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Avoid getting Trashed

Chandralekha Mukerji   Delhi     Print Edition: September 2011

Mohan Poddar was diagnosed with vertigo, a type of dizziness, this May. But the real shock came after three days of hospitalisation when the third party administrator (TPA) of his health insurer denied him the cashless claim facility. Though the insurance policy promised him cashless hospitalisation, he had to pay the bill of Rs 42,000 from his own pocket.

"The TPA refused to provide the cashless facility saying the illness could have been caused due to my pre-existing heart ailments and that it needed time to scrutinise the claim. However, if you ask medical professionals, they will tell you that my illness has nothing to do with any kind of cardiac ailment," says Poddar.

The 59-year-old Delhi-based businessman, who has been paying around Rs 23,000 every year since 2008 as premium to a private health insurer, feels cheated. While in a health insurance policy, denial of the cashless facility doesn't necessarily mean repudiation of the claim and Poddar still has the reimbursement route open, it does shake the customer's confidence in the insurance company.

Case Study: Insurance claim rejection
CASE STUDY:
Mohan Poddar, 59, a Delhi-based businessman


Though the insurance policy promised him cashless hospitalisation cover, the TPA denied the facility stating that the hospitalisation was due to a pre-exisiting condition. Poddar had to pay Rs 42,000 and seek reimbursement.

Rs 23,000 is the annual premium Poddar pays to his health insurer for a floater cover of Rs 10 lakh.

The most critical moment in the entire tenure of an insurance policy is when a claim is filed. "One of the most common queries we get from people buying a policy is whether the insurance company will honour the claim," says Shankar Nath, founder, Policytiger.com, an online insurance service provider.

MUST READ: Research before investing in policies

According to the annual report of the Insurance Regulatory Development Authority (Irda), the number of claims rejected by life insurance companies for 2009-10 stood at 14,693 (it was 12,781 in 2008-09). The amount involved was Rs 245 crore. The number of claims pending at the end of 2009-10 was 15,892 (it was 16,915 in 2008-09), with a pending value of Rs 286 crore. Of these, 2,180 were pending for more than one year.

The figures would surely make any policyholder sceptical about the efficacy of his insurance cover. But this is only half the picture. The report also mentions that the life insurance companies settled 7.26 lakh claims on individual policies, with a total payout of Rs 5,958 crore.

"We are in the business to pay claims. At the same time, we have an obligation towards our shareholders to ensure that we pay for only genuine claims and have enough checks and balances to reject non-genuine claims," says Antony Jacob, chief executive officer, Apollo Munich Health Insurance. In fact, if companies show leniency and keep accepting bogus claims, it may cost customers more in the form of higher premiums, says Jacob.

While the fact remains that if an insurance company wants a lower claims ratio, it has to concentrate more on policy sourcing rather than the claim payment, it is the duty of the policyholder to follow all policies and procedures given in the insurance document and not give the insurer a chance to reject his claim.

"As an insurance company, our effort is always to ensure that the claim process is simple and hassle-free. However, since an insurance contract is based on the principle of 'utmost good faith', it is important that the customer is honest in his declarations and abides by the policy agreement," says Pavan Dhamija, managing director and chief executive officer, DLF Pramerica Life Insurance.

If customers take some precautions and follow rules to keep their part of the contract, even if the insurer falters, there are regulations to protect their rights.

Here, we list some broad reasons why your insurance claims may be rejected and ways to steer clear of them:

LACK OF KNOWLEDGE
Often it is seen that the customers are not aware of exclusions under the policy as many do not take the trouble of going through the policy terms and conditions at the time of sale.

"We are in the business to pay claims. At the same time, we have an obligation towards our shareholders to ensure that we have enough checks and balances in place to repudiate non-genuine claims."
Antony Jacob
CEO, Apollo Munich Health Insurance

"One of the most common queries we get from customers while buying a policy is whether the insurance company will honour the claim, if such a situation arises."
Shankar Nath
Founder, Policytiger.com
This is a serious mistake as you wouldn't even be aware when you breach a condition mentioned in the policy document. For instance, you bought a health insurance policy and saw that it covered pre-existing diseases.

However, you missed the asterisks which clearly mentioned "after four years of consecutive insurance with the company". "The agent or the intermediary is often responsible for this. In their eagerness to sell and earn the commission, they do not divulge the policy limitations to the customer or over-promise. They don't care about the problems the client will face when a claim is filed," says Nath.

Solution: Read policy contract terms & conditions carefully and understand them well. When in doubt, seek clarifications from the advisor or the insurer.

"Every insurance company offers a free-look period of 15 days to cancel or alter the contract if you find the contract to be different from what you had understood it to be. Avail of this facility if you require," advises Hitesh Veera, senior vice president, Kotak Life Insurance.

NON-DISCLOSURE OF FACTS
Common reasons claims are repudiated are non-disclosures, partial disclosures and wrong disclosures of significant facts such as age, nature of occupation, income, existing insurance policies, major ailments or pre-existing medical conditions.

"Coverage is offered based on the information provided by the proposer on the proposal form and hence any gap between what is declared and the reality at the time of filing claims can be a reason for rejection," says Jacob.

Solution: "The only way to tackle this is to alert customers when they apply for the product and explain to them the consequences of concealing or giving incorrect information, says Dhamija. It is imperative for all policyholders and prospective customers to understand that your insurance policy is guided by underwriting principles which are based on information provided by you. Therefore, stating these things correctly is crucial.

DISPARITIES IN PROPOSAL FORM
Another reason why gaps are found in the proposal form is that customers often refrain from filling their forms and depend on third parties and intermediaries.

This can lead to serious mistakes in declarations. "The agent is often not aware of exact customer details and the policy is underwritten with these incorrect details. When a claim is filed, the insurer verifies the information in detail, and if a materially important fact has been inaccurately represented, the claim is rejected," says Nath.

Solution: Fill up the proposal form yourself. Submit genuine documents at the time of buying a policy in an orderly and timely manner to the insurance company with details.

When you get the policy document along with a photocopy of the application form that you filled up from the insurance company, go through it and check if all the details are correct. In case you find any discrepancy, inform your insurance advisor or the insurance company immediately and get it rectified.

Did you know?

1. According to the Insurance Act, 1938, a life insurance claim for a policy held for at least two years can be rejected only if the insurer can prove that the policyholder had withheld any material fact or provided inaccurate information at the time of purchasing or renewal of the policy.

2. Insurance norms require that insurers settle a claim within 30 days of receipt of all requirements. If further verification is required, the insurer needs to complete the procedures within six months from written intimation of the claim. If the insurer fails to settle the claim within six months, an interest is payable by the insurer on the claim amount.
SUPERFLUOUS EXPENDITURES
In the general insurance segment, motor and health insurance are the two sectors where claim rejection is high. Health insurers many times reject a claim saying a service or procedure was "not medically necessary".

"Private hospitals, in their quest to generate maximum revenue, perform medical procedures which may not be necessary, on patients covered by a medical insurance policy. The policyholder is also relaxed about it as he mistakenly assumes the money will be paid by the insurance company. The penny drops when the claim is rejected," says Nath.

"In motor, it is primarily because of inflated claims made by the customer through his garage, where bills are blown out of proportion. Repairs not directly linked to the claim are attempted to be passed off as part of it," adds Nath. However, these irregularities get caught by investigations by the insurer, who then rejects the claim.

Solution: Do not include repair charges of pre-existing damages or costs not covered under the policy in the claim.

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