Insurance Denials Expose Gaps in Consumer Protections Amid Growing Industry Concerns

The recent tragic death of Brian Thompson, the chief executive of UnitedHealth Group Inc.'s insurance arm, has brought to light a growing concern among policyholders about the frequent denial of claims by insurance companies. This issue is particularly pressing in India, where insurance laws provide some protective measures for consumers, but the reality often involves significant hurdles before claims are honored. Take the case of Sabita Mukherjea from Kolkata, who faced a distressing ordeal when her health insurance claims were rejected after she was hospitalized for a respiratory tract infection. Despite having paid over seven premiums for her policy, the insurer initially denied her cashless claim and later dismissed her reimbursement request, claiming that hospitalization was unnecessary. However, as per the Insurance Regulatory and Development Authority of India (Irdai), policyholders who have successfully paid five or more annual premiums are generally protected under a moratorium clause, which prohibits insurers from contesting claims based on non-disclosures or misrepresentations after a defined period. The intent behind this moratorium period, as outlined in the IRDAI's regulations, is to provide a safety net for policyholders who may have inadvertently omitted certain health details at the time of purchasing their policy. Specifically, section 13 of the Master Circular on IRDAI regulations stipulates that once the moratorium period—set at 60 months—has elapsed, insurers cannot reject claims on grounds of non-disclosure, barring instances of established fraud. Yet, the interpretation of "fraud" can vary, leading to continued disputes even after the moratorium period. Harshvardhan Roongta, CEO of Roongta Securities, notes that the moratorium clause is often misinterpreted. Insurers retain the right to contest claims related to significant undisclosed health issues even after five years, a point underscored by Mukherjea's experience. Her claim was eventually approved only after she sought assistance from Insurance Samadhan, a firm specialized in resolving insurance grievances. The moratorium clause provides additional protections even when policies are ported to different insurers. According to Irdai, the premiums paid under the original policy count toward the moratorium period, ensuring that policyholders do not lose their accrued benefits. However, increases in coverage during the porting process reset the moratorium for those additional sums, underscoring the complexities inherent in navigating insurance products. In the realm of life insurance, the protections differ slightly. The Insurance Laws (Amendment) Act, 2015, stipulates that claims cannot be rejected on grounds of fraud if the insured can prove that any misstatements were made in good faith. This has helped numerous policyholders, yet such protections can still be circumvented by insurers, as demonstrated in the case of Kabir Zaidi, whose father's claim was denied by a private insurer despite full disclosure of all existing policies. The challenges faced by Zaidi and others reflect a broader pattern where insurance companies leverage ambiguity and regulatory loopholes to deny claims, raising questions about the actual effectiveness of the moratorium provisions. Sanjay Aggarwal, co-founder of Insurance Samadhan, emphasizes that such denials often hinge on claims of fraud, which can be subjectively defined by insurers, leaving policyholders in precarious positions. As the insurance landscape continues to evolve, these incidents highlight the need for greater transparency and accountability within the industry. While the moratorium clauses exist to protect consumers, their application in real-world scenarios often requires significant persistence from policyholders. Whether these regulations will foster the intended protection or merely serve as a facade remains an ongoing discussion, especially in the wake of high-profile incidents that cast a shadow over consumer trust in insurance companies.