Insurers have to live with Section 45

This particular section says that a life insurance policy cannot be rejected after three years of being issued

Section 45 cannot be amended at this stage and it is better for life insurance companies to live with it. But at the same time the industry's interests have to be protected and if the claim is a fraudulent one, it must be repudiated, said Nilesh Sathe, Member - Life, Insurance Regulatory Development Authority of India (Irdai).

Section 45 of the Insurance (Amendment) Act says that a life insurance policy cannot be rejected after three years of being issued. Life insurance companies had requested for it to be amended as it could lead to a rise in fraud claims.

Speaking at a seminar organised by the Association of Insurance Claims Management (AiCM), Sathe said an amendment will take time and will be possible only if there is adequate to show that there is an increase in losses.

"While we have no choice but to go by it, how to avoid it (fraud) is in our hands. Let us not look at every claim with suspicion. Wherever we find that intent was fraud, we have to prove it. And we must have documentary evidence," Sathe said.

The insurance industry must take steps like compiling and making public data about places which see high levels of early claims. "Companies can shut branches in these areas, provided they make provisions for existing customers to pay premia. The regulator cannot force companies to continue operations in such locations," Sathe said.

Insurance companies also need to address issues such as whether a lapsed policy that has been reinstated should be paid in full, or whether only the paid-up value should be paid, in case of suicide claims.

Also, there has to be uniformity among life and non-life companies in understanding accident claims. While general insurers pay claim even if the accident is on account of breaking a law, life insurers don't pay claim in cases like, for instance, death due to crossing railway tracks.

While rejecting or repudiating a policy, companies must issue speaking orders and all evidence on why a claim was rejected should be explained.

"Setting up a claims repository will also give insurers respite on how to underwrite and sharing of data will help reduce frauds," Sathe added.

The Life Insurance Council is in the process of setting up a claims repository with Experian Credit Information Bureau said Ganesh Iyer, President AiCM and Head-Underwriting, Claims and Process Assurance Kotak Life Insurance.

According to Mohan Jayaraman, MD and CEO, Experian, the repository may go live in two weeks. "Insurance companies will share application data with us. They are anyway sharing this data while making an enquiry. For sharing historical data companies must have a consent clause. Not all companies have this in place yet,'' he said.