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Scanning insurance rights

In case of health insurance policies, much of the disgruntlement and many disputes have risen from lack of transparency.

Narayan Krishnamurthy | Print Edition: April 30, 2009

An insurance policy is a legal document that binds the seller to deliver on the offerings stated in it. However, most buyers have found themselves at the wrong end of the stick because the product received by them has varied considerably from what is promised. In case of health insurance policies, much of the disgruntlement and many disputes have risen from lack of transparency in the claim settlement process or during the renewal of the policy.

IRDA Guidelines
Health Insurance
Health insurance policy to be renewable except on grounds of fraud or misrepresentation.
Insurer not to compel insured to shift to another product except when the product is upgraded or discontinued.
General Insurance
Pricing of group insurance and guaranteed policies to be monitored as some rates offered to corporate clients are not enough to cover stamp duty payable on policies.
Life insurers to give details of payments to intermediaries.
Companies to cover exclusions at extra cost.

Now, the Insurance Regulatory and Development Authority (Irda) is trying to rectify some of these wrongs. In a March 31 directive, it states: "A health insurance policy shall be ordinarily renewable except on grounds such as fraud, moral hazard or misinterpretation and upon renewal being sought by the insured, shall not be rejected on arbitrary grounds." This has given some teeth to the consumer, who was being taken for a ride.

The timing of this directive is important, considering that the regulator has been talking of such a move for some time and insurers have been taking it easy. Insurers make substantial changes in the policy document to the detriment of the consumer on renewal. They are also not clear about the premiums charged at various age slabs and are not transparent on the increase in premium on renewal.

"After seeing the recommendations of various committees and working groups, renewals shall not be denied on the ground that the insured had made a claim in the previous or earlier years," says J. Hari Narayan, chairman, Irda. The regulator has also asked insurers to disclose upfront the details about the terms and conditions. This directive will come into force for all policies issued or renewed after 1 June, though the definition of pre-existing disease and when it will be covered is yet to be finalised.

Insurance companies have been known to cite fine print while refusing claims related to pre-existing diseases or complications arising from such diseases. They say that the policy doesn't cover claims for pre-existing diseases, a fact that is almost never highlighted at the time of selling the policy. Several insurers have also been known to deny claims on the grounds that it was raised earlier or for adding a substantial load (additional premium on grounds of a claim) when the policy comes up for renewal.

Irda had tried to seek a consensus on the pre-existing disease issue through the General Insurance Council (of which every general insurance firm is a member) to arrive at a definition. If this had happened, it would have compelled the insurers to cover all such diseases in the fifth continuous year of a policy with the same company, if a claim had not been raised during those five years.
- Narayan Krishnamurthy

Free withdrawal

From now on, you need not shell out extra money to use any bank's ATM, thanks to a directive by the Reserve Bank. Banks have been asked by the regulator not to charge any fee for cash withdrawals using ATM and debit cards issued by other banks. While some like the Kotak Mahindra Bank and Union Bank of India (UBI) had made access to accounts by other bank ATMs free, others were charging Rs 10-20 for each cash withdrawal and between Rs 4 and Rs 7 for every balance enquiry. However, banks can still charge extra for services like cash withdrawal with the use of credit cards and at ATMs located outside India.

In some cases, though, customers trying to access other banks' ATMs have had to deal with printouts saying 'transaction declined'. This, say banks, is due to an overload of the national financial switch which enables inter-bank transactions. However, banks are yet to finalise new inter-bank transaction charges. "Right now, different rates are being charged, but eventually they will converge," says T.Y. Prabhu, executive director, UBI. In another move to ease cash withdrawal, the government has abolished the banking cash transaction tax with effect from 1 April this year.
- Rakesh Rai

Marked down

During 2008-9, 84 companies were downgraded by Crisil, compared with 14 last fiscal, and the number of upgrades went down from nine to two. What's changed? "A slowing economy and a sharp downturn in the investment environment have affected the credit quality," says Raman Uberoi, senior director, Crisil Ratings.

Take Tata Motors. Crisil downgraded the company's rating from AAto A in 2008-9. The company's debt-to-equity ratio is expected to be more than two times going forward due to the increasing debt required to fund its acquisition of Jaguar/Land Rover.

Of the total downgrades, 15 are from the automobile and auto ancillaries sector, 14 from the financial sector, eight from textiles and seven each from metals and mining, and real estate and construction. About 81% of the downgrades were driven by lack of access to adequate funding or by sharp decline in demand, or both.

The first impact of the global slowing demand was felt by exportoriented sectors such as textiles, information technology, and gems and jewellery. The textile industry was affected the most as many companies were highly leveraged to fund their expansion plans and defaulted on their debt obligations due to a severe strain on their working capital. This was followed by suppliers to the real estate industry, who faced a crunch due to the delayed payments from highly leveraged developers, who were stretched for liquidity. Uberoi expects this trend to continue for the next two quarters. After this, he feels that the severity of the downgrades may come down as companies realign businesses and production costs.

Though rating downgrades didn't mean much in a bull market, it is important to track the changes in the debt patterns of the companies you invest in. "A rating of BBB and above could be considered investment grade," says Uberoi. Anything below this would be speculative.
- Tanvi Varma

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