November 3, 2020

What are the new Health Insurance Regulations by IRDA?

Mahavir Chopra

Founder, Beshak.org

I recently received a call from a friend, a seasoned financial planner, frantically worried about his upcoming hospitalization claim. As I helped him gain some clarity on how things would work, I couldn’t help but wonder – if this is the situation of someone helping so many people on their financial decisions, what in fact, would be the predicament of a common man, much less financially – aware, and with no understanding of insurance to begin with?

Health Insurance has several problems – the biggest amongst them is the complexity of the product. In every industry, credibility of a product is inversely proportional to its complexity. The more complex a product is, the less confident a user is about it. And, it’s no secret that health insurance as a product proudly takes the cake in being overly complex. In fact, a recent Beshak survey revealed that 35% of the respondents admitted to buying insurance policies that they didn’t completely comprehend.

An average health insurance policy contract is a 12000-word document riddled with legal and medical jargon, so, the only thing scarier than the policy itself – is the claim process.

The regulatory body has been cognizant of this fact. For the past few years, IRDAI has been working on improving the health insurance product, standardizing it and making it easier for users to understand what they were getting into. Health insurance regulation, portability regulations, policy wording standardization etc. – all these improvements announced recently were in line with this effort. Tackling this multifaceted problem from several possible angles, they have come up with the new regulation that came into effect of 1st October, 2020

There were two major objectives for this action – 1) Reducing Ambiguities, and 2) Improving Scope. These changes affect all healthcare insurance policies across the country – new and existing.

REDUCING AMBIGUITIES

1. 18 Standardised definitions: IRDAI prescribed the adoption of standardised definitions for 18 exclusions and removing any confusion in how they were understood. In the past, wordings like ‘maternity’ or ‘30 day waiting period’ could be defined differently by different insurers. Not anymore. Now, every insurer will honour the definition presented by the regulator – so users can easily compare plans – without worrying about the fine print. (Visit the link at the end of the article to read the full circular)

2. Standardised definitions of pre-existing conditions: Definitions of pre-existing diseases have also been standardised – meaning, every insurer will now have to use the same terminology to refer to this list of conditions. Even for exclusions that are not part of the standard definitions – IRDAI disallows open-ended words, left for interpretation. (Visit the link at the end of the article to read the full circular)

3. 8-year Moratorium: In the past, they could cancel policies anytime, on the grounds of misrepresentations, leaving policyholders without a cover even after collecting premiums for decades! Now they cannot contest a proposal form after a continuous renewal of 8 years. The only exception is if the insurer is able to prove with documentary evidence that the customer knowingly misrepresented or hid any information – especially health related.

IMPROVING THE SCOPE OF COVERAGE

1. Modern treatment methods covered: Insurance companies are now expected to keep up with the fast-evolving healthcare landscape, especially with respect to the availability of modern medical treatments such as robotic surgery, oral chemotherapy, stem-cell therapy etc. and cover their costs as well. These were earlier excluded by most insurance policies.

2. Disallowed exclusions: Many insurers randomly excluded coverage to various conditions and treatments, making it very difficult for advisors to compare and clients to choose the policy – leaving them with a rude shock at the time of a claim. With this change, IRDAI has provided a list of medical conditions that cannot be excluded from the scope of policies, whatsoever. Every standard health insurance policy will cover this list including – mental illnesses, treatment for puberty and menopause related complications, artificial life maintenance, Internal congenital diseases and genetic diseases or disorders.

3. Policies with customised permanent exclusions to improve coverage: In the past, people with existing medical conditions or history of conditions such as epilepsy or cancer would outright be declined policies as insurers couldn’t effectively estimate their risk, even after imposing the 48-month waiting period. Now, insurers get an option to provide coverage for such individuals – but with specified exclusions based on their medical history. With this, people with serious medical ailments might benefit from an insurance cover for all other ailments, except existing conditions.

WHAT DOES THIS MEAN FOR YOU AS A FINANCIAL ADVISOR?

Client education is a priority
The regulator with these changes takes steps to make the health insurance product more transparent, accountable and user-friendly. Your role will be to ensure all your clients and prospects are aware of all these changes. With the right information, simpler, easier comparison, better scope of coverage, clients will find renewed confidence in the health insurance product and the industry.

God is in the disclosures
In spite of the 8-year moratorium, it is the client’s responsibility to provide comprehensive information wherever requested by the insurance company. Insurers will continue to hold the right to investigate any suspicious claim beyond 8 years. You will need to explain this to your customers in detail, every single time you recommend or sell a policy.

Policy premiums will steeply increase
Insurers have already started hiking health insurance premiums citing higher losses as a result of COVID19 and zooming in on healthcare inflation, in addition to higher costs of covering the wider scope of conditions detailed above. Clients are likely to be taken aback with these hikes, and will have to be patiently informed and hand-held through the upcoming renewals.

Underwriting will not really change
While the policy wordings have been standardized, scope and access improved, the insurer’s view about risks or their approach to policy underwriting will remain more or less the same. Insurers are likely to become more stringent for new cases proposed with high-risk factors such as mental illness, as they cannot be excluded in the policy, now.

Even cases with epilepsy, cancer etc – IRDAI has provided an option for insurers to offer users insurance with permanent exclusions – but this is not a mandate – so such customers will continue facing difficulties until there are guidelines over underwriting for such cases too. It is therefore important that you engage with your partner insurance companies, and understand their exact approach before advising clients.

You must keep yourself well-informed of every new change, so your customers are not left without convincing answers. It is a challenging time, but also presents an excellent opportunity for you to reassure them and build a lasting relationship, on the foundations of trust, transparency and credibility, like never before. And I certainly hope that you will make the best of this opportunity.

Click here to read the entire master circular from IRDA in this regard.