Insurance Regulatory and Development Authority (IRDA), the apex regulator of the Insurance Industry released a circular giving guidelines on introduction of portability of Health Insurance / Mediclaim in India. From the 1st of October 2011, India has opened the doors to Health Insurance Portability. Like the name suggests, this allows switching mediclaim policies from one insurer to another, without losing out on coverage due to exclusion.

So, if a customer has a policy and wants to switch to another insurer after one year, he/she will be allowed to do so while retaining the benefit of carrying forward the awaiting period served.

This is another milestone in the general insurance industry in India. Health insurance portability which was to become applicable earlier in the year is now a reality! So why are we excited? Well, it gives us another opportunity to make our financial planning better by being with the insurer who we think is the best.

Industry experts say this move will mean insurance companies improving their service levels, as they try to retain clients and entice clients from other insurers.

The initiative to bring in a process and guideline to enable portability is a welcome step by IRDA. The circular released displays great intent on the part of the regulator to free the customer from being stuck with the same insurer, fearing loss of benefits of continuity, thus kick starting a competitive health insurance environment.

The Past

Before October 1st, if you needed to move to a new health insurance company, you would have to become a new customer for them and lose all the benefits that your existing health insurance policy might have accumulated.

For example, the rules dictate that you need to stick around for 1 to 3 years with an insurer before pre existing illnesses can be covered. In case of switching to a new insurer, you would have lost this benefit completely. Pre-existing illnesses would get covered after the mandatory period is over with the new insurer. This has changed from October 1st.

The Present

Say, you have covered one year with your present insurance company, then you have to wait for only 2 more years with the new insurance company before pre-existing illnesses get covered, thanks to health insurance portability.

While this is a great move forward for investors, make sure you do due diligence before changing your insurer. The premium amount you pay should not be the only reason for you to move.

Keep in mind the following points when initiating a transfer.

Only individual and family floater policies can be transferred over.

Applicable only to health insurance policies that are issued by non-life insurance companies.

The process to move to a new insurer needs to be initiated at least 45 days before the premium renewal date of current policy.

Maximum time within which new insurer can ask for more details from you is 7 days.

Maximum time within which existing insurer provides information to new insurer is 7 days.

Maximum time for new insurer to let you know of its decision is 15 days.

The Transfer

At least 45 days before your current policy’s premium has to be paid, you can initiate a transfer. The new insurance company will take 15 days to either accept or reject your request. If you do not hear from them in these 15 days, they cannot reject your transfer request. In these 15 days, the new insurer can come and ask for more information either from you or from your exiting insurer.

Remember both the sum assured and accumulated bonus can be transferred. But there is a catch when transferring a policy with bonus.

Suppose the sum assured of your policy is 2 lacs and you were paying a premium of say Rs 5,000 for it and you accumulated a bonus of Rs 25,000 in the previous two years as there were no claims that you made. So the sum assured with your current insurer is actually Rs 2.25 lakhs . When you transfer this over to a new health insurer, you might have to pay a premium onr Rs 2.25 lakhs and not Rs 2 lakhs. So your premium will be more than Rs 5,000. In short, while you can carry over the no claim bonus, the new premium will be calculated on the new cover.

Note that there is no guarantee that the transfer will necessarily happen for sure at the same premium and at the same sum assured.

The new insurance company has the right to reject your request. Or accept it with an increased premium. If you have had many claims in the past, it is unlikely that new insurance company will accept you in its fold.

When you transfer you will need to accept different plan from the new company. Not all health insurance policies are same and all of them offer something different, so make sure when you move, you read the policy wordings on your own to understand what you are signing up for. Since the new insurer will do its own underwriting, you could possibly end up with a higher premium as well.

Remember that using health insurance portability just because your premium is steep or because your insurance company rejected your claims is not a wise idea. You need to move if the new policy is suitable for you.

Health insurance portability is bound to make insurers compete with each other for delivery of better services and to retain existing clients. This could possibly lead to other advantages for investors.