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Business News/ Money / Calculators/  Hits and misses in Irdai’s customer protection draft
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Hits and misses in Irdai’s customer protection draft

Irdai has put out the draft regulation for protection of policyholders' interests. In it, while the claims would become easier, points of sale remain a concern

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On 1 February, as the finance minister presented the budget for 2017 that gave marginal relief in income tax, the Insurance Regulatory and Development Authority of India (Irdai) put up draft regulations (https://bit.ly/2l9NpgI) for protection of policyholders’ interests. These regulations, which will replace the older regulations of 2002, are meant to protect the interests of the policyholders and to ensure they are treated fairly; at the time of sale, by making all the relevant disclosures; and at the time of making a claim by specifying the turnaround time for claims settlement. 

The draft is an improvement over the current rules, specially in terms of claims settlement, but it falls short in terms of protecting policyholders’ interest at the point of sale. Read on to know why, but first start with the new turnaround time on claims settlement. 

Current rules state that once a claim is made under a life insurance policy, the insurer should complete the formalities of asking for all documents or queries within 15 days, in one go and not in a piecemeal manner. The draft has not changed this. But the claims settlement period has been reduced from 30 to 15 days. According to the draft, a claim under a life policy will be paid or disputed giving all the relevant reasons, within 15 days from the date of receipt of all relevant papers and the required clarifications. 

What happens if an insurer wants to investigate the claim further? Current rules allow insurers up to 6 months to investigate the claim but they can take more time, citing reasons such as lack of documents. 

According to the draft proposal, claims that warrant investigation should be completed in 90 days from the date of receipt of all relevant papers and required clarifications. And, such claims will be settled within 270 days from the date of lodging the claim. “The time taken for investigation by insurers will get reduced from 6 months to 3 months. Further, an overall turnaround time of 270 days for settlement of claims is proposed. This is good for claimants as it will be mandatory for the insurer to decide the claim within 270 days, even if there is delay on the part of claimant to submit the required documents or clarifications," said C.L. Bhardwaj, chief compliance officer and chief risk officer, Bharti AXA Life Insurance Co. Ltd.

Further, the proposal states that where a claim is due for payment but the payment cannot be made for whatever reason, the insurer will pay interest at a rate that is 2% above the bank rate. Currently, the bank rate is 6.75% per annum. 

In case of health insurance, the claims settlement will be as per health insurance regulations and any delay in payment will invite the same penalty. Even for other lines of insurance such as home and motor insurance, there is some good news. “A surveyor is appointed by the insurer to investigate the claim in motor and home insurance. The surveyor prepares a report, which is the basis on which an insurer takes a decision to pay or reject the claim. This report is meant to be shared with customers but that is not the practice. There are many cases where despite requesting for this report the customer is not given a copy," said Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd.

“The guidelines require the report to be shared, which is good, but do not put a penalty on delays in sharing. This penalty is necessary to give teeth to the guideline," he added. Further, the rules state that a surveyor should be appointed within 72 hours of lodging the claim. 

The draft states that every insurer will display the service parameters as approved by its Board on its website and keep the same updated. The service parameters include steps taken to ensure that during a policy solicitation and sale, the prospects are fully informed and made aware of the benefits of the product being sold so that the benefits or returns of the policy are not misstated. It would also contain the procedure for expeditious resolution of complaints. But according to some this is not enough. “We may need to go beyond disclosures to unravel the product complexity to help customers connect with them quickly. Policyholder interest would be best served if all product complexities are detailed and approved at regulator’s level and all benefits and conditions are explained in the simplest terms at the customer disclosure level," said P. Nandagopal, founder and chief executive officer, OpenWorld Insurance Broking Ltd. 

The draft also proposed a key feature document that will carry the main features of the policy in simple language and in bold and attractive print. This document should make the policyholder aware of the most important features, including the policyholder’s right to avail the free-look period to cancel the policy. But according to Nandagopal, this too falls short. “A customer choosing a savings cum protection plan through Ulip or traditional plans would like to know how much is the return earned on her savings, how much is the mortality cost specific to her age and health condition and how much are all the other expenses . If this information is available, a customer can quickly understand whether a company is doing well. Not revealing the net returns earned on the savings portion of life insurance plan and obfuscating the simple facts in a maze of technical terms doesn’t help. It may be a good idea if the products are rated for their risk-return potential like it’s done in other financial instruments," he said. 

According to Mehta, this document should contain more. “Claims payment is a key information and so the document should also contain product specific claims settlement records of the insurer. This is particularly relevant for health insurance," he said. Further, in the case of health there is still a lot more that needs to be done to protect the policyholder’s interest.

“When insurers refile health insurance products, they sometimes add exclusions. This should not be allowed, particularly for customers who bought the insurance earlier. For new buyers the exclusions need to be clearly explained," said Mehta. 

The draft is up for public comments till 15 February.

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Published: 07 Feb 2017, 04:05 PM IST
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