Last month, the Bombay High Court suggested that the Insurance Regulatory and Development Authority (Irda) should empower the Insurance Ombudsman to levy compensatory or penal costs on insurance companies for repudiating medical insurance claims on flimsy grounds. It will come into effect as and when the Irda issues guidelines in this regard.
According to an official from the Mumbai Ombudsman’s office, there is ambiguity regarding the Ombudsman’s role in awarding compensation under the Redressal of Public Grievances Rules, 1998. At one place, the rule says if the complaint is not settled through mediation, “the Ombudsman shall pass an award which he thinks is fair in the facts and circumstances of the claim”. But at another place, the rule says the Ombudsman shall not “award any compensation in excess of which is necessary to cover the loss suffered by the complainant as a direct consequence of the insured peril or for an amount not exceeding Rs 20 lakh, whichever is lower”.
Due to this, the Ombudsman has so far only settled disputes and given awards that do not exceed the insurance cover. The High Court’s suggestion, if implemented, may allow the Ombudsman to give awards over and above the cover amount. This could be the penalty for the insurance company. The amount of penalty that can be levied has not been mentioned.
This is a blessing for policyholders, says Divya Gandhi, head-general insurance and principal officer, Emkay Insurance Brokers Ltd. “The threat of a penal cost will make insurance company officials think twice before rejecting claims. They will be answerable to the company’s senior management in case a penalty is levied and the company suffers a loss,” she says.
It may be tough for the Ombudsman to establish that the rejection was done on flimsy grounds. For instance, most insurers have made it mandatory for customers to inform the company within 24 hours in case of hospitalisation and lodge the claim in 15-30 days. So, if it is delayed the company may reject the claim. But the customer may genuinely not be able to inform the company if it is an emergency hospitalisation or lodge the complaint within 15 days if he is unwell. So, when the case comes up for settlement the Ombudsman will rule in favour of the customer. But penalising the company may not be fair.
In many cases people produce fake hospital bills without getting hospitalised. That is why insurers insist on a time limit to lodge the claim so that they can investigate.
The official says, “Due to bogus claims, genuine customers’ claims do get rejected. But at the same time, we have to be careful that insurance companies are not forced to pay for fraudulent cases.”’
In case a customer is taking medication for diabetes, is hospitalised for an ailment not directly related to diabetes, the insurance company could reject the claim saying the person was suffering from a pre-existing disorder and, therefore, it is misrepresentation of claim. But since the claim is for an ailment not directly related to diabetes, the reason for rejecting the claim could be termed flimsy.
Ramesh Ramani, senior VP-consumer lines, Tata AIG General Insurance says there are a large number of cases where fraudulent claims come through, hence, over time insurance companies tend to become cautious with regard to handling of claims. Also, there are several cases where customers do not read the policy documents, due to which they are not aware of what they are entitled to claim and what the exclusions are. The other contention is the amount; customers do not realise that some policies may have limits and sub-limits or that previous claims could result in caps on the current amount, he adds.
If implemented, the directive would act as a deterrent to those insurance companies which work towards ensuring that, come what may, the claims don’t exceed a certain ratio.