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Published in Mint on 11th July, 2017

The Insurance Regulatory and Development Authority of India (Irdai) has notified new rules to protect policyholder’s interest. You can read the full notification here. While the regulations work towards ensuring that insurers settle all kinds of claims on time by defining the penalty on delays, there is much left to be desired in addressing better disclosures for the customers. We take you through some key provisions of the notification and also bring you experts’ views on what more could have been included in it.

Penalty on late payments

If an insurer delays claims payments, it has to pay a penalty that’s 2% over the bank rate, which is specified by the Reserve Bank of India, as on 1 April of that fiscal. For instance: in life insurance, after a claim is made, the insurer needs to ask for all the documentation within 15 days and take a decision on the claim and make the payment within 30 days. This is the norm even now. And, if a claim has to be investigated further then the insurer gets up to 90 days for investigating. If the insurer decides to pay, it has to do so within 30 days from when the decision to pay was taken. Insurers will attract penalties for not adhering to these timelines. The notification also clarifies that if a claim is ready for payment but the payment cannot be made due to reasons of proper identification of the payee, the insurer will still pay a penalty. For settlement for maturity proceeds and annuities, insurers have to notify the policyholder in advance or send post-dated cheques or transfer money to the bank account so as to pay the claim on or before the due date. For surrenders, free-look cancellations and withdrawal request, the insurers will have to pay within 15 days of receiving the request, or the last necessary document. A delay in this case will also invite penalty.
“Earlier there was some ambiguity in the way penal interest for delayed settlement of claim was calculated…. But now we have brought about clarity in the rate at which it has to be calculated and the duration for which it has to be paid,” said Nilesh Sathe, member, life, Irdai. “Now, if an insurer is supposed to settle the claim in 30 days, but takes 31 days, then it needs to pay interest for 31 days and not just 1 day,” he added. This would lead to faster settlement of claims.  “The timeline mandated for investigation of a death claim has been reduced to 90 days from 180 days. This, along with a penalty on delays, will help in speedier settlement of death claims,” said K.S. Gopalakrishnan, managing director and chief executive officer, Aegon Life Insurance Co. Ltd. “But this alone may not solve all the problems regarding settlement of claims. For instance, the industry has to look at ways of simplifying surrender requests,” he added.
For non-life policies also, there is now a limit of 30 days to settle claims—after insurers get all the documents, including surveyor’s report . And if insurers don’t follow the timeline, they have to pay a penalty. In health insurance, if a claim needs to be investigated, the insurer will need to complete it within 30 days and settle the claim within 45 days from the date of receipt of the last necessary document, or pay a penalty.
For other non-life policies where a surveyor is appointed, the regulations have laid down timelines to appoint the surveyor and submit the report. Further, the surveyor’s report needs to be given to the policyholder if she asks for it—which is important because a surveyor is appointed by the insurer to investigate claims and is the basis on which an insurer takes the decision on a claim. “The notification also mandates insurers to categorise exclusions that are standard, specific to policy, those that can’t be waived and those that can be waived on payment of extra premium. This is important because in motor insurance there are many exclusions such as depreciation or engine loss that can be covered by paying extra,” said Puneet Sahani, head, product development, SBI General Insurance Co. Ltd. “This will also make people aware of add-on covers that take on such exclusions. In motor there are about 20 add-ons that people don’t know much about,” he added. The notification outlines features and other terms and conditions that needs to be stated explicitly in a policy. For instance, in life insurance an insurer needs to state things like the type of policy, features, information on premium payment, riders, exclusions, policy conditions for surrender or discontinuance, revival of the policy and the grievance redressal mechanism. Insurance Regulatory and Development Authority (Irdai) has given the insurers till 31 December to make such changes in their policy documents.
The notification also states that distributors will provide all the material information regarding the policy, and that the insurers will have to obtain a certificate from the policyholder certifying that the proposal form and policy documents have been fully explained and that the policyholder understands the policy.

What it lacks

The notification is missing the ‘key features document’, which aims to simplify the salient features of a policy. Irdai, in its draft released in February 2017, had asked for this document, which would carry the main features of the policy in simple language and in bold and attractive print. This document was intended to make policyholders aware of the most important features.
However, according to Gopalakrishnan, this is still being deliberated upon by the Life Insurance Council, an industry body. “The insurers are jointly working on introducing a simple key features document that will help customers understand what they have bought, including their obligations, in a simpler language,” he said.
According to Kapil Mehta, co-founder, the notification is a baseline that must be built on overtime. “The regulation doesn’t recognize verbal complaints but it’s important that verbal complaints also get recorded and measured. There should be an onus on the insurers to deliver a renewal notices  particularly in health insurance,” he said.
For instance, if a policyholder does not pay health insurance premiums on time, she loses all the benefits with regard to the waiting period and has to apply for a fresh policy. “Also, health insurers shouldn’t be allowed to add exclusions when insurances are renewed,” added Mehta. Mint has been stressing on the need for meaningful disclosures and one important step towards this would be to disclose the net return on investment for guaranteed insurance-cum-investment products.
In fact, for non-guaranteed products that come with benefit illustrations assuming a rate of 4% and 8%, a disclosure of net return is important to understand the costs.
This is already mandated in the case of unit linked insurance plans (Ulips). Such disclosures didn’t find a mention in this notification but according to insurers these are being reviewed by the product committee that was set up by the regulator.