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Times of India
30 July 2011
By,Mayur Shetty
Mumbai, India

No Easy Exit
In a move that will benefit health insurance customers, IRDA has said that companies cannot cancel insurance policies mid–term. The move, sources say, is in response to complaints from group health insurance policyholders whose contracts were terminated before completion of one year because of high claims.

In a circular issued to all companies this week, the Insurance Regulatory and Development Authority said that no policy, either fresh or renewal, can be marketed which has a cancellation clause contrary to the regulations. Regulations allow cancellation only if there is a fraud, misrepresentation or non–disclosure of material fact from the insured.

The industry, however, says that it would be unusual not to have a cancellation clause. “Historically and internationally it has been the practice to have a cancellation facility available to both the insurance company and the insured after giving them enough notice to make alternative arrangements,” said G Srinivasan, chairman, General Insurers Public Sector Association, and head of United India Insurance Company. He said that the cancellation clause was important in cases where the cover was provided on the basis of reinsurance support since the reinsurers also include a similar clause.

Pavanjit Singh Dhingra of Prudent Insurance Brokers said the cancellation of policies by insurance companies due to adverse claims experience is a breach of trust of policyholdersrs. In the past, there have been cases where in a bid to increase their topline, insurers have acquired

group policies at very a low rate. However, after burning their fingers with high claims they used the cancellation clause as an escape route.

“It is incumbent upon insurers to do their homework and proper underwriting and carry the risk for the duration of the contract. What is the purpose of insurance if the insurer can walk away from the risk at his discretion? At times insurers have been reckless in underwriting policies and have then cancelled them or tried to renegotiate terms during the policy period which is quite unfair and we welcome this measure to protect the interests of policy holders,” said Dhingra.

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