IRDAI tries to bring more transparency into life, health and travel covers

Lack of clarity often led to disputes between customers and insurers over whether certain claims could be honoured

The Insurance Regulatory and Development Authority of India (IRDAI) has come out with a slew of guidelines recently on health, life and travel insurance, aimed at bringing in greater clarity in spheres where there was ambiguity earlier. This ambiguity would often lead to disputes between the insurer and the customer.

Health insurance

Permanent exclusions: One major change pertains to permanent exclusions. Let us explain this with an example. Suppose a customer, who has had Parkinson's for some time, wants to buy health insurance. One option before the insurance company is to treat Parkinson's as a pre-existing disease, impose a waiting period of four years, and then issue the policy. While insurers were ready to take this route for diseases like diabetes and hypertension, they were reluctant to do so for more serious ailments like Parkinson's. They were afraid that once the waiting period of four years got over, they could get hit by heavy claims from such customers. So, insurers would typically reject the proposals from such customers.

The regulator has now said that insurers can put certain ailments in the list of permanent exclusions. Diseases on this list will never get covered. “Now, since there is clarity, insurers can entertain applications from customers having these diseases. Such customers can get health insurance with the clear understanding that claims related to the 16 ailments in the list of permanent exclusions will not be entertained, while all other diseases will be covered,” says Shanai Ghosh, chief executive officer (CEO) designate, Edelweiss General Insurance. She adds that this measure by the regulator has made health insurance more inclusive.

Besides specifying a list of diseases that can be permanently excluded, the regulator has also specified what cannot be treated as permanently excluded, instead of leaving it to the discretion of insurers. “If somebody works in an industry where conditions are hazardous, he could, in the past, be excluded. But now the regulator has clarified that such a person cannot be excluded. Similarly, those undergoing treatment for mental ailments and psychological disorders cannot be excluded,” says Yashish Dahiya, CEO and co-founder, Policybazaar.com.

Pre-existing diseases: Another recent change pertains to pre-existing diseases. Suppose a customer is diagnosed with a serious ailment within three months of buying a policy. The regulator has said the disease will be treated as pre-existing and insurers will be able to apply a waiting period to it. “Customers will henceforth have to be more honest in declaring their pre-existing diseases,” says Dahiya.

Another point that IRDAI has clarified is that the waiting period on temporary exclusions cannot exceed 48 months. Also, suppose that a customer is porting from one insurer to another. Of the total waiting period of 48 months, if he has already completed 24 months, then the new insurer cannot impose a waiting period of more than 24 months for that disease.

Life insurance

Benefit illustration: Insurers will have to provide benefit illustrations to customers at the point of sale. The illustration will have to be signed by both the buyer and the sales intermediary, and will form a part of the policy document. All illustrations will, in future, have to be approved by the CEO and the appointed actuary. The regulator has specified the format in which benefit illustrations have to be presented for different product categories. The illustrations must specify clearly which portions of the benefits are guaranteed and which are non-guaranteed. For variable benefits, two rates of return—4 per cent and 8 per cent—have to be assumed, and it has to be clearly stated that these are not guaranteed, nor are they the upper and lower limits of the return that the product can be expected to give. “By simplifying and standardising the format, the regulator is trying to ensure that customers fully understands the benefits they will get from the insurance product they are buying,” says Rakesh Wadhwa, chief marketing and customer Officer, Future Generali India Life Insurance.

Product suitability: Any agent or distributor selling an insurance product will henceforth have to carry out a board-approved procedure for financial need analysis. The purpose is to ensure that the product sold is suitable for the customer’s needs. This is one more step taken by the regulator to curb the menace of mis-selling.

Travel insurance

Travel portals often put insurance as a pre-selected or default option. Unless a customer actively de-selects it, he ends up buying insurance along with the ticket, even though he may not have wanted it. IRDAI has stipulated that travel portals should not have insurance as a pre-selected option. “Now, customers will only buy travel insurance when they want to. Also, travel policies have many features. Customers who exercise active choice will be able to decide which ones they want and which ones they don’t,” says Rakesh Goyal, director, Probus Insurance Brokers. For domestic travel, the regulator has also stipulated that customers cannot buy travel insurance more than 90 days prior to the date of journey. “Policy features sometimes change. People who have bought the policy much in advance forget they have done so and end up buying a second policy,” says Goyal.

IRDAI's customer-friendly moves
Policy change	Implication
List of permanent exclusions defined	Customers with these diseases can get health insurance with the understanding that those diseases will not be covered, all others will be.
On pre-existing diseases	Diseases diagnosed within three months of policy purchase will be regarded as pre-existing. Customers will have to serve waiting period.
On porting and pre-existing diseases	If a certain part of the waiting period has already been served, customers porting to another insurer will serve only the remaining part.
Benefit illustration	Format standardised. Has to be signed by both seller and buyer, and given as part of policy document. Purpose is to make sure customers understand the benefits of the policy they are buying.
Product suitability exercise	Exercise has to be carried out and a record of it has to be kept. Meant to curb product mis-selling.
Travel insurance	Cannot be sold on portals as a default option. Customers will in future actively select this option if they want to buy this cover.