IRDAI carried out a remote inspection of Heritage TPA in November 2021, and based on this inspection, IRDAI issued a show cause notice to Heritage TPA in 2024 and now a warning and advisory.
IRDAI, during its inspection, found that the TPA was closing health claims citing pending documents from claimant, while informing only to insurance company in communication. There was no evidence to show that query letters or reminders were actually sent to policyholders before closing the claims.
Third Party Administrator(TPAs) work on the claim servicing part and collect all the required documents from policyholders or hospitals and settle the claim. But if a claim is not admissible under a policy, the same has to be denied or repudiated, and communication of such denial or repudiation is to be done by the insurance companies, not by TPAs.
As per IRDAI (TPA – Health Services) Regulations, 2016, and IRDAI (Health Insurance) Regulations, 2016, the role of TPA is just settlement of claims and informing the insurance company if a claim is not admissible as per policy T&C or as per insurance company guidelines. Then insurance company will send letter of claim rejection to policyholder and not TPA.
Apart from this, there are always a few challenges for insurance companies where policyholders do not submit all the required documents to insurance companies despite reminders from insurance companies/TPAs. Then, after a certain time, claims which still remain outstanding at the insurance company/TPA level have to be closed. This is one aspect of closing claims by insurance companies/TPAs.
Another aspect is insurance companies’ close claims to improve settlement ratio. Insurance company has competitive pressure to show better in terms of settlement ratio, which is a ratio not even defined by IRDAI but quite popular in insurance world and made popular by fin influencers recently. Just to be ahead of others anyhow, insurance companies don’t want to keep claims outstanding in their books by the end of the financial year. Therefore, claims are sometimes arbitrarily closed to look better than their competitive peers.
These claims, which are closed by the end of the financial year, are later reopened and settled in most cases where policyholders are pursuing their claims with the insurance company or TPA.
In this particular case of Heritage, on random checking, IRDAI has found that certain claims have been closed by the TPA, which primarily they are not allowed to do as per IRDAI’s own regulations. But here, Heritage has said that these claims were closed as per service level agreements with insurance companies.
However, IRDAI has also noticed discrepancies that claims were closed, and later query letters were sent to policyholders for want of documents. This practice has raised red flags with IRDAI, and therefore, they have issued a SCN and finally a warning and advisory to the TPA.
But does this resolve the real issue? Over the years, there has been a lack of clarity and consistency in IRDAI guidelines. As I mentioned earlier, IRDAI has released a number of circulars and guidelines, instructed insurance companies not to close claims due to non-submission of documents by claimant.
IRDAI Master Circular on Protection of Policyholders’ Interests, 2024, released on 5th September 2024, states that –
No claim shall be rejected or closed for want of documents or for delayed intimation of claim.
Similarly, IRDAI Master Circular on Health Insurance Business, released on 29.05.2024, states that-
Pursuant to intimation of the claim, Insurers and Third Party Administrators (TPAs) shall collect the required documents from the hospitals. Policyholders shall not be required to submit the documents.
Now, if an important document is required by the TPA/insurance company, which will decide the admissibility of the claim, like if the insured’s current illness has any prior history and the insured is not submitting that document willingly, and the current hospitalization doesn’t have that document, then how can the insurance company source this critical document, which is key in deciding the claim admissibility?
Now, the insurance company cannot close this claim and cannot even seek the document per IRDAI, which seems a uniquely awkward situation.
There is no denial that TPAs or insurance companies can use the closure of claims due to lack of documents arbitrarily, but a claim cannot be kept open indefinitely in books due to lack of these documents, which are critical for deciding the admissibility of the claim.
Therefore, it seems legit that an overall timeline is put by the regulator in such cases, which may have any reasonable limit, and in the name of policyholder interest, not every onus is put on the insurance company or TPA.
Health insurance is replete with frauds where policyholders and even hospitals are involved. Such lack of clarity in guidelines and overly policyholder-centric guidelines put an undue benefit towards people who can fraudulently use these loopholes to push their cases.
That said, TPAs and insurance companies shall also be conscious and sympathetic to policyholders, who should not be harassed with multiple query letters demanding new documents each time instead of giving one query mail with all deficiencies. A satisfied customer is the best form of marketing, but achieving customer satisfaction in the insurance sector is a particularly challenging metric.
