INDIA BUSINESS WORLD - May 11^th - MAY 31^st - 2008

SUPREME COURT PULLS UP HEALTH INSURERS FOR REFUSING POLICY RENEWAL

INSURANCE companies can no longer refuse to renew a health insurance policy on the grounds that insured’s claims ratio (the ratio of claims to premium paid) is too high. The Supreme Court has issued an order requiring insurance companies to continue providing cover even in cases where the insured contracts an ailment that requires treatment in subsequent years.

Terming the discontinuation of cover by insurance companies arbitrary, illegal and unconstitutional a bench of justices S B Sinha and V S Sirpurkar asked the regulator to frame guidelines to ensure that insurance companies, both public sector and private, do not deny medical insurance facility to the public.

The insurance companies had appealed before the apex court judgements in three cases where they had refused to provide cover on the ground that the insured persons were suffering from pre-existing diseases. In one instance, an insured who held and renewed annually United India Insurance’s mediclaim policy since April,’95 underwent an angioplasty at Escorts Heart Institute. A claim made by him was paid by the insurance company. From January 2001 to April 2002, he underwent surgeries and got medical treatment on several occasions. While the insurance company paid the claim for most procedures he underwent, it refused to pay the claim for a by-pass surgery he underwent in April ‘02. On April 3, ‘03, he approached the insurance company for renewal of the policy from April 6 and issued a cheque towards payment of the premium. But the insurance company allegedly refused to renew the policy on the ground of its high claim ratio. A single judge of the Delhi High Court directed the insurance company to renew his medical insurance policy and a division bench dismissed the company’s appeal, following which it appealed in the apex court.

While the regulator does not allow insurance companies to refuse to renew a policy on the ground of adverse claims experience, insurance companies have managed to willy-nilly turn away renewals. One standard procedure is to fail to send a renewal notice. There have been cases where companies have orally refused to accept proposal forms which have been brought to their branches. Another method of discouraging applications is to quote a substantial increase in the renewal premium. If the policyholder does not manage to renew the policy before its expiry date the insurance companies completely refuse renewals on the grounds that there is a break in the policy. In the past, rejection on the grounds of the ailment being pre-existing has often been a bone of contention between insurance companies and claimants. To sort this, the regulator has asked companies to design covers which will cover even pre-existing ailments that do not show up in the first two years of the policy.