Why life insurers reject accident claims citing breach of law

General and life insurers may view accident claims differently because of the difference in product structures

Nilesh Sathe, member-life, Insurance Regulatory Development Authority of India (Irdai), at a recent seminar on claims management, voiced a concern that would bother many policyholders – the lack of uniformity in the way life and non-life insurance companies handle accident claims. In the past, there have been cases where life insurance companies have rejected accident claims because the victim died while crossing railway tracks citing breach of law and such cases have gone to court. But a general insurance company would pay the claim of this nature. “This dichotomy in the way life and general insurers look at accident claims was causing confusion to policyholders, Sathe said.

One of the reasons for this is due to the way a Personal Accident cover is structured. In case of general insurers, it is a stand alone product, while in case of life insurers it is an add-on cover to the base life insurance policy. For general insurers it is a big category of product by itself, says Sanjay Datta, Chief- Underwriting, Claims and Reinsurance, ICICI Lombard General Insurance.

Read more from our special coverage on "INSURANCE"

• Birla Sun Life moves to cluster method to get better sales, higher persistency
• E-policies made compulsory for most categories
• Insurers can speed up products for corporate clients
• GSC Bank to sell insurance through agri cooperative societies
• Corporate agents may enter into new tie-ups in FY17 with IRDAI nudge

“If somebody is travelling on the top of an over-crowded bus and meets with an accident, we cannot reject the claim although it is technically breach of law,’’ he says.

Similarly, driving on the wrong side of the road is also a breach of law, but not criminal in nature. In such a case too claim would be generally paid, Datta adds.

Most insurance companies are not likely to take a stringent view of accident while crossing railway tracks, even though it is illegal, because it is very common, says Mukesh Kumar, Executive Director, HDFC Ergo General Insurance. But if someone is drunk, then the insurance company may not pay.

“Whether the claim is rejected or not varies on a case-to-case basis. We usually look at whether it is legal or not only if it is relevant to the case,’’ he says.

A technical instance of a breach of law could be crossing the road without a zebra crossing. Similarly, standing on the footboard of a train is also illegal. But not all insurance companies follow such laws strictly and do pay claims in case of such accidents, says Ganesh Iyer, Head-Underwriting, Claims, Process Assurance and Risk Management, Kotak Life Insurance and President, Association of Insurance Claims Management.

“The breach of law clause is to ensure that people do not take law into their hands and most companies may not follow it very stringently,” he says.

The perception that general insurers are less stringent is perhaps due to the fact that they see higher volumes in PA covers, unlike life insurers, who offer PA cover as an additional benefit or rider. “As a rider, we cannot offer sum assured higher than the base sum assured, as per regulation,’’ Iyer points out.

But it is the policyholder who suffers when the claim is rejected citing legal reasons. This can be resolved to a large extent by reading the features before buying the policy and understanding what it covers. “Different products have different clauses, both in life and general. So, buyers should read product documents thoroughly before buying the policy,’’ Iyer adds.

A PA cover or an accident benefit rider offers money in case of an accident that may nor may not result in death. It is particularly useful if the policyholder is unable to work due to a disability following the accident and there is loss of income. They pay-outs depend on the extent of disability and full sum assured is paid in case of death.