Section 45, which says no claim can be rejected after three years of a policy being in force, remains a bone of contention
Life insurance companies are in a fix over the provision of claims, being mandatorily required to be passed after three years of the policy being in force. With the Insurance Regulatory and Development Authority of India (Irdai) asking insurers to keep expenses under control, companies are worried about investigation expenses going up.
Section 45, which says no claim can be rejected after three years of a policy being in force, remains a bone of contention. The claim has to be paid even if a fraud has been detected. Under the earlier provision of the Insurance Act, 1938, no life insurance policy could be called into question on grounds of mis-statement or wrong disclosure, after two years of the policy coming into force.
However, if the insurer was able to prove the claim was fraudulent, it was not required to be paid. A senior insurance official said while the sector had sought five years as the deadline, lawmakers did not agree.
“Organised gangs that commit insurance fraud usually pay up to two-three years after which a claim is filed. If we had five years, such claims could be investigated and payouts avoided. If not, premiums will have to increased and underwriting tightened,” the official said.
Earlier, firms had sent a representation through the Life Insurance Council to the Rajya Sabha. Industry bodies had also taken up the matter with government officials. However, the law was passed with the three-year deadline. Currently, insurers are discussing with the regulator about this. However, as a law has been passed, changes would have to be preceded by a constitutional amendment.
The aim, according to life insurers, is now to ensure that fraudulent cases are detected early. In March, credit information company Experian India launched Hunter Fraud Management Services for the sector. The offering was aimed at helping companies to be a part of the Hunter Closed User Group (CUG) for detecting fraud.
Firms that join the CUG will share with Experian any data relating to new policy proposals and claims. The credit information company is looking to offer similar services to general insurers as well. In India, Experian is the only provider of such an application.
Insurers said even doctors, police officials and former insurance agents have been found to be colluding with these cartels.
Cases have been reported where investigating officers have been threatened or physically harmed while looking into suspicious claims.
According to estimates, hundreds of thousands of claims are getting fraudulently passed by these cartels. They pose as relatives of customers and get a policy issued. Usually, they also have a doctor as part of the group to issue fake death certificates.
Insurers said there could be a rise in litigations if there was an increase in such claims. This would mean such claims would be rejected and heard before a court, which could give a decision based on their expertise. This will increase costs, both for insurers and policyholders.
Bone of contention
Photograph: Reuters