Trust, but verify before you opt for a group insurance cover

There are risks of either a sudden increase in the insurance cost or the service provider stopping it

From the regulation point of view, the group should not be formed for the purpose of purchasing insurance. | Photo Credit: Gettyimages/istockphoto

Go online, we are told. Automate your investments, premium payments, bill payments. Life is easier and things get done. Until they don’t.

We saw in earlier columns of Cover Note some of the issues group insurance policies are prone to. Typical cases have been of banks offering group health cover to their account holders and then deciding to quit this activity. Or they may have undergone a merger and priorities have changed in their corporate office.

Variants of this model are group policies offered by other commercial entities or institutions, including clubs and associations you belong to. They can be personal accident, life or pension covers, and are offered to you because you are a savings bank account holder, credit card holder, pensioner, alumni association member, entertainment club member and so on.

There is no restriction on group policies from the insurance regulation point of view except that the group should not be formed for the purpose of purchasing insurance.

Group policies have significant advantages. Signing up for them is easy. The offerings are already negotiated and there are simple select options to pick from. Similarly, renewals are easy as well. There is a comfort in numbers and you may know other members personally, depending on the nature of the group. There is an interface for claims in the form of the administrator of the group policy and they talk to the TPA to get your things done.

The premium rates are significantly cheaper.

One-size-fits-all approach

Coming to the disadvantages, the policies are one-size-fits-all. Yet they are highly recommended if you are unable or unwilling to buy an individual cover.

But otherwise, you lose out on a potentially better cover more suited to your specific situation and needs. There is a risk, as seen above, of the service provider stopping this service and that has left quite a few uncovered and unable to buy insurance to continue.

This specifically affects the older population and their health insurance as insurers make more prudent underwriting decisions when it comes to covering this segment.

The other shock that those insured under group policy face in such situations is a sudden increase in their insurance cost. Group policy versus individual policy premium rates are one factor; the other is, the individuals are now older and attract higher slab rates.

Add to this the fact that health insurance and life insurance rates are seeing substantial premium increases because of COVID claims costs to the insurance firms and inflation in healthcare costs. Apart from this, there are administrative and logistical traps to look out for. One such emerged in a conversation with a family friend.

The lady had retired as a bank officer and opted for a group health insurance policy through her pensioners’ association. Renewal terms and rates were shared and the association that was handling it asked for standing instructions to debit the premium on the due date. She sent an email authorising the debit and this was duly acknowledged. Having done the needful, she went back to to doing what pensioners do, and very rightly so.

The debit, however, did not take place, and neither did her renewal. As she was otherwise preoccupied to track her bank account, it all came to light after it was too late.

Now, her policy is not renewed and there is a break in coverage — both vexing situations. When she pursued the matter, her bank pensioners’ association / bank where she had given standing instructions (the same bank, her former employer) are both washing their hands of the responsibility for the debit that did not take place and pointing her to the appropriate disclaimers that emphasise that the burden of due diligence was always hers.

The former is a service organisation and the latter is supported to the hilt by technology that should ensure such a miss can never happen!

The insurance company is not yet in the picture to even say anything because, with no premium received, it is legally not on risk as per The Insurance Act. This is not an isolated incident. Solutions are not perfect and certainly not easy.

Logic and fair-play suggest that the association, and the bank following it, should be held accountable for restoring her coverage and footing her claims if any until that happens.

The member is hesitant to take a hard stand, but somebody should start doing just that. Both the pensioners’ association and the bank are services against payment and so, would this come under the Consumer Protection Act? Or would a consumer court see bad faith in this disclaimer? Either way, is the only way to be sure your premium is reaching its destination is to stand in a queue with cash and come away with a signed, stamped receipt? These convenient disclaimers have to be given a hard look and discarded.

In insurance, there is a clause that says the insured has to conduct himself as a prudent uninsured. That is, even if he has an insurance policy, he should take all the measures to safeguard against losses as he would if he had no insurance. This underlines both loss minimisation as well as good intent.

Similarly, until there is some certainty that such gaps won’t swallow up your insurance coverage, check that debit and ensure your premium has indeed reached its intended destination. Trust, but verify.

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