Insurance Moratorium Clause Under Scrutiny After Tragic CEO Shooting Highlights Failures

The recent tragic shooting of Brian Thompson, the chief executive of UnitedHealth Group Inc.'s insurance arm, has ignited a broader conversation about the practices of insurance companies regarding claims rejection. As the spotlight shines on the industry, many policyholders are questioning whether the moratorium clause in life and health insurance truly serves its intended purpose. Under Indian insurance regulations, the moratorium clause is designed to protect policyholders from arbitrary claim denials after a period of consistent premium payments. For health insurance, if a policyholder has paid five or more annual premiums, an insurer cannot reject claims based on non-disclosure of a pre-existing condition, unless there is established fraud. Similarly, life insurance policies offer protection after three years of consistent payments, safeguarding beneficiaries from claims rejection due to misstatements or non-disclosures. Sabita Mukherjea's experience is a case in point. After being hospitalized for a respiratory tract infection, she faced significant hurdles in having her claim processed. Initially denied a cashless claim, her reimbursement was rejected on grounds that hospitalization was unnecessary, despite her having paid over seven premiums. However, the moratorium clause provided her with leverage. With assistance from Insurance Samadhan, her claim was ultimately approved when they emphasized her eligibility under the moratorium provisions. Despite these protective measures, the implementation of the moratorium clause can be convoluted and is often subject to interpretation. Experts warn that policyholders must fully disclose their health conditions when purchasing insurance. If a major disease is concealed, insurers retain the right to deny claims even after the moratorium period has expired. "The moratorium clause is valid only if an insurer has rejected your claim for a non-critical disease," cautioned Harshvardhan Roongta, chief executive of Roongta Securities. This complexity is accentuated when policies are ported to different insurers. The moratorium period continues to apply, but any increase in coverage resets the clock, requiring fresh premiums to complete the new moratorium period. Thus, if a policyholder increases their coverage significantly, they must navigate an additional five-year wait for the new sum insured. The differences in the treatment of claims between life and health insurance also raise questions. While life insurance claims cannot be repudiated after a three-year period on grounds of fraud, health insurance claims can still be contested even after five years. This discrepancy can lead to confusion and frustration among policyholders who believe they are protected under the moratorium. Real-life examples illustrate the potential pitfalls of navigating the claims process. Kabir Zaidi's father faced rejection from a private insurer despite disclosing all his policies, including one from LIC. The insurer cited non-disclosure regarding the LIC policy, which raises concerns about accountability and transparency within the industry. Zaidi plans to pursue further legal avenues, highlighting the challenges many face when seeking just compensation. While the moratorium clause aims to bolster consumer protection within the insurance landscape, its real-world application often falls short. Policyholders continue to encounter obstacles that make claiming benefits an uphill battle. The tragic events surrounding Thompson's death serve as a stark reminder of the need for reform and clearer guidelines that prioritize the rights of policyholders. As consumers navigate the often murky waters of insurance claims, it is evident that while the moratorium offers a semblance of protection, the reality is far more complex and fraught with challenges.