Sucheta Dalal :Risks Of Getting Insured (29 Dec 2003)
Sucheta Dalal

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Risks Of Getting Insured (29 Dec 2003)  

This could happen to you. An under-40 magazine editor renewed his Mediclaim policy, went off to China on a work visit and on returning discovered that he needed to be operated to remove two blocks in his heart. Recovering from the shock of dealing with a heart problem at a young age, he received another jolt when his Mediclaim was turned down on the charge that he had a ‘pre-existing’ heart condition when he renewed his policy.

Apart from its callousness, the insurance company appears to start out on the presumption that all policyholders are cheats, without even an investigation, interaction or background check.

In this case, the matter was handled out of Kolkata, where the person’s employer is located. But a recent judgement by the Divisional Bench of the Gujarat High Court shows that the attitude of insurance companies is the same all over the country.

The Consumer Education and Research Society (CERS) of Ahmedabad and others, who took the battle to the Gujarat High Court, cited two extreme cases. One pertained to a person who had Mediclaim cover since 1990 but had made no claim. His first claim occurred in 2002 when he suffered kidney failure and needed dialysis four times a month. When it was time to renew the policy, the insurance company first demanded a 300 per cent hike in premium. When the person paid it up, he was informed that the policy would be renewed subject to the exclusion of five major diseases. In effect, he had little protection despite paying thrice the premium.

The second case pertained to a policyholder who was also a physician and neurologist. He too had a Mediclaim cover for himself and his family since 1990 with no claims until 1999. He had to be hospitalised twice that year after beginning to suffer from hypogamaglobulinemia. Initially, the insurance company simply refused to renew his policy. It later relented, but at a 100 per cent increase in premium with the rider that septicaemia and hypogamaglobulinemia would be excluded from the cover and an extra 5 per cent charged with every claim. This means that while insurance companies and their agents hardsell Mediclaim policies, the protection itself is a chimera, which vanishes if you are or unlucky or stupid enough to suffer serious illness.

A Letters Patent Appeal and Special Civil Application filed by CERS and others against three government companies — United India Insurance Company, New India Assurance Company and National Insurance Company — has led to a landmark judgement from the Gujarat High Court. Justices RK Abichandani and DA Mehta directed the insurance companies to renew the Mediclaim policies on existing terms and conditions as a matter of course.

Responding to the insurance companies’ contention that they were running a “business and were not charities or philanthropic organizations”, the judges observed that the terms of renewal were binding and “did not need to appeal to any philanthropical instincts of the insurer companies”. They further said, “...indeed, for those who are oblivious of their constitutional, legal and contractual duties, philanthropy would be an alien concept”.

Briefly, the judgement says that so long as a person pays renewal premium on time, the insurer is bound to renew a Mediclaim policy without excluding any disease already covered under the existing policy, which may have been contracted when it was in force. Second, a policyholder should also be allowed to raise the insurance amount, but the company may exclude coverage on some diseases, only on the increased sum. Third, insurance companies cannot refuse to renew a policy by claiming that the cover would become onerous and burdensome, because the policyholder has contracted a disease covered under an existing policy. Fourth, they can only refuse to renew a Mediclaim policy on the grounds of misrepresentation, fraud or non-disclosure of material facts that existed at the inception of the contract. And fifth, that government insurance companies, cannot “arbitrarily cancel or refuse to renew an existing Mediclaim policy” simply because their monopoly has ended and they face competition from private players.

Will the judgement mark an end to the harassment of policyholders by insurance companies? Not necessarily. This is not the first time that the courts have intervened on behalf of policyholders. In fact, in a matter heard by the Supreme Court, Justices VN Khare and S Patil had previously ruled in August 2001 against the ‘arbitrary’ refusal by insurance companies to renew mediclaim policies, and in particular, about the ‘exclusion clause’, under which insurers were refusing to cover existing diseases under fresh policies.

In that particular case, the insurance company, then a monopoly, was refusing to renew Mediclaim cover because the policyholder had filed litigation against the company on the ground that he had “gone into litigation for payment of his claim” against the insurer. As far as ordinary policyholders are concerned, the court rulings are useful only to the extent that they promise justice in the end. But it does not eliminate the long battle to have one’s claim reimbursed. Unless there are stringent penalties attached to arbitrary rejection of claims or renewal of policy, each policyholder will have to fight his or her own battle for reimbursement.

The entry of private players has not lessened the problem. For most policyholders, the problems become apparent only when an actual claim is made. A policyholder finds that once a claim has been made, no other insurer wants his/her business. They can only renew the policy by paying a hefty increase in premium and/or by permitting the pre-existing condition from the list of illnesses/diseases insured.

Private companies also started the system of third party administrators (TPAs) who intermediate between a hospital, which treats the policyholder, and the insurance company. The TPA was expected to ease matters for the insured person by paying the hospital and collecting the amount from the insurance company. The services of a TPA used to add roughly 7-10 per cent to the premium, but some people were willing to pay for the convenience. But increasingly hospitals don’t want to deal with TPAs and have been insisting on cash payments by the insured persons. This has meant that policyholders who paid a higher premium are not even getting the contracted service.

-- Sucheta Dalal