IRDA has put out mediclaim portability guidelines that could be tough on insurance companies with time limits for handling the portability proposal; policyholders may also lose benefits

Raj Pradhan

The Insurance Regulatory and Development Authority (IRDA) has finally issued new guidelines for the 1 October 2011 implementation of health insurance portability. Even though these address some of the issues, there are several conditions that will make portability fall through the cracks. So, will insurance companies be able to meet the tough time limits for handling portability proposals?

According to Subrahmanyam B, vice-president, health and PA, Bharti AXA General Insurance, "The guidelines are comprehensive and cover only non-life insurance. The policyholder has to initiate the process for portability 45 days before it is due for renewal, by filling a proposal form with the new insurer and the portability request form. The new insurer will then have to write to the policyholder's earlier insurer within seven days. The old insurer has to provide the policyholder's medical and claims history to the new insurer within seven days thereafter.

We learn that IRDA intends to create a website (already under testing) on which the previous insurer would have to upload the policyholder's data. If the new insurer does not respond to a request within 15 days of it being made, it will be deemed as accepted.

Insurance companies have an escape route by way of the premium loading and the right to underwrite. According to one senior industry executive, "In view of the waivers offered on pre-existing diseases (PED), insurers need to have flexibility on loadings and IRDA should clear such filing requests for loadings within a fixed time frame of 30 days." Clearly, loading will be the ultimate tool that will be used to dissuade a 'bad' pool of policyholders to migrate to a new insurance company.

The other issue is no-claim bonus (NCB) where the net effect may deplete the bonus. The new insurer can port the sum insured (SI) on an existing policy inclusive of the NCB that has accrued on it. However, the premium charged will be on the higher sum which is inclusive of the bonus. This effectively erodes the effect of the NCB itself. For instance, if a policyholder has an insurance of Rs2 lakh, which has increased to Rs2.5 lakh due to the NCB, that is the sum that will be transferred to the new insurer. However, the premium charged by the new insurer will be on Rs2.5 lakh. Consequently, the net effect is that the policyholder loses the true benefit of NCB.

Interestingly, Segar Sampathkumar, deputy general manager, New India Assurance, had anticipated this. Earlier this year, he told Moneylife, "A no-claim bonus cannot be portable, as it is earned due to a relation with the insurer."

IRDA has also failed to address another major issue, that is, the medical conditions developed by the policyholder with the old insurer. For instance, a policyholder has no pre-existing diseases (PED) when the initial policy was taken, but has developed conditions over the next couple of years. If the policyholder wishes to port to a new insurer who has a standard four-year PED waiting period, the new insurer will make the policyholder wait for a couple of years to cover these conditions. These are considered PED with the new insurer even though they consider the time spent with the old insurer. In this case the policyholder would be better off with the old insurer as there is no PED and hence all the conditions are covered with no waiting period.

The guidelines address group to retail (individual) policy porting. It also allows porting to a retail policy of the same insurer in the first step. After a one-year wait, the policyholder can port to another insurer. It's a two-step process that will be far from easy.