A few months back, social media was abuzz about a person who had taken a personal accident policy. One of the conditions of the policy was that no claim could be done, if the insured person met with an accident while riding a motorcycle with an engine capacity of more than 150 cc. The policy document had many pages and this was one of the many conditions. When the noise levels increased, the concerned insurance company issued instructions on withdrawing this condition. This episode brought to fore many significant issues.
Personal accident policies have been in the market for many decades. It is considered to be a simple. It offers worldwide cover and operates 24*7 throughout the policy period, which is normally one year. Variations, by restricting some of the covers, happens at times. For instance, there could be a policy issued for specific journeys, like a rail or air trip. Any deviation from this standard format would be highlighted as a special condition, by which the policyholder would become aware of the restriction. In this instance, it was an integral part of the printed policy format.
Who is at fault?
This raises a question, is there a fault? If so, whose fault, is it?
One immediate reply would be that it is the insured person’s fault. The condition was disclosed in the policy document, and it was served to the policyholder. It is the person’s responsibility to read it carefully and understand the implications. So, the presumption would be that the policy holder was well aware of the condition and hence there was no fault on the insurer. Even if the policyholder had not read it, it is still the person’s fault.
Policy documents are rarely read
Taking a strict interpretation, this view could be termed correct. However, there are certain aspects which have to be considered. It is commonly known that very few read all the details in the insurance policy and attempt to understand the various terms used. Only in the event of a claim, people go through the policies.
Parallels can be drawn from other sectors. For instance, before we download an app or program, a long agreement with innumerable clauses appears. Very few would read through it and click the agree button. The presumption should be that an ordinary person would neither have the time nor the inclination to go through detailed documents. In a recent report in Times of India, a survey on awareness of insurance coverages and terms highlighted the gaps in understanding. The awareness was low across both health and motor insurance.
Insurers need to highlight details
Another approach to this case is that the insurance company which drafted and issued the policy document without highlighting this particular aspect was at fault? Worldwide, courts have often taken the view that, in insurance disputes involving an individual and an insurance company, the individuals’ view-point is given more weightage. This stems from the belief that policies are drafted by a powerful corporation with ample resources. The individual on the other hand is at a disadvantage while dealing with them.
In this particular case, there was no need to introduce such a specific condition in the policy. If it was absolutely essential, then it should be sufficiently highlighted and also informed to the customer.
Did the regulator do a good job?
What about the regulator? Did it let the guard down in this matter? As per regulations, a system called “file and use” with respect to all insurance products. It means every insurer has to file new products with the regulator, who will in turn examine it from all angles and give approval. The product has to be filed, with all necessary documents and information. The authority can call for further details and also order amendments. The intention is to protect the interest of all stakeholders, especially the policyholders.
In this case, it is very common to see motorcycles with more than 150 cc in use. While whetting the proposal, the regulator could have disagreed with this condition. Even if they had agreed, they could have instructed the company to highlight the condition and also to inform policyholders about this while taking the policy. It is not clear if they had done so.
Protection of policy holders
Insurance penetration as such is very low in India. Such instances, deter growth. Insurers should realise their dominant role and strive to simplify wordings, terms, coverages,.. Wherever there is a condition introduced which is different from commonly used ones, it has to be highlighted and should be specifically informed to the policyholder. The insured persons should also take time to read the policy.
The regulator should have a standard set of wordings for different types of insurance policies. The regulator has developed such wordings for some of the policies. But there is no obligation for the insurer to inform deviations from it. They could start with a few select policies which are widely used. This could be one simple way to reduce chances of missing out on important features, which could adversely affect customers at the time of a claim.
