Insurance issues

A recent judgment of a division bench of the Gujarat High Court has brought important issues involving medical insurance to the fore. The bench, comprising Justices R K Abichandani and D A Mehta, has directed general insurance companies to renew Mediclaim policies on normal terms and conditions as a matter of routine.

What this means is that these companies cannot deny renewal of insurance cover to anyone as long as there is no case of misrepresentation or suppression of facts on pre-existing diseases. The high court cited two extreme cases to explain its judgment: in one case, a policyholder who suffered a kidney failure required costly dialysis four times a month.

The insurance company apparently tried to jack up the premium 300 per cent once the claims were made. In the second case, another policyholder contracted an illness that required him to be in hospital several times a year.

He was first refused a policy renewal. Later, the insurance company changed its stand and offered a renewal on higher premia and provided the specific illness was excluded from the coverage.

The division bench rightly pulled up the insurance companies for this breach of the spirit of their contractual obligations to policyholders. Going further, the court observed that insurance companies were contract-bound to renew their policies and they were not doing any charity by doing so.

The last observation was in response to the insurance companies' justification that they were doing business and not charity.

Another far-reaching aspect of the division bench's judgment was its decision to treat public sector insurance companies as an arm of the "state" within the meaning of Article 12 of the Constitution. This means they will be judged as if they were the government itself, despite the fact that insurance has now been opened up to the private sector.

A couple of points emerge from the judgment "" apart from the obvious one that insurance companies cannot wriggle out of their contractual agreements with the insured. However, the real problem goes deeper. The Mediclaim policy as it stands now is unviable "" and all insurance companies are making losses on them.

The main reason for this is the insurance companies' inability to prevent fraudulent or excessive claims from unscrupulous elements in the medical profession, aided no doubt by employees within who pass fraudulent claims.

This works against more honest policyholders who get the run-around. The entry of third party administrators (TPAs) was supposed to improve things, but the experience so far has not been satisfactory "" both at the level of service provided and on claims.

Quite clearly, there is much more work to be done by both the insurance companies and the TPAs before things improve.

The insurance companies are right to claim that they are not charities; this does not give them a right to cheat policyholders.

They have to get their act together. As for the court's other observation, that public sector insurance companies are equivalent to "state" within the meaning of Article 12, this is not quite tenable in today's era of privatisation. Whether owned by government or not, insurance companies have to be run like commercial enterprises, and should not be equated with government. The best way to get out of this bind is for the government to privatise the insurance companies as soon as possible.