In the last 6-8 months, Irdai has introduced a set of regulatory changes that promise to resolve issues that previously often led to poor outcomes on health insurance claims

Recently, a senior executive of a health insurance company was lamenting about the fast pace of regulatory changes that they need to catch up with. While he complained about the increased work, he could not help but compliment the Insurance Regulatory and Development Authority of India (Irdai) for keeping the policyholder’s interest at the heart of these changes. Ultimately in the long-term, the satisfaction of policyholders will drive the industry development, he said.

I totally agree. Health insurance is a complex service-oriented product with multiple layers. At the time of signing up, policyholders buy into a promise of future time-bound help. They count on the policy for support, when they are adversely affected financially as well as health-wise.

Both finance and health are sensitive areas. Nobody appreciates a surprise at the time of making a claim. At times, an adverse or delayed claim decision can impact the future line of treatment. With a solid appreciation of these factors, the regulator has taken cognisance of areas that typically cause service-level dissonance.

The country already has a solid set of product regulations, such as life-time renewability, portability, and standardisation of exclusions. On top of that, a set of regulatory changes have been introduced in the last 6-8 months. These guidelines are specific, and targeted towards grassroot issues that lead to poor outcomes for the policyholder.

Each of the recent changes carry a powerful impact on a standalone basis. I see three large themes behind these new regulations—empowerment, standardisation, and pre-mitigation.

Empowerment

The regulator has taken several measures under the first theme of empowerment. On top of the list is increasing the free-look period to 30 days. This allows policyholders to cancel the policy within 30 days of getting the policy copy, without giving any reasons. The free-look period helps to minimise mis-selling, as policyholders can cancel the policy if it is not in line with their expectations. Increasing the free-look period gives the policyholder more time to review the document.

Also, policyholders can now cancel the contract during the policy term without having to explain themselves, as well as get a pro-rata refund. Earlier, cancellation was cost-prohibitive for the policyholders, as they would get a refund on the short-period scale. This was a non-linear method of calculation of refund. Based on the time lapsed in the policy, policyholders would bear a penalty up to 25 per cent of the premium. This pushed them to continue with the policy, even if the insurer delivered poor service.

Further, the regulations require the insurer to publish a simplified Customer Information Sheet (CIS), carrying all the major policy clauses, including the claim process, in a simplified language. This has been done to make the insurance contract more transparent and accessible to a layman, who may otherwise find the legal language of policy wordings rather daunting to understand.

Standardisation

The second theme of standardisation focuses on service delivery. I anticipate that the changes in this category will push a few insurers to substantially improve their servicing capabilities.

Here, the big move has been about providing cashless services everywhere. The strength of hospital network varies substantially across insurers. Historically, policyholders were bound by the insurer’s network and would have to resort to reimbursement of a claim, if their preferred hospital was not part of the network. Reimbursement requires upfront payment of cash and can cause financial strain. Now, policyholders can take the cashless route in any registered hospital. Moreover, the regulations define a time-bound approach to deliver the cashless service. Insurers are expected to provide the initial approval for treatment within an hour. On top of it, insurers are encouraged to move towards 100 per cent cashless treatment and resort to reimbursement of claims only in exceptional circumstances.

The other big move has been to define the process of claim rejection. To reject a claim, insurers must get an approval from its Claim Review Committee (CRC). CRC is a sub-committee of the insurer’s product management committee, which generally comprises senior executives of the insurer. Thus, any claim rejection would be thoroughly reviewed and have clear accountability. The scope of oversight, and overreach has been curtailed substantially.

Pre-Mitigation

The emphasis of the pre-mitigation theme is to prevent disputes.

Empirically, many health insurance claims have revolved around alleged non-disclosure at the time of purchase, and rejection attributed to pre-existing conditions. Though well-defined rules already exist to prevent disputes on these areas, recent regulations have taken them a step further.

For instance, the moratorium period has been reduced from 96 to 60 months. This means that the insurer cannot question the claims due to non-disclosure after five years of continuous policy renewal.

Regarding pre-existing conditions, the maximum waiting period has been reduced from 48 to 36 months. This is a substantial improvement.

Further, the definition of pre-existing conditions has been revised. Only conditions that were diagnosed, or for which treatment was recommended or taken within 36 months prior to policy inception, would be classified as pre-existing. Undiagnosed ailments remain outside the scope. Both these changes put the burden on the insurer to do thorough underwriting before policy inception, rather than initiate an investigation after a claim is reported.

The above measures are giant strides to make health products inclusive and policyholder-friendly, and reduce several elements of surprise. The regulator, in its recent circular, has also outlined a move toward “zero grievances”. The above steps are in the right direction to achieve this goal.