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Why insurance claims get rejected
Jan 21, 2016
We buy insurance expecting claims to be paid and feel bitter when that does not happen. In an ideal world, insurers would communicate terms in easy-to-follow language; buyers would take the time to read about what they are buying; documents to file a claim would be simple; and helpful customer service executives would ask for bank details to transfer the claim payment. Nothing is further from reality.
I recently watched Steven Spielberg’s Bridge of Spies, a film set during the Cold War, about a first-rate insurance lawyer who used his negotiating skills to strike superb deals for the US with Russia and Cuba. How I wish we had such insurance settlement lawyers represent our own buyers. Claim rejection is high and until there is a better grievance handling system, we would do well to understand why. There is little public information on this subject and I draw from experience with hundreds of claims to list out the main reasons for rejection. Watch out for these in your own insurances.
Health insurance claims are denied because hospitalisation was due to a pre-existing disease not disclosed. The fact that a disease is pre-existing gets found out from the doctor’s case history. When insurers smell a rat, they ask for the daily hospital and surgical notes as well. These, almost always, bring out the truth because the patient’s medical background is captured accurately for all the medical staff to refer to. The diseases that are hidden most often are hypertension (good medication can prevent this from being diagnosed), diabetes (medicine comes to the rescue again), internal cysts and neurological diseases such as epilepsy. When a claim is rejected patients get indignant but, often, the subterfuge was deliberate. Where insurers go overboard is in their messianic zeal to classify everything as pre-existing. There are situations where an innocuous comment by the doctor, for example, in listing out a possible differential diagnosis such as “sugar?” has resulted in rejection. In many cases the root cause of hospitalisation is subjective. For example, was the sharp drop in haemoglobin because of pre-existing piles or newly-discovered ulcers? Once the insurer takes a position on this, generally in its own favour, it is hard to convince it otherwise. Life insurance and overseas travel claims are also rejected primarily due to non-disclosure of pre-existing medical problems.
In motor insurance, claims are often rejected because of negligence. Did you leave the keys in the car? Start the engine when it was flooded? Drove with an expired licence? Were you drinking and driving? Recently, on Quora, a question-and-answer website, someone asked me the implication of leaving a note on his car saying “Steal Me!” and it gets stolen. Although provocation is not excluded, I doubt if that specific claim will be paid. Insurers look for signs of negligence in police or medico-legal reports. Your description of the accident needs to be consistent to the insurer, surveyor, investigator and anyone else who calls. Another reason for rejections is that the vehicle is in commercial use but the insurance is for personal.
Home insurance claims don’t get paid because of specific exclusions relating to normal wear and tear, seepage and short circuits. Fires caused by short circuits, wall damage due to seepage are common rejections. The other issue in home insurance is that they are incorrectly placed. For example a basement, which is a material risk for insurers, is not declared. Or the fact that the house has been unoccupied is not mentioned. Or that there is commercial activity such as paying guests or small offices being run on the premises are not described. A problem that I recently encountered is that the person who bought the insurance does not have an insurable interest in the home. For example, a tenant buys building insurance or the facilities management company in a high-rise buys home insurance rather than the home owners themselves.
Burglary claims are rejected because the buyer didn’t inform the insurer that the house would be unoccupied for an extended period of time. The second most common issue is that insurance covers burglary, as in a forced break-in, but not theft, which is an inside job. Many claims go unreported as it is undisclosed cash or gold that is filched. Severe underinsurance, when the value of goods is understated to keep premiums low, also results in rejection.
Marine insurance covers goods in transit, when you relocate or send material elsewhere. These claims are rejected because standard insurance covers accidents whereas claims often relate to pilferage or damages without an accident. Someone I know was transferring a valuable figurine in a truck. En route the statue disintegrated. The claim was rejected because there was no evidence of an accident. The customer’s vivid make-believe portrayal of how the truck driver had to swerve to avoid a collision struck no chord.
Professionals such as doctors, chartered accountants and architects often buy liability insurances to cover negligence related litigation. The number of claims filed in these liability insurances is still low and it will be interesting to see how often claims get paid in the future. The contracts are stringent and there will be ample opportunity to reject claims. The key here is to describe the scale and nature of your business accurately in the proposal form.
Small businesses buy insurance to cover losses to computers and phones. These claims are denied mainly because the damage was caused by negligence. Laptops are most prone to such denials. Generally, laptops get spoilt due to rough use, which is not claimable.
Most of us buy insurances with a single-minded focus on price. Claim rejections can be prevented if we had a single-minded focus on product features instead, such as mediclaim with low waiting periods, home insurance with an accurate description of structure and contents, marine insurance that covers all-risks rather than just accidents. These cost more but make the insurance meaningful.
My focus here has been on rejected claims. There is equally valuable information embedded in paid claims. For example, in 2015, a leading cause of claimed children’s injuries was the trampoline. In Delhi these “bouncys” are ubiquitous at birthday parties. Now, finally, I have a scientific reason to forbid my children from clambering on to them. More on this and other risks next time.
