Insurers should see the spirit of the contract over the fine print of the policy

If we trace back the roots of Insurance and its evolution over the ages, the tint of a social angle is spruced across it's breadth and depth, be it at the roots of its inception where early traders came together to insure their cargo on ships, right through to the modern day Group Mediclaim Policy where the risk is spread across the group of employees.

One of the key reasons the industry has been able to survive over the last two hundred odd years has been this social dynamic, the ability of all the related parties to work together and toward one objective - minimization of risk and fair compensation in case of a loss.

It is therefore unfortunate that this business of risk has evolved to a place where Insurers look at claims from the lenses of repudiation (rejection) rather than settlement. While they might not entirely shoulder the blame for the current state of affairs - given the enlargement of the number and nature of insurance frauds - in this article we advocate the view that Insurers are graduating to a place where the spirit of the contract seems lost over the fine print.

When the General Insurance business was nationalized in India, one of the primary objectives was to protect the Consumer. Most of the Insurance businesses before nationalization were for and toward big corporate clients. But as retail participation in the business started increasing, the government felt the need to protect Consumers, and the way chosen to do so was by owning a stake in the Industry. In that vein, we seem to have come full circle, considering the fact that the majority of cases handled by the Courts are from aggrieved Consumers as opposed to corporate clients. While this in itself could serve as a big opportunity to the vigilant eye, in terms of working on the claims servicing vertical, both on the quality and quantity front, we sure do not seem to be getting there any time soon.

A report by one of the leading dailies claims that insurance cases form a third of the total number of cases before consumer courts.

Let us examine some cases that have been rejected by the Insurers and the reasons behind those rejections

1. A motor claim for total loss on account of a stolen vehicle was rejected by the Insurer because of a typing mistake recorded on National Crime Record Bureau (NCRB).

A car was reported stolen with a local police station in Barnala, Punjab in 2016. The Registration Certificate (RC) number of this vehicle got wrongly recorded on NCRB by a data entry error even while the engine and the chassis number recorded against this vehicle were correctly recorded. Despite the appointment of a Surveyor by the Insurer (who could have easily verified the facts of the matter) the claim was rejected. The Insured finally went to the Consumer Court, who came down heavily on the Insurer positing that a Consumer should not be punished because of a clerical mistake by a third party especially when a bit of diligence on the part of the Insurer by means of tallying the RC number with the engine and the chassis number could have yielded results.

The case was finally settled in 2021

2. Pradhan Mantri Suraksha Bima Yojana (PMSBY), a tailor made group personal accident policy, targeted towards the rural poor has become a huge hit among masses, ever since it was introduced in 2015.

A claim under the Pradhan Mantri Suraksha Bima Yojana (PMSBY) was rejected on the grounds that an FIR was not filed for the accident.

In 2015, the Insured was cutting fodder; unfortunately his right hand came into the machine and got crushed upto his elbow. He was taken to a hospital immediately and his elbow was amputated. The Insured was declared 80% disabled and issued a certificate to that order by the medical board in the city.

When he preferred a claim under PMSBY, the Insurer rejected the claim on the grounds that an FIR was not lodged by the Insured. A legal notice was served to the Insured, which was not paid heed to. Finally after deliberations and exchanges with the Insurer, the Insured went on to file the sought FIR with the local police station, but this to and fro took him about five months. When despite the FIR, the Insured did not see any headway in settlement of his claim, he filed a case with the Consumer Court.

In it's defense, the Insurer kept quoting technical reasons like absence of FIR and time frame for keeping a claim processing open.

The case was finally settled in early 2018, about a year and a half after the accident on the directions of the Consumer Dispute Redressal Forum. Imagine the plight of the Insured during this period.

While due diligence is extremely important and should form the basis behind processes; once processes start becoming bottlenecks, manual override should trigger, to ensure the Customer does leave the company red faced.

