded: IRDAI's new health insurance rules on quick cashless approvals, higher penalties for non-compliance

Insurers allowed to appeal against ombudsman orders

As per Insurance Ombudsman Rules, 2017, the orders of these quasi-judicial bodies were binding on insurers. However, now, the master circular states that the insurance companies can choose to appeal against awards passed by insurance ombudsman offices within 30 days. These offices adjudicate complaints involving amounts of up to Rs 50 lakh.

Insurance companies have to comply with the awards within 30 days, and failure to adhere to this rule will invite a penalty of Rs 5,000 per day for each day of delay. “(However), this provision will not be applicable in case insurer chooses to appeal against the award of the Insurance Ombudsman within 30 days. In such case, due intimation shall be sent to the policyholder,” the circular says.

“Though ombudsman orders were binding on insurers, in the case they were dissatisfied, they used to approach the high court for stay orders even earlier. Post the master circular, it is not clear whether they can appeal within the Ombudsman framework. If this is the case, then the resolution process could get prolonged for policyholders,” says Narendra Kumar Bharindwal, vice-president, Insurance Brokers’ Association of India (IBAI).

Splitting of life insurance policies under the scanner

Many insurers offer discounts for policyholders opting for larger sums assured or higher premiums in life insurance policies. When multiple policies of the same nature are (mis)sold to a policyholder at the same time, it is deemed as ‘policy splitting’.

“If such policies are split into more than one policy, the policyholder may not be able to get such premium or sum assured based discounts offered by the insurer. Further, in case of unit-linked insurance policies, splitting of policies may result in deduction of higher amount of charges, as some charges may be levied on per policy basis,” the IRDAI has said. So, splitting of policies can now be done only if there is a specific request from the prospective policyholder and only after recording her consent.

“Since policy splitting is not in customers’ interests and can result in loss of discounts as the circular notes, the provision will come in handy while filing mis-selling complaints against insurers,” says Shilpa Arora, Chief Operating Officer, Insurance Samadhan, a firm involved in resolving grievances of policyholders.

Need analysis to now form part of policy documents

“Assessment of suitability for life insurance is required to be done in case of savings related life insurance products and annuity products, except those annuities purchased from proceeds of National Pension System (NPS) and from employer offered superannuation fund,” the IRDAI’s master circular says.

It has directed insurers and distributors who source these policies to obtain details such as the need (of policyholders) for buying insurance, income and affordability, policyholders’ needs that the policy will fulfil, expected benefits and so on. Also, these should be confirmed by prospective policyholders and concerned salespersons involved in the transaction.

“Based on the information obtained from the prospect, the insurer or distribution channel, as the case may be, shall recommend suitable products meeting the needs of the prospect. Such need analysis shall be documented and copy of the same is provided to the prospect and copies of such need analysis shall be part of the policy document,” the circular says.