IRDA has taken a huge step forward for the insured with its clear-cut definition of a ‘policy break-in’. The insured have tremendous opportunity to request insurers to consider policy continuity even if it was considered as a break-in as per a mediclaim policy’s terms of agreement

The Insurance Regulatory and Development Authority (IRDA) has quietly changed the definition of mediclaim policy break-in, in the portability guidelines which may help many policyholders who paid the premium of mediclaim after the grace period, but within 30 days of policy-end date. In this case, the insured can request the insurer to consider it as a policy without break-in, due to the new liberal definition from IRDA.

By allowing up to 30 days after policy renewal date to be considered as a continuous policy, this move will prove to be beneficial for customers. IRDA should take the next logical step and change the break-in period from 15 days to 30 days in mediclaim policies—to avoid confusion and misinterpretation of the exact break-in period.

Shreeraj Deshpande, head-health insurance, Future Generali India Insurance Co Ltd told Moneylife, "IRDA had issued renewability of Health Insurance guidelines with effect from 31 March 2009, allowing a grace period of 15 days for renewal of health insurance policies. This grace period was to condone delay in renewal of health policies up to 15 days for the sake of allowing continuity for waiting periods as well as pre-existing disease (PED) cover. However, any loss occurring during the grace period would not be covered as there is no valid insurance contract during the grace period. In the Portability Guidelines made effective from 1 October 2011, the break-in period has been defined as 30 days for policies which are being ported from one insurer to the other—or from one plan of the insurer to another plan of the insurer."

According to Subrahmanyam B, vice president & head-health vertical, Bharti AXA General Insurance, "I feel that IRDA is defining the break-in policy with prospective effect and in respect of portability policies only. I would imagine that if it is our own renewal, the 15-day grace period would apply."

There seems to be confusion due to the new definition of break-in period for portability and there are good chances of the same being applicable for not just portability but also for mediclaim policies. According to the head underwriter of a private insurer who spoke to Moneylife preferring anonymity, "We have approached the General Insurance Council to seek (a) clarification. If IRDA sticks to the 30-day break-in period for portability consideration, then the mediclaim policy will also have to allow for a 30-day grace period."

In some cases, insurers did not consider it as continuous coverage even if premium was paid within the grace period. According to Rohan Dukle, director, Magus Corporate Advisors Pvt Ltd, "We have had claims which come up years after they are condoned (premium payment during grace period); the claims have been rejected since the policy period is broken in-effect. I have taken one such case to the Ombudsman, since the insurers, after having given a no-claim-bonus (NCB) which ratifies the condonation, still consider that there has been a break-in in the policy. You will notice that the definition by IRDA does not leave any room for doubt, but is a clear-cut definition."

He added, "This therefore is a huge step forward for the insured. The question that remains, however, is whether in the current instance, IRDA is stating what it feels is obvious, defining the same with prospective effect or defining the same with retrospective effect."

Apart from definition of policy break-in, IRDA has also quietly disallowed NCB at porting, even if the terms & conditions seem to allow NCB porting. The new insurer will charge premium on the full sum insured (including the bonus) which in effect makes NCB a lost cause.

IRDA has also failed to address another major issue, that is, the medical conditions developed by the policyholder with the old insurer. For instance, if a policyholder has no pre-existing diseases (PED) when the initial policy was taken, but has developed conditions over the next couple of years. If the policyholder wishes to port to a new insurer who has a standard four-year PED waiting period, the new insurer will make the policyholder wait for a couple of years to cover these conditions. These are considered PED with the new insurer even though they consider the time spent with the old insurer. In this case the policyholder would be better off with the old insurer as there is no PED and hence all the conditions are covered with no waiting period.