Home insurance: Your saviour in times of natural disaster
Jan 14, 2016
Nature is unpredictable and more so with change in weather pattern that we see presently all across the world. It is human nature to seek protection the moment he sees someone else is in trouble and forgets the same even faster! Similarly, the present day natural or so called man-made disaster of huge magnitude has opened the debate of covering property and life and the cost involved in buying the same or facing the disaster in absence of any cover. The utter urgency in understanding the same fizzles out on account of less of understanding the product, its coverage and application and the ever dreaded factor of comparing the present cost without realising the accrual future benefit as and when the disaster strike without any warning and limit of destruction.
The recent flooding/inundation at Chennai was caused by torrential rain over four weeks in October and early November possibly caused more panic in city and its surrounding by artificial flood like situation which most of the town folks would never have come across. We may call it natural disaster or name it in whichever way we believe but it has left many thousands with losses by way of flood water entering their houses damaging property, furniture, fixtures, fittings, contents and so on and so forth. It is essential to have both buildings and contents insurance to provide financial cover if your place of residence gets affected by flood/inundation. It doesn't matter whether you are a tenant or a house owner, whether you live in a one-bedroom, flat or independent house, the need to have right protection for your property against such unforeseen losses is absolutely essential to say the least. Do recollect the TV broadcast of recent past where double storied houses were under water with all contents of the house floating! Think for a moment what happens after the water recedes. All contents including the furniture, fixtures and fittings will be thrown out after they were under contaminated water for 6-7 days. Who pays for such huge losses and how can someone think of replacing the entire property lost which has been acquired slowly over a period of time, overnight!
In Indian insurance market, one can buy two types of insurance for the household, that is for the building and its content. Buildings insurance covers the structure of your home which will also include the boundary wall (if independent home) its fixtures, windows, fittings etc fitted in your kitchen or bathroom suite. Building belonging to you can be covered against fire and allied perils including storm, tempest, flood and inundation popularly known as STFI. Similarly, the contents of the house including all white goods and others can be covered similarly as above. A casual walk around your house and a stock taking will surprise you as regards the sheer quantum of money lying around in terms of content and the losses you will suffer if you are exposed to a Chennai like situation tomorrow!!
The most crucial factor is that in India home insurance is cheap and comes with other add-ons. Most of the insurance companies offer such a coverage and you can actually seek additional coverage as well. A simple advice is to prepare a list of items of your home, mention the value and offer the same to an insurance company to suggest the premium payable and cover the property against fire and allied perils, act of God perils including natural disaster and social perils like riot, strike and act of terrorism. Further, it can also cover burglary & theft, mechanical and electrical breakdown of domestic appliances, baggage insurance and host of others. In case you are covered and disaster strike, don't panic and contact your insurer/intermediary, take photographs, if possible and not remove property before inspection by the insurer to assess the loss.
It is very disheartening that while the losses estimate by government stands at few thousand crore yet the property insured and recoverable may stand at a meagre 5 to 10% at the most. This colossal national loss can only come down with better management of your insurance. Home insurance is probably the cheapest insurance available in Indian market today and I strongly believe that people should insure and stay happily rather than to seek 'relief' and 'subsidy' from Government to rebuild their life on account of a natural disaster. Do contact your advisor/intermediary or visit official web sites of insurance companies to learn more on 'Home' insurance, if you have not yet. Better late than never.
Soon, No Need to Carry Car, Bike Insurance Papers
Jan 13, 2016
You may not be soon required to carry your motor insurance policy documents every time you take out the car. The Insurance Regulatory Authority of India has launched a digital motor insurance initiative known as e-Vahan Bima, which has already been implemented by the Telangana state government and other states are expected to follow suit.
Here is a 10-Point Cheat-Sheet
1) E-Vahan Bima is a motor policy issued by the insurer in digital form, with a quick response (QR) code, which a type of bar code that contains the details of the policy.
2) The traffic police can scan the QR code to fetch all the details of the policy from the database of the insurer or from the central database of Insurance Information Bureau.
3) The insurance regulator has asked the insurance companies to issue insurance policies, particularly in the state of Telangana, in electronic form along with the physical form from December 01, 2015 onwards.
4) It will be difficult to use a fraud motor insurance policy as it can be easily verified using QR code.
5) Under the Motor Vehicles Act, 1988 driving a motor vehicle without a third party insurance is a punishable offence.
6) On purchase or renewal of insurance policy, the digital format of the policy will be sent to the policy holder. The digital format can be read on smartphones.
7) If the policyholder doesn't have an e-mail, an SMS will also be sent to the policyholder with the details of the insurance policy.
8) Insurers say the digital format will help in some cost savings which could be passed on to the consumers. "It will be convenient for the policy holders as they don't have to carry the insurance policy in physical form and it may result into some cost reduction eventually as the insurance companies will also save on the cost of sending the documents to the policyholders," said Sanjay Datta, chief of underwriting and claims at ICICI Lombard General Insurance Company.
9) The insurance companies will also benefit from it in the long-run as the grievances related to non-receipt of insurance policies and the operational expenses of the insurance companies will go down, said Neeraj Gupta, vice president, policybazaar.com, an insurance aggregator.
