Instalment payment of claims will provide float cash for insurers

Chennai: Payment of insurance claims in instalments would only provide sizeable float cash for the non-life insurers and is no way policyholder friendly, said insurance experts and a consumer activist.

A working group formed by Insurance Regulatory and Development Authority of India (IRDAI) in October 2018, at the request of some non-life has recommended settlement of personal accident and benefit-based health policy claims in instalments.

Currently the claims under these policies are settled in lump-sum.

The group has recommended capping of the instalment period at five years and the instalment periodicity can be on monthly or quarterly or bi-annual or annual basis as opted by the policyholder.

“How did the committee conclude some policy holders are interested in getting their claims in instalments? Was there any survey done? If so, how many policy holders were surveyed?

“The report is also silent on the quantum of premium collected and claims paid under the personal accident and other policies for which instalment payment in being recommended,” S Saroja, Co-ordinator, Citizen consumer and Civic Action Group (CAG) told IANS.

According to the report, only one person representing policyholder’s interest shared his views to the working group. The report does not mention any consumer groups that were invited or shared their views on the proposal.

“It defies logic given the hassle a policyholder is generally put to in getting the claims settled why he/she would agree for instalment payment,” PS Prabhakar, Partner in Rajagopal and Badrinarayanan, a chartered accountancy firm, told IANS.

Prabhakar said the deferred claims settlement will not result in any reduction in capital strain on the insurer but it would certainly provide a sizeable kitty of float money.

“I do not think payment of benefit claims in instalments benefits the policy holders in any meaningful way,” KK Srinivasan, a former Member (Non-Life) IRDAI told IANS.

“Payment of claims in instalments certainly benefits the insurers as they are allowed to keep the money. Hence equity demands that they pay interest on the money they retain,” Srinivasan added.

While a policyholder can opt for instalment payment for claims, the premium should be paid in full upfront as per the insurance law.

The IRDAI group has recommend there need not be differential premium for lump sum or instalment based claims payment options.

“The total claim payment in instalment option should always be higher than the lump-sum option. Linkage to interest rate should be avoided and fixed pay-out structure which is part of the claim instalments schedule must be explained upfront to the policyholder,” the group recommended. (IANS)

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