Health insurance portability is facing implementation challenges, with reports of fresh policies being mis-sold as 'ported' plans. This practice causes customers to lose critical continuity benefits like waiting periods. While insurers face legal scrutiny from recent court rulings, the situation highlights governance risks that investors may watch closely in the insurance sector.
Health insurance portability was introduced to empower policyholders by allowing them to switch insurers without losing critical continuity benefits, such as waiting periods for pre-existing diseases and no-claim bonuses. However, the system is facing significant implementation hurdles, with reports suggesting that the process is being circumvented, leading to customer frustration and potential financial losses. The core issue lies in the way some intermediaries handle these requests.
Regulations generally prohibit commissions on the first year of a ported policy to discourage agents from frequently switching customers between insurers solely for fresh commissions. To bypass this, some intermediaries are allegedly selling 'fresh' policies while presenting them as portability transfers. For the unsuspecting policyholder, this means they do not get the continuity benefits they are entitled to. Instead of carrying over their waiting period credits, they are forced to start a new waiting period, which can lead to unexpected claim rejections during medical emergencies.
The industry relies on the Insurance Information Bureau of India (IIB) to act as a central routing mechanism for these transfers. This system is designed to ensure that underwriting and claims data are shared transparently between the old and new insurer. However, inconsistencies in the usage of this portal by various participants hamper the seamless exchange of data. Without accurate data, insurers struggle to correctly assess the risk profile of the incoming customer, which can lead to compliance lapses.
From a legal and regulatory standpoint, the pressure on insurers is increasing. In a significant June 2026 ruling (Care Health Insurance Ltd v. Manjula Haresh Joisar), the Bombay High Court clarified that insurers cannot evade liability for claim denials by citing technical issues or 'portal dysfunction' at the IIB. The court emphasized that the primary responsibility of conducting due diligence lies with the insurer, regardless of system limitations. This ruling sets a precedent that companies must maintain high standards of governance in their onboarding processes.
For investors, these developments point to potential operational and reputational risks. Regulatory scrutiny from the IRDAI is likely to increase if mis-selling complaints continue to rise. Insurers that can effectively monitor their distribution networks and ensure that intermediaries follow strict compliance protocols are better positioned to protect their brand value and avoid legal costs. The key monitorable for the coming quarters will be how companies manage their distribution channels and whether they improve their internal audit processes to verify that portability requests are processed according to regulatory guidelines. Policyholders should verify their policy documents to ensure their continuity benefits are clearly marked as 'ported' rather than as a new policy issuance.