MISCONSURANCE

“Insurance is a subject matter of solicitation” we all must have heard this statement in a lot of insurance advertisements but hardly some of us would know what it actually means. This was mandated by IRDAI and it basically means the products are not meant to be sold by the advertisement but the customer has to reach the intermediary for purchasing the right insurance policy. While doing my internship in an insurance company, I noticed a lot of people having misconceptions about insurance so what is the reason behind it? And, the answer I got was a lack of awareness and knowledge. So, this made me talk about misconsurance, which was derived from two words misconception + Insurance. In this article, I would be majorly addressing some of the popular misconceptions about insurance.

Let’s start first from defining the term ‘Insurance’. Insurance is considered to be a legal contract between two parties ‘Insured’, the person who is willing to purchase the policy and ‘Insurer or Insurance Company’, the entity who is willing to accept the risk for a remuneration. Here, ‘Insurer’ promises to pay a certain amount if any event happens as stated in the policy to the subject matter, known as ‘Sum Insured or Sum Assured’ and in return the ‘Insured’ pays a regular amount of money for a certain period to the ‘Insurer’, commonly known as ‘Premium’. Generally, Insurance is classified into two broad categories i.e., General Insurance and Life Insurance. General Insurance can be further classified into motor insurance, marine (cargo or hull) insurance, fire insurance, liability insurance, etc., whereas life insurance is classified into mainly six type of policies which consists of Term insurance, Whole life insurance, Unit Linked Insurance Plans (ULIPs), Endowment Policy, Annuity Plans, Money Back Insurance plans.

Now, let’s talk about the whole insurance process. We all know about filling up a personal detail form got through an agent or broker and then submit it to the insurance company then the policy is either extended or not and accordingly calculation of Sum Insured, premium amount, policy tenure, etc., is done. And, in the time of crisis, you go for a claim. But is insurance limited to that only? My answer would be somewhat similar but a lot more details are missing here. After reaching out to an agent or a broker, a specific policy fulfilling your needs is chosen and then a form is filled which is known as ‘Proposal Form’, which contains personal details and the details of the subject matter. Let’s say I want to purchase a Term insurance policy for myself then I need to mention the details such as my past health record, my family health history, my hobbies, occupation, etc. A question might pop up in your head why do such things matter for the ‘Insurer’? For their general knowledge, it isn’t important but we should know that Insurance is a method of transferring risk so as per the principle of insurance ‘Uberimma Fides or Utmost Good Faith’, both the parties should disclose all the material facts and the effect of such information might the affect the magnitude of risk which is the base for calculation of premium. Higher the risk, Higher the premium.

After submitting the proposal form, the insurer either accept, reject or accept with some special terms then accordingly the policy is initiated. A lot of us do not know about the concept of ‘Free-look period’, it is a certain amount of period provided to the Insured in which they can review the terms and conditions of the policy and can cancel a policy. This time period usually consists of 15 days and the first premium paid is refunded deducting expenses such as administrative costs, etc. A proposal form before being accepted or rejected is carefully examined and here the major part is done by the ‘Underwriters’, who are the people who analyze the factors affecting the risk and take the decision of acceptance of policy and on what terms. The underwriters are classified into several other categories such as financial underwriter, Domain-specific underwriter (Medical underwriter for life and health insurance), etc. For any changes or updating of information, the policy is called and an attachment is added which are known as ‘endorsements.’ For claims, a similar certain procedure is applied where a claim form is submitted by the insured and then the Insurer appoint a ‘Surveyor’, to assess the loss and its credibility and on the basis of surveyor’s report and policy’s terms and conditions, the claim is either accepted or rejected.

We discussed a basic idea of insurance, its terminology and process but our main concern is still left to be addressed and those are misconceptions about insurance. Some of the popular misconceptions are “Insurance is not needed until any occurrence of loss”, “Other investments are far better than Insurance”, “Pre-existing diseased person is not allowed to take an insurance policy”, “Claim is provided whatever the reason of loss is”, “A group insurance policy opted by the employer for its employees is sufficient”, etc. Are these actually true or just a misconception or a myth? If an insurance policy is purchased after the occurrence loss it would be escalating moral hazard and the insured would be less careful about his subject matter and also it may lead to insolvency of insurance companies. Other investments such as gold, securities, etc., are definitely a far better option but insurance is not only an investment but it is more of life cover or financial cover from unexpected losses. The pre-existing diseased person can have insurance as per his/her risk profile probably their premium would be high than a fit person or might include some exclusions. A group insurance policy opted by an employer is not sufficient for an employee and an additional individual policy is definitely recommended. And, to safeguard the interest of the general public IRDAI was established to regulate and supervise the insurance business in India in the year 1999. I hope I was able to clear at least some misconceptions or doubts.

-By Yasaswini Ponduru