Incentives to TPA to reduce the Insurance claim revealed under RTI
Reply to an application filed through an application under the Right to Information (RTI) Act has shown that Third Party Administrators (TPA) are given incentives by United India Insurance to reduce the claims ratio.
An applicant filed a Right to Information (RTI) application to know about the delay in policy renewal information, sent from United India Insurance Company (UIIC) to E-meditek, a TPA (Third Party Administrator). Scrutiny of the reply revealed a clause in the contract between the insurer and the TPA indicating that an incentive is given to E-meditek for keeping the ‘claims ratio’ within a certain range. Such a clause is against the interest of the claimant (policy-holder) as it is very likely that even his genuine claims can also be partially paid or rejected to enable the TPA to get incentives from UIIC. ‘Claims ratio’ means the amount of claims payable as a percentage of premium income. For the financial health of the Insurance Company, a lower ration would be beneficial as it would imply that the outgo on claims would be lower.
The contract of the United Insurance Company with the TPA states that if the incurred claims ratio is 70% to 90%, then there is an incentive of 10% of the amount by which incurred claim is reduced as against the previous financial year. If the incurred claims ratio is 50% to 70%, then there is an incentive of 20% of the amount by which incurred claim is reduced as against the previous financial year.
Activists have pointed out that similar clauses exist between all major insurance companies and all their TPAs. It has been claimed that such a clause is against the Section 52 of Insurance Act – Dividing Principle. The section points out that no insurer shall carry on, any business upon the dividing principle, that is to say, on the principle that the benefit secured by a policy is not fixed but depends either wholly or party on the results of a distribution of certain sums amongst policies becoming claims within certain time-limits, or on the principle that the premiums payable by a policy-holder depend wholly or partly on the number of policies becoming claims within certain time-limits.
As the claim of one person cannot be used to offset the claim of another person, the insurer/TPA cannot offset losses from one policy against another policy. Activists are taking up the matter with the Insurance Regulator and Development Authority (IRDA) in the interest of the policy holders.