The third part of the United India series, it has been found out through RTI that TPAs are given incentives by United India Insurance to reduce the claims ratio, thus making a mockery of the Insurance Act!

Moneylife subscriber Dr Anshu Agrawal from Janakpuri, Bareilly filed a Right to Information (RTI) application to uncover the incomprehensible delay in policy renewal information, sent from United India Insurance Company (UIIC) to E-meditek, a TPA (Third Party Administrator), also stumbled upon a bizarre clause in the contract between the insurer and the TPA. Apparently, there is an incentive given to E-meditek for keeping the claims ratio within a certain range. This is completely detrimental to the interest of the policyholder whose genuine claims can also be partially paid or rejected just so that the TPA is able to get incentives from UIIC.

Claims ratio means claims payable as a percentage of premium income. The lower the ratio, the better it is for the insurance company. Government insurers have claims ratio in the range of 100% to 120%, which means they are paying more in claims as compared to the income from premium collection. By putting this incentive clause, the TPA will obviously do everything possible to limit the claims outgo.

The UIIC contract with the TPA states that if the incurred claims ratio is 70% to 90%, then there is an incentive of 10% of the amount by which incurred claim is reduced as against the previous financial year. If the incurred claims ratio is 50% to 70%, then there is an incentive of 20% of the amount by which incurred claim is reduced as against the previous financial year.

These clauses would be between UIIC and all their TPAs. Moreover, it is not just restricted to UIIC. Gaurang Damani, a social activist who has filed number of public interest litigations (PILs), has found by RTI that the same clause is present between New India Assurance and its TPAs. It seems to be something common to government insurers and their contract with TPAs.

According to Mr Damani, “This is a violation of Section 52(1the) of Insurance Act – Dividing Principle. A claim of one person cannot be used to offset the claim of another person. In short, the insurer/TPA cannot offset losses from one policy against another policy.” Interesting, Insurance Regulator and Development Authority (IRDA) has chosen to ignore or keep quiet on this important point in the PIL filed by Mr Damani.

The other interesting point in the contact was about SMS sent by TPAs to the insured about despatch of mediclaim cards and renewal of cards. This is simply not done today. In the case of UIIC, the policyholder renewal information may be updated on the TPA’s system after couple of months due to delay by the insurer or the TPA. While the CIC decision to make all branches of UIIC to put data on date of the policy renewal and despatch date to the TPA on the UIIC website from 16 August 2012, mandating SMS by the TPA to the insured about despatch of cards and renewal of cards will be something UIIC should ensure. This is in the contract and should be complied by the TPA.

Read first part of the article: CIC asks United India Insurance to disclose information that may help close a loophole - I

Read second part of the article: United India CPIO defies CIC order, gives irrelevant data to RTI petitioner