Published in Mint on Mar 21 2017, Written by Kapil Mehta
In insurance, policyholders—people who buy the insurance—have the weakest voice. Insurers, intermediaries, third-party administrators and surveyors have strong institutional processes to express their perspectives. Policyholders don’t. This is why regulation relating to policyholder rights is so important.
This regulation, first introduced in 2002 just after insurance was liberalized, was a seven-page document that outlined the need for minimum standards in proposal forms, insurance policies, claims, servicing and grievance handling mechanisms. With minor modifications, this regulation remains in force today.
However, over the past 15 years, much has changed. Products such as ULIPs (unit-linked insurance plans) and health insurance have become more popular. A large proportion of sales now takes place through new channels such as banks and the internet.
In 2014, the insurance regulator proposed an exposure draft on policyholders’ rights, to factor in these changes in the industry. However, the draft was not converted to law. In February this year, a revised exposure draft was proposed. The changes proposed, compared to the 2014 proposal, appear to reduce policyholders’ rights rather than protect them.
Many provisions from 2014 have been dropped. These include seven policyholder rights such as: the right to protection against unfair contract terms and the right to protection of personal information. These rights are important.
Unfair contract terms become a problem when the insurance contract is non-negotiable and insurance buyers cannot change terms. Often, they receive the contract after making a payment.
I am currently helping a woman, whose mother is suffering from cancer, on her insurance claim. The mother is covered in an annually renewable group health insurance scheme. A previous insurer paid for chemotherapy but, when the insurance was renewed, the new insurer rejected the claim for ongoing treatment. It turns out that the new insurer had issued a circular about this exclusion but no one at the company that bought the insurance was aware of this. This incident may not have taken place had the right to unfair contract terms been in place.
The right to protection of personal information is also fundamental. We are inundated with calls when our insurances come up for renewal. How did our personal information, often including financial details, leak? Shouldn’t the insurer, intermediary or vendor that let this information out be accountable? An initial step to controlling the issue is to fix responsibility.
Other proposals that have been dropped include a model citizen’s charter with basic service standards and a requirement for providing suitable advice. An omission that seems minor, but is not, is the definition of a complaint. Previously, a complaint was defined as an oral or written expression of dissatisfaction. Now, the word “oral” has been dropped. The large number of complaints made over the phone to a call centre or branch will not be counted as complaints if the draft is approved.
Effectively, the number of reported complaints will fall without any real service improvement.
The insurer’s obligation to send renewal notices has been removed. Insurers and intermediaries need to take more responsibility for sending such reminders as renewal is necessary to maintain the benefits of insurance for the policyholder.
For example, in health insurance, waiting periods get reset if renewal is not done on time; in term insurance, the insurer can ask for fresh underwriting; in motor insurance, you can lose your no-claim bonus.
Policyholders are particularly vulnerable after they have had a claim. If they do not receive a renewal notice, they may well assume that the policy has been terminated whereas there are provisions in law that make renewal of some insurances mandatory.
The section on group insurance has been dropped, because of which it is not clear if policyholder rights extend to individuals covered under group schemes. This is a large number: 57 million people in group health insurance as compared to 29 million in individual health insurance, according to the health regulator’s annual report.
There may well be valid reasons for these changes. Maybe the deleted items are captured better in some other regulation. Perhaps there have been implementation issues in the past. There could be a worry that the rights will be misused by policyholders.
But for an observer, it is difficult to determine what changes are being made and why. I had to spread 50 pages across a large table to compare the changes clause by clause. That helped identify changes but I don’t know why these changes were made. Similarly, I don’t know what different stakeholders felt about these changes. I am particularly interested in the comments of consumer groups. The industry, including the regulator, should hold itself accountable to a higher standard of transparency. There needs to be a document that shows the changes being made, an explanation for the changes, a summary of the feedback received and then, finally, how those choices were made.
Apart from provisions that have been dropped, there are items that I would have liked to see in this regulation, such as the information shared with policyholders on traditional life and health insurance.
Traditional life insurance is over 60% of the market and the most important feature to consider when buying these is the annualized return, benchmarked if possible to fixed deposit rates. This is not published yet.
You can get to the numbers by running a cash flow analysis from the illustration but that is expecting too much from the buyers.
Similarly, bonus declaration can be misleading because it is often expressed as a percentage of the sum assured payable on maturity. This cannot be compared to an annualized interest rate, which is better understood. In health insurance, policyholders need to know claim approval rates for the products they buy. This is not publicly available. Introducing these requirements into policyholder regulation is what is required.
I do hope that others have had similar feedback and some of the points I make find expression when the final regulations are issued.