Exposure Draft on Guidelines on Settlement of Personal Accident and Benefit Based Health Insurance Claims in Installments
In order to examine proposals received for allowing the Insurers to settle claims in installments in respect of personal accident and benefit based products, the Authority constituted a working group vide IRDAI order ref IRDA/HLT/ORD/MISC/171/10/2018 dated 12th October 2018.
The Working Group has submitted its report to the Authority on 10thJanuary 2019 to the Authority. The same has been placed in the IRDAI website at www.irdai.gov.in.
On examining the recommendation of the working group, the draft Guidelines are placed hereunder for the comments of the stakeholders.
It is considered that the option of settlement of claims in installments in respect of Personal Accident Policies issued by General and Health Insurers and Benefit Based Health Insurance Policies issued by all Insurers offer an income in the hands of the claimants for a reasonable period of time on the happening of the contingent event insured under an underlying policy. It is further considered that this option may enable the policyholders of benefit based health insurance policies get a stream of income over a predetermined period of time post triggering of claim. Thus, in order to enable the Insurers offer the option of settlement of claims in installments in respect of Personal Accident Policies issued by General and Health Insurers and Benefit Based Health Policies issued by all Insurers, the following Guidelines are proposed to be issued.
This circular is applicable to all Insurers in respect of Personal Accident and Benefit Based health insurance products andfixed benefit components of indemnity products / fixed benefit riders/add-ons attached to indemnity policies of both Individual and Group Products.
2. Legal Provisions:
These guidelines are issued under the provisions of Regulation (2) (i) (g) read with Regulation (2) (i) (o) of IRDAI (Health Insurance) Regulations, 2016.
3. Effective Date:
The provisions of this circular shall be applicable from the date of issuance of the circular. Existing products under which these options are being desired to be offered shall be modified in accordance to the applicable provisions of Guidelines on Product Filing in Health Insurance.
4. Option of allowing settlement of claim in Lump-sum or in installments or both
(i) The policyholders may be provided an option of choosing either settlement of claim in lump-sum or in equated installments or both in parts as specified at Clause 5 (i).
(ii) Payment of claim amount in installments shall not be a default option. It shall be in addition to the lump-sum option and shall be allowed based on the option exercised by the policyholder.
(iii) Procedures shall be put in place to capture the option exercised by the policyholder at the point of sale and at various stages of the policy.
(iv) A combination of both the options i.e. a percentage of the sum assured as a lump-sum payment at the time of claim and the balance sum insured in installments for a definite period of not exceeding the time limits specified in Clause (7) may also be offered as a part of product design.
(v) Benefits offered shall be clearly demarcated in respect of both the options at the time of product design itself and shall be disclosed in the policy document under terms and conditions of the policy
(vi) The installment option may be offeredonly beyond a certain threshold limit of the base sum insured,subject to the design of the product.
(vii) When policyholder chooses the option of settlement of claim in installments, the benefit under the underlying product shall be designed in such a way that the actual claim shall fall due only on the specified date on the happening of the contingent event covered under the underlying policy.
5. Timing of exercising the installment option
(i) A policyholder shall have the flexibility of choosing the settlement option of claims at all stages of policy contract, i.e. at the time of policy inception, on renewal, during the policy term or at the point of claims.
(ii) The policyholder shall be given an option of altering the mode of receipt of payment of claim from lump-sum to installments and vice versa during the policy duration any number of times till the point of claim, which shall be effected in the policy document by placing suitable endorsements.
(iii) Subsequent to commencement of payment of claims in installments, an option shall be made available to the policyholder to withdraw this option and seek the future installment amounts in lump-sum. The methodology proposed to be adopted by the Insurer to settle the unpaid claim installments shall be specified in the File and Use Application or Use and File Application, as may be the case.
(i) There shall be complete information made available to the policyholder in the policy contract about the rights of the policyholder to appoint a nominee, flexibility of changing the nominee along with the procedure for changing the nominee during the term of the policy contract.
(ii) Insurers shall invariably put in place procedures to capture the details of the nominee in the proposal form and subsequently the changes made thereon on an ongoing basis for proper administration of the claim settlement process and shall record the details of the nominee in the policy contract. Wherever there is a change in the nominee, the same shall be effected on the policy contract by way of an endorsement. Insurers shall also ensure that suitable contractual provisions are incorporated as part of the terms and conditions of the policy contract delineating the rights of the policyholders, the entitlements of the nominee and the contractual obligations of the insurer.
(iii) Change in nominee shall be allowed only to the policyholder during the currency of the policy and post the commencement of installment payment of claims.
