Photo: iStock
Photo: iStock

Non-disclosure of ailments can lead to trouble

Non-disclosure of a pre-existing condition is one of the top three reasons for claim rejection

Some months ago, a middle-aged gentleman was recommended cataract surgery. He applied for a cashless claim to his health insurer. The family floater health insurance had been running for five years with no claims. The insurer when assessing the claim found, from the doctor’s notes, that the patient had been suffering from sleep apnea over the past seven years and this fact had not been declared when the insurance was first bought five years ago. They rejected the claim and cancelled the entire family’s insurance on grounds of medical non-disclosure.

Non-disclosure of a pre-existing medical condition is one of the top three reasons for claim rejection. Such cases throw up several questions on health insurance principles. The first is why does non-disclosure take place? In most situations, medical non-disclosure is deliberate, with the insurance buyer and sales person mutually deciding to hold back information. Their worry, not unfounded, is that if one’s health condition is transparently shared, then the insurer will not provide insurance. In my own insurance buys, I have been guilty of nudging the nurses to add an extra inch or cut a few kilos so that my BMI comes squarely in the acceptable range. However, such behaviour simplistically assumes that insurers will not find out undisclosed information. The buyer significantly underestimates the insurer’s strong finding-out capability. When claims are filed many years after buying the insurance, customers always forget what they had disclosed in the proposal forms but insurers never do. They are able to access meticulously recorded diagnoses sheets and internal hospital case reports and get the correct facts fairly quickly. This is why, in addition to the obvious point that one should tell the truth, buyers should give accurate information and make sure this is properly recorded in the proposal form. When in doubt, disclose.

Insurers can help by making their catch-all medical questions in the proposal form more specific. These are the questions that insurers ask so that you declare anything material that they may not have asked you already. Some of these catch-all questions encourage non-disclosure because they are so broad in their scope. For example, commonly posed questions are if you have “been under any regular medication (self/prescribed)" or “undergone any hospitalisation/illness/surgery." The answer to this is always going to be “yes", which means that more detailed questions will follow. That is why buyers will expediently say “no", resulting in possible non-disclosure that they may rue many years later when making a claim. A few insurers are using more specific questions such as whether you are “currently suffering from any symptom(s) or complaint(s) persisting for more than five consecutive days". These are more easily answered.

For a moment, let us assume that the insurance buyer has sinned and hidden a medical issue. Should that always be grounds for rejecting a claim or cancelling the insurance? I think not. The insurer must ask what they would have done had they got that information earlier? If they would have issued the insurance then the claim must be paid but if the non-disclosure would have been grounds for rejecting the proposal then the insurer is right in rejecting the claim now. The problem is that these rules are not transparent and, at the time of a claim, insurers are most likely to argue that the non-disclosure was material. It would be useful for the industry to list down, in proposal forms or correspondence, the principles that explain better what medical conditions are considered material.

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An important consideration should also be the number of years after buying an insurance that a claim is made. In life insurance, the law specifies that claims cannot be rejected after three years. We need a similar provision in health insurance. The timelines can be longer since the gestation between having a chronic condition and resulting hospitalisation is longer.

Let’s now advance the assumption by saying that there was non-disclosure that was material and resulted in an early claim. Even in such situations, the insurer should not unconditionally cancel the insurance, if other family members are part of the plan. Why should they be left uncovered because one person in the family hid information? I have seen cases where such summary cancellation has taken place. In one case, a spouse’s claim was rejected on the grounds that the primary insured had hidden information. A more nuanced approach is required where only the person who hid material information is penalised.

Finally, if the circumstances are such that health insurance must be cancelled, there is the matter of premiums paid. Effectively, what the cancellation implies is that the policyholder was never really insured even though they paid premiums. Insurers should think about a fair penalty for such situations. Forfeiting the entire premium paid may be high and, perhaps, a partial refund could be made.

Returning to the case that I started out with. The insurer initially terminated the entire family’s insurance but, through a process of grievance redressal, finally agreed to continue the family’s insurance but not the person’s who hid information. That was a good decision.

Kapil Mehta is co-founder, SecureNow Insurance Broker Pvt. Ltd

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