Insurance companies cannot load premium due to adverse claim ratio in Health Insurance

It is illegal to refuse renewal of a policy. So, when an insurance company does not want to renew a policy that has become onerous, it adopts the back-door method of loading the premium excessively, making it unaffordable for the insured, who may then voluntarily opt out.

 

In a ruling on June 19, 2013, the South Mumbai District Forum ordered an insurance firm to refund the excess premium charged through loading.

 

Case Study: Praveen Shah was insured under a Mediclaim Policy with New India Assurance from 1988. The premium for 2007-2008 was Rs 10,508. Subsequently, Mediclaim Policy 2007 was introduced. At the time of the next renewal for 2008-2009, the insurance company loaded the premium and charged Rs 22,545, which was more than double the previous year’s premium. In 2009-2010, the premium was further increased to Rs 21,357.

 

For 2010-2011, the premium was once again loaded and increased to Rs 45,320, making it more than double the previous year’s premium. Thus, from 2008 onwards, the premium was time and again increased arbitrarily at the time of each renewal.

 

Shah sent various letters protesting against the increase of premium through loading. He even took up the issue with the Insurance Regulatory Development Authority (IRDA), but his pleas fell on deaf years. He then approached the Consumers Welfare Association for help. The association, along with Shah, filed a joint complaint before the consumer forum for South Mumbai District, challenging the premium hike.

 

The insurance company contended that Shah had lodged three claims totalling Rs 2,72,004 for the treatment of his wife, who was also covered under the policy. Due to this, Shah’s claim ratio was 66%. The insurance insurance firm defended itself and justified its action by arguing that the premium had been rightly loaded and 15% co pay had also been introduced in view of the adverse claims experience.

 

The insurance company also claimed that the premium was calculated as per Regulation 7 framed by IRDA and relied on “premium rules”, which it claimed were annexed to its reply, but were actually not filed. The insurance company also contended that once the insured crosses the age of 70 years, the applicable premium will be loaded by 2.5% each year. The insurance company claimed that its actions were justified under the revised terms of the policy introduced in 2007.

The forum observed that the premium rules had not been filed by the insurance firm. However, on going through Regulation 7 of the IRDA Protection of Policyholders Interest Regulations 2002, no such provision could be found that permitted the insurer to load the premium.

 

The forum also relied on earlier judgments on the same issue where it had been held that loading of premium was not justified. Also, in the case of Biman Krishna Bose v/s United India Insurance, the Supreme Court had held that a renewal of an insurance policy means repetition of the original policy on the same terms and conditions as that of the original policy. Since the original policy did not have any clause permitting loading of premium, the insurance company cannot be permitted to change the policy terms and conditions to impose such loading.

 

Accordingly, in its judgment delivered on June 19, 2013, by S S Patil on behalf of a bench comprising himself and president S M Ratnakar, the forum ruled that the insurer was not authorized to load the premium and enhance it unilaterally and arbitrarily. The forum held this to be deficiency in service and an unfair trade practice. It, therefore, directed the insurance company to refund a total of Rs 57,898, which was the excess amount of premium charged over a period of three years through loading. Interest at the rate of 9% per annum from the date of each loading till its refund was also awarded. In addition Rs 15,000 was awarded as compensation and Rs 5,000 as costs.

 

Impact: Loading of premium through unilateral change of policy terms and conditions is an unfair trade practice. The insured can challenge it and get a refund.

 

(The author is a consumer activist and has won the government of India’s National Youth Award for Consumer Protection.)

http://articles.timesofindia.indiatimes.com/2013-07-08/personal-finance/40442448_1_premium-mediclaim-policy-insurance-firm