(iv) Subject to the policy terms and conditions, where claim becomes due upon death of the policyholder, nominee shall be entitled to receive the claims as per the terms and conditions of the policy contract and the option exercised by the policyholder in the policy contract. In the event of death of nominee before cessation of claim installments, the unpaid claim installments shall be settled in accordance with the applicable legal provisions as per the methodology specified at Clause 5 (iii) above.
(v) In the event of death of the policyholder during the tenure of the claims installment period, subject to policy terms and conditions, the unpaid claim installments shall be settled in lump-sum to the nominee or the beneficiary of the policyholder in accordance with the applicable legal provisions, as per the methodology specified at Clause 5 (iii) above.
(vi) Settlement of claims in respect of benefit based health insurance policies issued by Life Insurers shall be subject to the provisions of Section 39 of Insurance Act, 1938.
(vii) In respect of settlement of claims in installments, the date of the claim shall be reckoned as and when the claim is admitted and that the claim payout shall be designed in such a way that first installment shall be payable soon after the admission of claim.
7. Tenure of the claim installments
The claim payment period of the product shall be maximum of five years which shall be subject to product design. The claim installments shall be spread during claim payment period.
8. Periodicity of the claim installments
The periodicity of the installment can be on monthly or quarterly or bi-annual or annual basis which shall be subject to product design. Where the product provides multiple periodicity of the installments (Monthly, Quarterly or Half Yearly or Yearly) the option to choose shall be made available to the policyholder.
9. Payment mode of the claim installments
The mode of installment payments shall be fixed as RTGS/NEFT or any other RBI approved online transfer mechanism. The Insurer shall ensure capturing all relevant information concerning the Bank Accounts of the policyholder/claimants/nominee before considering the option request exercised by the policyholder.
10. Pricing of the options (lump-sum or installments)
(i) Premium rate shall be same for both the options.
(ii) The total claim amount payable in installment option shall always be higher than the lump-sum option.
(iii) Linkage to interest rate for payment of claims in installmentsis not permitted.
(iv) The pricing aspects have to be incorporated by Appointed Actuary at the filing stage while deciding the terms and conditions to be offered to the policyholders for settlement option of claims in installments.
(v) Taking into account that this facility is introduced for the first time in case of General and health insurance products, Appointed Actuary shall exercise caution and review these options at the close of every financial year so that they are more useful and beneficial for the policyholders.
11. Accounting Norms
(i) Post the approval of the claim, where installment option is exercised by the policyholder, the outstanding claim amount shall appear in outstanding claims reserve in Schedule 13 of current liabilities.
(ii) Accounting norms shall be as per the extant applicable regulatory framework.
12. Actuarial Norms
(i) The pricing of settlement option of claim in installments shall be disclosed by the Appointed Actuary while filing the product with the Authority.
(ii) Appointed Actuary shall consider all the parameters that impact design of settlement option of claim in installments including pricing and reserving considerations, if any, and shall disclose them adequately in the Technical Note submitted along with the filing documents.
(iii) IBNR and IBNER shall be provided as per the applicable regulatory framework put in place by the Authority.
13. Investment Norms
(i) The outstanding claims shall be invested in line with the extant IRDAI Investment Regulations.
14. Disclosure norms:
To safeguard the policyholders’ interests and to enable the policyholder in taking an informed decision, the following norms are specified:
(i) The policy wordings relating to the benefit stricture shall be in simple language.
(ii) The benefits shall be clearly defined and incorporated in the policy contract and prospectus.
(iii) The sales literature/Prospectus shall also clearly bring out the following:
a. The option of claims in installment is not a default option and that it shall be based on the option exercised by the policyholder.
b. The option of altering the mode of receipt of payment of claim from lump-sum to installments and vice versa is available during the policy duration any number of times.
c. The rights of the policyholder to appoint a nominee,flexibility of changing the nominee along with the procedure for changing the nominee during the policy year.
d. The manner in which the unpaid/ residual claim monies shall be payable to the claimants/nominees/beneficiaries of General/ Health Insurers.
e. The fixed pay out structure which is part of the claim installments schedule shall be explained upfront to the policyholder at the point of sale.
f. No Insurer or Insurance Agent or Insurance Intermediary shall unduly influence any policyholder to exercise a specific mode of claim settlement.
(i) Operational requirements such as provisioning norms, administrative and additional IT systems shall be addressed before offering these options to policyholders.
This has the approval of the competent authority.
GENERAL MANAGER (HEALTH)
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