The hidden risk in hospitalisation renewals

Recently, I came across multiple cases of insureds being left exposed at precisely the moment they believed they were protected. The insurer already received the proposal and the premium, only to later reject the proposal or offer a cover so materially altered it bore little resemblance to what was originally proposed and accepted. These are not isolated service failures but a trending operating procedure undermining the trust in insurance.

Insurance is a contract. There is a proposal, an acceptance, a defined set of conditions under which compensation will be due and a computed consideration to be paid. The conditions are the risks you are insured for and the consideration is the premium. A proposal form is filled with personal data and coverage needs, the risk is underwritten (evaluated) and premium decided. When premium is paid, the insurer assumes the risk.

The small but critical twist in the cases is this: a quote is offered by an intermediary (agent, bank, or broker), the proposal form, supporting documents and the premium are all collected though formal underwriting and acceptance are still pending. In principle, premium collection should follow acceptance, not precede it. When that sequence is reversed, the risk silently remains with the customer. What does this look like in real life?

A colleague of mine had a family hospitalisation policy coming up for renewal. She was approached by a different insurer offering a higher sum insured at a very attractive premium. Reassured, she paid the premium and assumed her family cover was secure.

Days later, she was informed one family member could not be covered due to a medical reason, one which alarmed her and which their treating family doctor simply could not accept as a valid medical concern.

Continuity at risk

On another dimension, the timing of the rejection placed the family’s cover continuity at risk. In proceeding with the new insurer, she had missed the renewal date of existing policy which was in the final days of the grace period. With Pongal holidays intervening, the only practical advice I could give her was to immediately renew the old policy within the grace period.

The intermediary was fully aware the existing policy was due for renewal. In fact, it is closest to the renewal date policyholders are bombarded with calls, WhatsApps and SMS urging them to switch insurers or ‘upgrade’ coverage. Yet, the intermediary allowed the process to drift past the renewal deadline. The insurer’s eventual rejection created a cliff-edge situation, pressuring my colleague to accept the modified and inferior terms now being offered.

She must now pursue a refund of the premium. With family hospitalisation premiums easily touching ₹1 lakh or more, who compensates her for the opportunity cost of funds lying with the insurer? More importantly, had the old policy become unavailable due to this delay and reversal, would the new insurer/ intermediary have stepped in to compensate for the loss of lifelong guaranteed renewal on original terms?

The IRDAI’s portability framework for hospitalisation cover is designed to protect policyholders and ensure continuity of cover. Requirements such as initiating the process at least two months before renewal reflect that intent. However, the framework is silent on the consequences of post-premium rejection. There is no explicit deterrent against collecting premiums before underwriting is completed nor clear accountability when such practices jeopardise continuity of cover.

This is a regulatory gap deserving urgent attention. At least, insurers should not be allowed to collect premiums before underwriting decisions are final. Where premiums are collected and proposals rejected, timelines for refunds, compensation for delay and responsibility for loss of continuity must be defined. Intermediaries must be held accountable when their actions/advice expose clients to avoidable risk. Until such safeguards are firmly embedded, consumer awareness remains the first — and often only — line of defence.

Here are tips to avoid such heartburn: Start renewal/porting process in advance. Follow up persistently with the intermediary and the insurer, preferably in writing. Above all, do not allow existing policy to lapse until the new cover is formally issued. In case of doubts, renewing the current policy preserves certainty – and buys you a full year to thoughtfully reassess coverage, insurer and the fine print that too often shows its sting only when it is already too late.

(The writer is a business journalist specialising in insurance & corporate history)