By Venkatachari Jagannathan
Chennai, Jan 31 (IANS) Payment of insurance claims in instalments would only provide sizeable float cash for the non-life insurers and is no way policyholder friendly, said insurance experts and a consumer activist.
A working group formed by Insurance Regulatory and Development Authority of India (IRDAI) in October 2018, at the request of some non-life has recommended settlement of personal accident and benefit-based health policy claims in instalments.
Currently the claims under these policies are settled in lump-sum.
The group has recommended capping of the instalment period at five years and the instalment periodicity can be on monthly or quarterly or bi-annual or annual basis as opted by the policyholder.
“How did the committee conclude some policy holders are interested in getting their claims in instalments? Was there any survey done? If so, how many policy holders were surveyed?
“The report is also silent on the quantum of premium collected and claims paid under the personal accident and other policies for which instalment payment in being recommended,” S. Saroja, Co-ordinator, Citizen consumer and Civic Action Group (CAG) told IANS.
According to the report, only one person representing policyholder’s interest shared his views to the working group. The report does not mention any consumer groups that were invited or shared their views on the proposal.
“It defies logic given the hassle a policyholder is generally put to in getting the claims settled why he/she would agree for instalment payment,” P.S. Prabhakar, Partner in Rajagopal and Badrinarayanan, a chartered accountancy firm, told IANS.
Prabhakar said the deferred claims settlement will not result in any reduction in capital strain on the insurer but it would certainly provide a sizeable kitty of float money.
“I do not think payment of benefit claims in instalments benefits the policy holders in any meaningful way,” K.K. Srinivasan, a former Member (Non-Life) IRDAI told IANS.
“Payment of claims in instalments certainly benefits the insurers as they are allowed to keep the money. Hence equity demands that they pay interest on the money they retain,” Srinivasan added.
While a policyholder can opt for instalment payment for claims, the premium should be paid in full upfront as per the insurance law.
The IRDAI group has recommend there need not be differential premium for lump sum or instalment based claims payment options.
“The total claim payment in instalment option should always be higher than the lump-sum option. Linkage to interest rate should be avoided and fixed pay-out structure which is part of the claim instalments schedule must be explained upfront to the policyholder,” the group recommended.
Both Prabhakar and Saroja agreed that policy holders may even be coerced to opt for instalment payment to get their claims settled, a situation that cannot be ruled out in Indian context.
As for international examples, the working group had casually cited one German and Korean personal accident insurance policy.
Citing the Zurich Australian Insurance Limited’s policy, the IRDAI report states: “In case of Personal Accident – Following an accident causing injury to an insured person, the insurer will pay a weekly benefit payment and where applicable a capital benefit payment.”
The weekly benefit cover is already available under the policies sold by Indian non-life insurers.
The outstanding claims shall be invested in line with the extant IRDAI Investment Regulations.
The proposal to pay the claims in instalment is confined to individuals who have taken the personal accident policy and not group policies taken by corporate for their staff.
According to the report, a family may not be able to invest the lump sum amount to generate regular income at least for some years till alternate means of income become possible.
“This concept may also enable insurers to design the products where one benefit may be payable in lump-sum to meet the immediate needs of the policy holders/claimants and the other benefit payable in pre-determined instalments,” the report said.
However, the report does not talk about how the insurers would be able to generate regular income for the policy holders.
“Why would a policyholder want an insurer to be his fund manager,” Prabhakar wondered.
(Venkatachari Jagannathan can be contacted at [email protected])
–IANS
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