The government is proposing that an existing law be amended to prevent life-insurance companies from challenging claims made five years after a policy is issued. The move is being made in the interest of consumers, to reduce the load on the judicial system. It is based on the basis of the findings of a commission it constituted to recommend legislative reforms, said a government official who did not wish to be identified.
It is not uncommon for a firm to challenge a claim in a court of law, on the basis that the customer had misrepresented facts at the time of purchasing the policy.
Under the current law, if a policyholder dies and a claim is made, say, eight years after the policy is issued, the firm can challenge the claim on the basis that the customer had been a smoker, or had been suffering from a heart-ailment at the time of taking out the policy, but had withheld this information. The Insurance Act 1938 allows insurance companies to repudiate (or challenge) claims any time they come in, although it takes a dim view of things ifthe challenge comes more than two years after the policy is issued.
With the amendment to the Act, insurance companies will no longer be able to challenge claims made five years after a policy is issued.
According to the government official, the Commission’s suggestion has its roots in the way most life-insurance policies are sold in India. Insurance agents drive a significant portion of sales, often filling forms on behalf of their clients, and sometimes misrepresent facts deliberately, to push through sales.
“A large number of them (false statements) are innocent mistakes,” said the official. Subsequently, when claims are made and then repudiated by insurers, the matter lands up in the already-overloaded judicial system. The insurance regulator, Insurance Regulatory and Development Authority of India, said that it does not have data on the number of repudiated claims stuck in courts.
Insurers, however, are unhappy with the proposal; they feel it goes against the Contracts Act, said the government official. S.V. Mony, secretary general of the Life Insurance Council, an industry body, said a limit on repudiating claims was not in the best interests of the market and would violate an insurer’s fundamental right to protection from false statements. “Additional protection (to insured) is not in the best interests in development of the market on healthy lines,” he added.
However, S.K.Sethi, CEO of Ria Insurance Brokers, who deals with both parties to an insurance contract, said giving insurers a five-year window was reasonable.