10) To facilitate the issuance of motor insurance policies in digital format, the regulator has also done away with KYC requirement.
Budget 2016: Government mulling to sell stakes in General Insurance Corp. as part of disinvestment plan
Jan 13, 2016
The government is working on an ambitious disinvestment agenda for the next fiscal year, and proposals it is considering include selling stakes in state-owned general insurers.
As a first step, government has decided to convert the country's only reinsurer, General Insurance Corporation of India, into a public limited company. It has also approved reducing face value of each GIC Re share to Rs 1 from Rs 1,000. GIC Re was incorporated under the Companies Act, 1956, as a private company ...
Continue reading... (Source: The Economic Times)
Term insurance – because your family needs financial protection
Jan 12, 2016
Buying term insurance is considered as the first step in the process of building a financial plan. A financial plan could be built purely on savings or through a combination of savings and protection - “Save for life’s ‘certain’ needs and protect against life’s uncertainties”.
This can best be understood with an example. Let us begin with a scenario - I need Rs. 10 lakhs for my child’s education, after 10 years. Assuming that my investments earn 8% per year, I will need to set aside approximately Rs. 64,000 each year, for 10 years. This is a ‘certain’ need and can be achieved through regular savings.
Now let’s look at life’s uncertainties. Consider a situation - I am the sole breadwinner and my family requires Rs.1 crore to enjoy the same lifestyle in case I am not around. Arranging this one crore rupees may be a task for most individuals. Death is uncertain and none can be sure that he will get enough time to build a corpus, which will be sufficient to take care of the family, before his death.
But this mammoth task can be achieved if there is a collective effort. If 1000 individuals come together and contribute Rs.10,000 each, there is a corpus of Rs 1 crore in place in no time. This group can create a safety net for that one unfortunate person who dies before saving for his family. This arrangement – technically known as term insurance, works to provide a safety net.
It is the simplest form of life insurance. It is a cost effective route to buy financial protection. Simply put, I pay premiums and in return the life insurance company provides financial benefit to the nominee in case of my death.
Why should I buy term insurance?
I need term insurance to insulate my financial plan in my absence and enable my family to continue with their lives. Here are some of these situations wherein a term insurance can save the situation.
Leave a “home”, not a “home loan”
Take the case of a typical home loan borrower. I am 35 years old, married, have a child and have availed a home loan to purchase a property. If something happens to me, my family will have to repay the loan outstanding at the time of my death. If they can’t they will have to sell the house. This predicament can be avoided through term insurance. If I have bought term life insurance, the insurance company will pay my family a fixed sum. The family can use this money to pay off the home loan outstanding and continue their stay in the home.
Provide income for the family, even in your absence
At the age of 35, I have another 25 years of work life. If I am not there, my family needs to have an alternative source of income for those 25 years. The need for income replacement reduces as I near retirement. If I have bought term insurance, the family can invest the insurance proceeds received after my death, in various saving options and ensure that they get some regular income.
Broadly, individuals up to the age of 40 need insurance equivalent to 20-30 times their annual income. A person in the 40s will need protection that is 10-20 times the annual income and individuals in their 50s will need cover about 5-10 times the annual income.
Things to consider before buying Term insurance
How much life cover should I buy and for how long?
I need life cover to discharge my loans and to provide for the loss of future income to my family. Put simply I need to cover myself, as long as the loan(s) continue and of course, till my age of retirement.
I need to take into consideration my income and outstanding loans while purchasing a term plan. For e.g. I am 35 with a monthly income of Rs. 20,000 and have an outstanding home loan of Rs. 7,00,000. I will need life cover for the next 25 years. Therefore the calculation of cover will be: (Rs. 20,000 X 12 months X 25 years) + Rs.7,00,000 = Rs.67,00,000. I need this cover till retirement.
Whom should I buy it from?
It is necessary to select a life insurer with consistently high claims settlement records. Equally necessary is evaluation of the time taken by the company to settle claims. As “Justice delayed is often justice denied.”
If there is a cheaper product should I switch to a new policy?
As age progresses, buying insurance becomes more expensive. I should therefore continue with my existing policy.
What are my responsibilities while buying life insurance?
It is my duty to truthfully disclose all information in the application form. If I do not provide correct and truthful information, the company may decline my claim thereby defeating the objective of purchasing life insurance. I need to ensure that my latest contact details are updated to enable the company to send reminders and settle benefits in a timely manner.
What should I do if asked to undergo medical tests?
The company may want to ascertain my health condition before issuing the policy and hence ask me to undergo some medical tests. As they say, prevention is better than cure. Treat these medical tests as a preventive check-up that the insurance company is paying for.
What if the premium amount increases after the medical tests?
It is possible that medical tests throw up some prognosis requiring me to pay a higher premium amount. It would be unwise of me to decline the cover because of this. If I am at a higher risk, I have a greater need for the cover. The cover is worth it even with the additional premium.
In conclusion, buying term insurance today will ensure the well-being of my family, even in my absence.
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