For years, one of the most distressing moments for an Indian family in a medical crisis was not just the diagnosis, but the dreaded claim repudiation letter.
Historically, these rejections were often based on outdated prescriptions, a casual remark in a discharge summary or a misunderstanding of a medical history note that had not been satisfactorily disclosed in the original application form at any time prior to the required time period.
To eliminate this trust gap, The Insurance Regulatory Authority and Development Authority of India (IRDAI) has passed a historic reform cutting the moratorium period from eight years to five (60 months).
This is an important change that will have a greater effect on the claim settlement process than any other change has had.
WHAT IS THE MORATORIUM PERIOD?
Currently under IRDAI regulations, once the continuous moratorium period of a health insurance policy has been satisfied by the insured, the insurance company is prohibited from refusing to pay claims based on any failure to disclose information or misrepresentation of fact (except in cases of proven fraud).
Prior to now, this protection would only apply after 8 years of continuous insurance on the policy. Now, it applies after 5 continuous years under the same policy or a properly migrated policy.
A significant reform in consumer protection is the decrease in the term of a health insurance policy from eight years to five years.
After an insured has had no lapse in coverage for 60 consecutive months, the insurer cannot decline an individual for coverage due to a pre-existing medical condition that was not disclosed when the policy was executed even though the reason for that denial might be discovered during an investigation into the insured’s claim.
This change creates certainty, stability, and fairness for long-term policyholders, specifically seniors and families who have consistently renewed their health insurance policies each year.
WHY IRDAI INTRODUCED THIS CHANGE?
According to IRDAI, the health & medical documents provided by policyholders are too long and confusing that they cause various disputes between insurers and policyholders due to small omissions—whether intentional or accidental—that are disputed.
Disputes such as these could erode customer confidence in health insurance as an insurable product and result in significant claim rejections.
Therefore, the Regulator has instituted a Moratorium Period for the purpose of reducing the length of time for which there is a dispute regarding the validity of an application for payment of a claim as well as to reward continuous and responsible ownership of an insurance policy.
Furthermore, the Regulator’s changes to the regulations will limit insurers from reopening old disclosures indefinitely and will allow insurers to focus on providing risk protection instead of focusing on determining fault.
Ultimately, with the implementation of the new rules, long-term customers will not have to worry about being subject to backdated, expanded review processes by their insurer forever.
WHAT THE MORATORIUM DOES AND DOES NOT PROTECT?
After 60 months of continuous coverage, policyholders are protected against repudiation arising from unintentional non-disclosure, forgotten medical history, or minor ailments that were not consciously suppressed. This protection also covers errors arising from agent-filled proposal forms, provided there is no fraud involved.
Even if the requirement only comes into effect after a period when you’re hospitalised, however, it’s important to bear in mind that the moratorium is not a way of legalising wilful non-disclosure.
For 60 months, an insurer can still deny claims that could be determined to be fraudulent through conclusive evidence so far as they can confirm any case of intentionally concealing a history of critical illness, such as a previous history of significant heart disease, cancer, chronic renal failure, and mental/emotional disorders.
Likewise if you submitted any falsified or altered documents, or intentionally misled the insurer at the proposal stage, both would be sufficient for the insurer to deny your claim.
The guiding principle is that the purpose of insurance is to protect you from unknown events, not for you to gain from your deception.
WHAT THIS MEANS FOR YOU?
As for the actual protection you receive for having a non-disclosure, you would receive strong protection as long as your non-disclosure was not done intentionally, you have maintained coverage for 60 consecutive months, and you do not have evidence of intent to deceive.
However, you would not have any protection if your non-disclosure occurred intentionally and was a material omission with supporting documentation or medical evidence of fraud. Remember that an interruption of coverage will also reset the moratorium clock. Likewise, portability and migration must also be done properly in order to retain your continuity benefits.
While the moratorium provides excellent protection in the long run, do not ever use the moratorium as a reason to withhold information. As a policyholder, it is always best to disclose your entire medical history accurately and to the extent you know.
Do not rely upon verbal representations to hide information and always use the free-look period to confirm and correct any mistakes on your proposal. Maintaining all medical and policy documentation and doing the right thing at the beginning will provide the greatest protection to all policyholders.
(The above article is authored by Shilpa Arora, Co-founder and COO, Insurance Samadhan. Views expressed are personal.)
