Posts Tagged ‘insurance’

Renewing policy? Company can’t hike premium

Insurance companies cannot load premium due to adverse claim ratio.

Background: It is illegal to refuse renewal of a policy. So, when an insurance company does not want to renew a policy that has become onerous, it adopts the back-door method of loading the premium excessively, making it unaffordable for the insured, who may then volluntarily opt out.

In a ruling on June 19, 2013, the South Mumbai District Forum ordered an insurance firm to refund the excess premium charged through loading.

Case Study: Praveen Shah was insured under a Mediclaim Policy with New India Assurance from 1988. The premium for 2007-2008 was Rs 10,508. Subsequently, Mediclaim Policy 2007 was introduced. At the time of the next renewal for 2008-2009, the insurance company loaded the premium and charged Rs 22,545, which was more than double the previous year’s premium. In 2009-2010, the premium was further increased to Rs 21,357.

For 2010-2011, the premium was once again loaded and increased to Rs 45,320, making it more than double the previous year’s premium. Thus, from 2008 onwards, the premium was time and again increased arbitrarily at the time of each renewal.

Shah sent various letters protesting against the increase of premium through loading. He even took up the issue with the Insurance Regulatory Development Authority (IRDA), but his pleas fell on deaf years. He then approached the Consumers Welfare Association for help. The association, along with Shah, filed a joint complaint before the consumer forum for South Mumbai District, challenging the premium hike.

The insurance company contended that Shah had lodged three claims totalling Rs 2,72,004 for the treatment of his wife, who was also covered under the policy. Due to this, Shah’s claim ratio was 66%. The insurance insurance firm defended itself and justified its action by arguing that the premium had been rightly loaded and 15% co pay had also been introduced in view of the adverse claims experience.

The insurance company also claimed that the premium was calculated as per Regulation 7 framed by IRDA and relied on “premium rules”, which it claimed were annexed to its reply, but were actually not filed. The insurance company also contended that once the insured crosses the age of 70 years, the applicable premium will be loaded by 2.5% each year. The insurance company claimed that its actions were justified under the revised terms of the policy introduced in 2007.

The forum observed that the premium rules had not been filed by the insurance firm. However, on going through Regulation 7 of the IRDA Protection of Policyholders Interest Regulations 2002, no such provision could be found that permitted the insurer to load the premium.

The forum also relied on earlier judgments on the same issue where it had been held that loading of premium was not justified. Also, in the case of Biman Krishna Bose v/s United India Insurance, the Supreme Court had held that a renewal of an insurance policy means repetition of the original policy on the same terms and conditions as that of the original policy. Since the original policy did not have any clause permitting loading of premium, the insurance company cannot be permitted to change the policy terms and conditions to impose such loading.

Accordingly, in its judgment delivered on June 19, 2013, by S S Patil on behalf of a bench comprising himself and president S M Ratnakar, the forum ruled that the insurer was not authorized to load the premium and enhance it unilaterally and arbitrarily. The forum held this to be deficiency in service and an unfair trade practice. It, therefore, directed the insurance

company to refund a total of Rs 57,898, which was the excess amount of premium charged over a period of three years through loading. Interest at the rate of 9% per annum from the date of each loading till its refund was also awarded. In addition Rs 15,000 was awarded as compensation and Rs 5,000 as costs.

Impact: Loading of premium through unilateral change of policy terms and conditions is an unfair trade practice. The insured can challenge it and get a refund.

Be the first to comment - What do you think?  Posted by admin - August 12, 2013 at 6:46 pm

Categories: Consumer Rights   Tags: , ,

Consumer fora can hear telecom rows

In an unprecedented and first-of-its-kind case, the Maharashtra State Commission constituted a special five-member bench to answer a reference whether telecom disputes are maintainable under the CPA. This required to be done since two different smaller benches had given conflicting rulings on the issue. The confusion arose because of a Supreme Court judgment in the case of General Manager Telecom v/s M Krishnan, where it was held that a dispute between a telegraph authority and a consumer is not maintainable under the CPA and requires to be decided through arbitration.

The massive 29-page landmark judgment was passed by the Maharashtra State Commission after hearing the advocates for MTNL, BSNL and Bharti Airtel and the representative of Bombay Telephone Users’ Association, which had intervened in the matter and argued on behalf of all the consumers. The judgment, which was delivered on November 6, 2012, by Justice S B Mhase along with judicial members S R Khanzode and P N Kashalkar and non-judicial members Dhanraj Khamatkar and Narendra Kawde, was recently made available.

In its judgment, the state commission distinguished why telecom disputes would be maintainable despite the Supreme Court ruling. Under Section 4 of the Indian Telegraph Act, the central government has the exclusive right to maintain telegraphs, which includes telephones. It can also issue licences to third parties for providing this service. Companies that provide telecom services to consumers are licencees, to whom certain powers have been delegated. They cannot be termed Telegraph Authority. This interpretation was supported by the decision of the Bombay high court in the case of Bharti Tele ventures v/s State of Maharashtra in writ petition no. 7824/05. Since service providers are not Telegraph Authority, the provisions of Section 7 B would not be attracted, as it is applicable only when one of the parties to the dispute is a Telegraph Authority.

The state commission also considered several other Supreme Court judgments, including the case of Kishore Lal v/s Employees’ State Insurance Corporation decided by a larger bench of three judges. The continuous trend was that a beneficial legislation like the CPA provides an additional remedy and it should be liberally construed. Hence, the jurisdiction of the consumer fora cannot be curtailed unless there is an express bar prescribed under a particular enactment.

The state commission also observed that in order to extend the benefits of the CPA, it would have been necessary to amend various other existing laws. To overcome this difficulty, Section 3 of the CPA provides that it would be “in addition to and not in derogation of any other law”. This makes the CPA a “legislation by incorporation”, where the provisions of the CPA would be automatically read into and considered to be a part of the earlier legislations. The provisions of the CPA would therefore be treated as if incorporated in the Indian Telegraph Act, and consumers availing of telecom services would be entitled to file consumer complaints.

The state commission also observed that the dispute of M Krishnan, decided by the Supreme Court, was an old one. Subsequently, a revolution had taken place in the telecommunication system due to liberalization and grant of licences to companies for whom it was a profit-making business. To regulate the industry, the Telegraph Regulatory Authority of India (TRAI) Act 1997 had been brought into force. Section 14 of this Act provides that the complaint of an individual consumer would be maintainable before the consumer forum. (The provisions of this law were not considered by the Supreme Court).

The state commission, therefore, held that consumer fora had the authority to adjudicate disputes filed by individual telecom consumers.

It is also to be noted that Regulation 25 of the Telecom Consumers Protection and Redressal of Grievances Regulations, 2007, also stipulates CPA to be the remedy for an individual telecom user.

Be the first to comment - What do you think?  Posted by admin - at 6:43 pm

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