New Irdai guidelines unlikely to impact insurance premium rates for now

General insurers would wait to see whether claims rise sharply after the removal of the three-month clause

The Insurance Regulatory and Development Authority of India’s (IRDAI) February 10, 2020 circular is likely to cause more than a flutter in the general insurance industry. The amendment in the definition of pre-existing disease (PED) allowing claims to be made within three months of buying a policy may result in a higher number of claims. But experts say insurers are unlikely to hike their premium rates immediately and will in all probability absorb the impact, for now.  

In insurance parlance, claims made soon after the purchase of a policy are referred to as ‘early claims. And such claims tend to be prone to frauds. The three-month barrier served as a safeguard against fraudulent claims. “If you remove this barrier, there is the possibility of a rise in the number of fraudulent claims. That could, in turn, result in insurers raising their premiums, which would not be in the interest of good customers. To prevent harassment of genuine customers, may be specific steps can be prescribed for these first three months, but a blanket removal may not be advisable,” says Joydeep K Roy, Partner & Leader India Insurance Practice & Global Leader for Insurance Digital Assets, PwC. 

While the number of claims may rise, experts do not expect an immediate change in premium rates. “First, insurers have the ability to detect fraudulent claims. Second, of the Rs 100 that insurers collect as premium, they pay out about Rs 60-75 as claims. So, they have room to absorb the impact of rising claims. Most insurers are likely to absorb the cost initially, as the regulator frowns upon frequent revisions in premium rates,” says Kapil Mehta, co-founder and managing director, Secure Now Insurance Broker.   

In the guidelines on exclusions in health insurance that had appeared in September 2019, IRDAI had provided a definition for PEDs, which it has modified now. A PED is a health condition that the insured already has at the time of buying a health policy. Insurers either turn down such a proposal, or they accept it with a loading. They also impose a waiting period of two-four years on PEDs. 

In the earlier circular, the regulator had stipulated that if a customer is diagnosed with a condition within the first three months of buying the policy, such a condition would be treated as a PED and insurers could apply a waiting period to it. This clause had created a grey area. Many customers felt cheated about not being covered for an ailment they had contracted after buying the policy. “It would have led to claim rejections, and each case such case would have created customer dissonance,” says Amit Chhabra, business head, health insurance, Policybazaar.com. 

The regulator has removed this clause. Now, any condition that gets diagnosed after the issuance of the policy will not be treated as a PED and will be covered. Things are more black-and-white now—if a customer had a condition before buying the policy, it would be classified as a PED. Any ailment he contracts after buying the policy will be covered. 

Slow-growing ailments like cataract, hernia, knee replacement and others are not covered for the first couple of years. That provision remains. 

Another change that has happened is that if a customer goes for treatment to a blacklisted hospital in case of an accident or a life- threatening situation, he will receive payout  from insurer.