Insurance companies cannot mechanically reject claims on technical grounds, such as delay in intimation and submission of documents, particularly if the delay is due to unavoidable circumstances, according to the insurance regulator.
Besides benefiting policyholders, whose claims for settlement are rejected on technical grounds, the regulatory move will also help the industry curb unnecessary expenses on litigation and court settlement.
The Insurance Regulatory and Development Authority (IRDA) has issued a circular to this effect to life and non-life insurance companies as it has received many complaints on rejection of claims.
The regulator said policyholders should intimate and submit the required documents to their insurance company within the stipulated time so that the insurer can start post-claim activities such as investigation, loss assessment, and provisioning and claim settlement.
However, when there is delay in intimation or submission of documents due to unavoidable circumstances, the regulator has emphasised that this should not prevent settlement of genuine claims.
“We expect a lot more enforcement from the IRDA on rejection of claims and timely settlement of claims. It is definitely a step in right direction from the regulator,” said Mr Amarnath Ananthanarayanan, CEO and MD, Bharti AXA General Insurance Company.
The reduced litigation will lower costs for both, the insurer and the policyholder, added Mr Amarnath suitable clauses
The regulator has asked the companies to incorporate additional clauses in policy documents to assure customers that their claims can be rejected only on the basis of sound logic and valid grounds.
“The circular is in policyholders' interest. It clarifies that if the policy has a stipulated time period for submission of claims, the insurer must also now include a clause that a delay due to unavoidable circumstances will be condoned,” said Ms Kalpana Sampat, Chief-Branch Operations, Underwriting and Claims, ICICI Prudential Life Insurance.
The circular pointed out that policyholders would lose confidence in the insurance industry if their claims are rejected purely on technical grounds.
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