If No-Claim-Bonus (NCB) is wrongly claimed, your claim will be rejected and your policy cancelled. The agent is contractually not liable to you. Don’t fall into the agent’s trap of a false NCB lure. The company will wake up at the time of claim and uncover your wrongdoings

Amit Kumar (name changed) had played with the tune of an HDFC ERGO agent to secure 20% No-Claim-Bonus (NCB) even when he had one claim in each of previous two years when his car was insured by Royal Sundaram. In the fourth year, he went back to Royal Sundaram and was given 25% NCB. Only when Mr Kumar filed a claim, Royal Sundaram uncovered that the policyholder should not have got 20% NCB from HDFC ERGO and hence the policy currently underwritten by Royal Sundaram is not in good faith due to misrepresentation by Mr Kumar.

Read - Faking NCB to save insurance premium–I: There is no point!

Brokers have more responsibility than agents in case of mis-selling. According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Services, “We take the renewal notice from the client, but we also insist on a NCB confirmation letter duly signed by the client, especially from unknown clients. This is because the renewal notice is generated one to two months before the policy expiry. A claim can occur after renewal notice issuance and prior to the expiry of the policy.”

He added, “An agent represents the insurance company, so contractually the agent is not liable to the insured. In my opinion, this is purely Mr Kumar’s fault. Insurance contracts are contracts of utmost good faith. Let alone the good faith, Mr Kumar has purposely declared wrong NCB entitlement. So his case is weak.”

Sure, Mr Kumar is at fault by blindly agreeing to HDFC ERGO’s agent, but how did Royal Sundaram not know that Mr Kumar was their customer for two previous years with the same car and had made a claim in each year? In era of computerisation, it is almost certain that the insurance company knows or should know more at time of underwriting. Once the claim is filed, the insurance company goes in overdrive mode to scrutinize your NCB and it is indeed a perfect trap to proclaim that policyholder erred with NCB while buying the policy and hence no claim is payable.

When contacted by Moneylife, Royal Sundaram claims that HDFC ERGO had unearthed the fake 20% NCB and hence reduced policy term from 12 to 10 months. Interestingly, Royal Sundaram is unwilling to give that in writing to the policyholder. The only reason given for claims rejection is that the customer misrepresented the facts while buying policy with Royal Sundaram.

HDFC ERGO has maintained stoic silence when asked by Moneylife. If Royal Sundaram is true about its assertion, did HDFC ERGO take any action against its own agent who lured Mr Kumar to go for 20% NCB even though the agent was told by the customer that he has one claim in each of the previous years? The agent claims that he does not remember as he had sold the policy more than one year ago. How true, considering that it may be routine for this agent to bait a prospect with NCB manipulation! 

According to Mr Kumar, “I tried to check with HDFC ERGO executives if they had intimated to me about the shortfall in the policy. They are saying that they are unable to retrieve the details and that they would have informed me by phone or letter. I am sure that I have not received any letter or phone or mail from them about the shortfall. I have not changed my address.”

Avahoot Mavlankar, says, “In normal course HDFC ERGO (new insurer) would confirm the NCB entitlement from the old insurer (Royal Sundaram), till this time the policy is already issued with NCB declared by the client. Now, HDFC ERGO would have got the reply from Royal Sundaram that client has made a claim and hence there is no NCB entitlement. So, there is NCB recovery amount due from the client. In normal course, HDFC ERGO would have sent the notice for the same on the policy address (which may be different from communication address). The insurer might not have received any reply from the client within the stipulated period, so the only option available to it is short binding of the policy i.e. adjust the recovery amount by curtailing the period of insurance. HDFC ERGO must have also issued endorsement to that effect.”

After the claims rejection by Royal Sundaram due to misrepresentation, the insurance policy is technically no longer valid. Mr Kumar did not get any response from the company about the status of the policy. He was kept in a limbo for few days until Royal Sundaram agreed with Moneylife that the issue needs to be closed to ensure that Mr Kumar is covered going forward.

Royal Sundaram agreed that they will make a decision on underwriting fresh policy or recover the NCB amount to continue with existing policy. If not, then Mr Kumar will not have any cover during the interim, which can be huge liability for him considering that he has been having accident almost every year! Mr Kumar, if your car driving is so bad, how dare you to go for NCB considering that you are financially well-to-do working in the IT field?

On 18 January 2013, Mr Kumar received email response from Royal Sundaram that the OD (Own Damage) portion of the policy stands cancelled with effect from 15 January 2013. Looks like the insurance company decided to cut-off business from Mr Kumar.