3. A personal accident claim was rejected in 2020 because the cubic capacity (cc) of the motorcycle being driven by the Insured was higher than the one covered under the policy.

The Insured was driving a 346 cc bike and the policy wordings stated that the maximum permissible limit for a bike was 150 cc. While this may seem like a technical detail (not one that could be overlooked, but still technical in nature), the point to note is, a lot of the policy wordings used by Insurers are mostly archaic (ones used when filing the product with the regulator) and revisions do not happen with the frequency at which technology changes.

4. Another personal accident claim was rejected on the grounds that the deceased fell from a mango tree while plucking mangoes and any "stunt" which was potentially dangerous to the Insured was excluded from the policy, irrespective of whether she was trained for the "stunt" or not.

5. The fate of a motor claim lies in limbo because of the loss assessment report submitted by a Surveyor.

Surveyors are an integral part of the insurance value chain. IRDAI guidelines require the Surveyor to be objective in the observation and reportage. The biases of a Surveyor can lead to faulty investigations and therefore cost either parties during claim processing.

In a 2018 case, a motor claim was denied on account of the faulty assessment by the Surveyor. Fire damage to the vehicle was reported (by the Surveyor) to be caused because of melting of headlight wiring leading to a short circuit and a subsequent spark and therefore not payable under the policy. This speculation was proven to be wrong (when assessed by an independent mechanic) on the ground that the headlight wiring was intact and the cause of damage to the car was on account of a peril covered under the policy; the Surveyor has since stopped cooperating with the Insured and the fate of the claim is in a limbo.

After a lot of deliberations by all the stakeholders, when the Insurer seemed to have finally come around to an amicable settlement, one of the partner Companies in the Insurer made an exit and the case now remains pending for the want of appropriate decision making authority in the new setup.

An Insurer has to rely on the technical expertise of a Surveyor for the purpose of risk and/ or loss assessment. Due to the technical nature of the job, the Surveyor can easily manipulate the case to serve either party. Integrity is a virtue that is of utmost importance both during empanelment of a Surveyor as well as through her career. The Surveyor has to walk a tightrope during the process of loss assessment - while she has to have empathy for the Insured, it should not translate into a bias; on the flip side her employment obligations should not translate into a bias. That said, the Insurer also needs to be on a constant vigil; they should be able to see through any veil put through by the Surveyor and be an objective observer to the process.

A cursory glance at these cases begs the question, why have Insurers become so process driven? Why the blind rush to follow processes to the T, while ignoring the intent behind these processes?

One of the possible reasons could be, to escape the wrath of the regulator and the courts.

IRDAI has had to intervene in the operational aspects of the business, time and again. One of their recent guidelines read - “Insurers' decision to reject a claim shall be based on sound logic and valid grounds. It may be noted that a limitation clause does not work in isolation and is not absolute. One needs to see the merits and good spirit of the clause, without compromising on bad claims. Rejection of claims purely on technical grounds in a mechanical fashion will result in policyholders losing confidence in the insurance industry, giving rise to excessive litigation.”

Courts also have, time and again, upheld the view that if the policy wordings are either ambiguous or silent or have the possibility of multiple interpretations, the view beneficial to the Insured is to be upheld.

No one individual wants to be pulled out, blamed and shamed for their acts of omission or commission.

Another reason for the rise in the number of cases could be the shrinking profit margins and viability of the current business model. The Insurance industry was opened up to private participation in 2000, it is a strange paradox then that despite the low density in our country, not even a handful of the Insurers have managed to turn profitable in the last twenty years. Every other month, we read about changes in partnerships - one foreign partner exiting their stake in an Indian partnership and the entry of another one.

Short term gains are consistently losing out to long term value creation and Customer retention.

Processes should never supersede intent. Insurance is a business that tries to make good of a loss, it can never come to a place where the loss is made good in full - realization of this fact should sensitize the Insurers to misgivings. The burden of proof, to ensure the industry thrives is on the Insurer.