Whalesbook
Prashant Mhatre, All India President at the General Insurance Agents Federation Integrated (GIAFI), has raised concerns about a 'Material Change' clause embedded in several retail health insurance policies. This clause requires policyholders to notify their insurers about significant health developments, such as new illnesses or medical conditions.
Upon receiving such notification, insurers reserve the right to alter the policy terms at the renewal stage. This can include increasing premiums, reducing coverage scope, or introducing new limitations. Policies from insurers including Acko, ICICI Lombard, SBI General Insurance, and Zuno General Insurance are reported to contain this clause.
Experts like Mhatre and Shilpa Arora, CEO of Insurance Samadhan, argue that invoking this clause at renewal could contravene the Insurance Regulatory and Development Authority of India (IRDAI) regulations, particularly those ensuring lifelong renewability of health policies, except in cases of fraud or non-disclosure. IRDAI rules generally prohibit refusal or alteration of renewal based on claims made, and permit fresh underwriting only when the sum insured is increased.
Any changes to premiums or terms should, according to IRDAI, follow a structured process and apply uniformly across a product, not selectively to individuals. Mhatre stated that insurers using this clause to penalize policyholders who fall ill might be acting beyond their authority ('ultra vires'), thereby damaging the fundamental promise of insurance.
Arora echoed these sentiments, calling it a silent clause that unfairly penalizes loyal policyholders and defeats the core purpose of insurance. She urged IRDAI to address the issue urgently.
Policyholders are advised to request written explanations for any renewal changes, verify if changes are uniform, and consider escalating unfair practices to the IRDAI or the Insurance Ombudsman. Portability is also suggested to protect accumulated benefits.
Impact
This news can significantly impact the Indian insurance sector by increasing regulatory scrutiny, potentially leading to revised guidelines or penalties for insurers. It affects consumer confidence, which could influence purchasing decisions and the overall market dynamics for health insurance products. Insurers may face reputational damage and customer backlash, while policyholders may become more vigilant and seek clearer policy terms. Rating: 7/10.
Difficult Terms:
Material Change Clause: A policy provision requiring policyholders to inform their insurer about significant changes in their health status or circumstances.
Ultra Vires: A Latin term meaning 'beyond the powers'. In this context, it means an action taken by an insurer that exceeds the legal authority granted to them by regulatory bodies like IRDAI.
IRDAI (Insurance Regulatory and Development Authority of India): The statutory body that regulates and promotes the insurance industry in India.
Lifelong Renewability: A policy feature guaranteeing that an insurance policy can be renewed by the policyholder for their entire life, subject to certain conditions.
Fresh Underwriting: The process where an insurer re-evaluates a policyholder's risk profile and associated terms before renewal, typically when there's a significant change in risk.
Insurance Ombudsman: An independent body established to resolve insurance-related grievances filed by policyholders against insurers.
Portability: The ability for a policyholder to transfer their existing health insurance policy from one insurer to another without losing benefits like accumulated waiting periods and no-claim bonuses.