Irdai Fines Care Health Insurance Rs 1 Crore After Inspection Flags Failures In Claims And Internal Controls

Care Health Insurance has been fined Rs 1 crore by the insurance regulator after an inspection found a string of shortcomings in how the company handled claims, customer communication, accounting and certain internal processes, according to a recent statement by the Insurance Regulatory Development Authority of India (Irdai). The penalty follows a remote inspection carried out in 2021 and a subsequent enforcement process that stretched over several years, involving written explanations from the insurer and a personal hearing before the regulator’s senior members.

In the order, Irdai said that although the insurer has since made changes to its processes, the shortcomings identified during the inspection could not be overlooked and required regulatory action.

Problems In Grievance Handling And Cyber Security

Grievance handling was among the issues flagged during the inspection. Irdai found that when complaints were not resolved in favour of policyholders, the insurer did not clearly spell out the option of approaching the Insurance Ombudsman. Communications sent to customers often stopped at customer care contact details or web links, without mentioning the name and address of the Ombudsman with jurisdiction. The regulator said this made it harder for policyholders to pursue grievances and diluted the protections built into the regulatory framework. Although Care Health Insurance later changed its process and submitted an undertaking that future communications would carry full Ombudsman details, Irdai issued a warning and said similar lapses would be viewed seriously.

The inspection also reviewed the company’s cyber security practices. Vulnerability assessments showed that several observations, including high-risk ones, were not closed within prescribed timelines. The insurer told the regulator that technical dependencies had slowed remediation and that all issues had eventually been resolved and placed before internal risk committees. Even so, Irdai recorded a warning and advised closer monitoring of information security controls.

Claims Handling And Accounting Under Scrutiny

Claims handling, however, formed the core of the regulator’s concerns. Irdai found that in a large number of cashless claims, hospitals had not captured signatures of patients or their attendants on discharge summaries and final bills. The regulator said this weakened transparency and raised questions about how settlements were being finalised. It also observed that discounts offered by network hospitals were not consistently reflected in final bills, leaving policyholders unaware of the actual amounts charged.

In several cases examined during the inspection, communications explaining claim settlements, deductions or partial payments were sent only to hospitals. The insurer could not produce convincing proof that policyholders had received the same information. The regulator rejected internal email logs submitted by the company, saying these did not establish that customers were properly informed about what had been paid, what had been disallowed and why. Taken together, these findings led Irdai to impose the Rs 1 crore penalty under the Insurance Act.

The order also looks at the insurer’s accounting of certain reinsurance arrangements. Irdai concluded that Care Health Insurance had accounted for net-rate treaties by grossing up figures, which had the effect of inflating profits and solvency margins in earlier years. The insurer told the regulator that these reinsurance arrangements have now been dropped and gave formal assurances to that effect. Even so, Irdai issued a warning, saying the accounting treatment reflected gaps in financial discipline and oversight.

The regulator also took issue with how proposal deposits and unallocated premiums were handled. These amounts remained parked for long stretches instead of being transferred to unclaimed accounts when policies were not issued. While the company has since made adjustments, Irdai said the earlier practice could not be justified.

Irdai has directed the insurer to place the order before its board, submit an action-taken report within 90 days, and pay the penalty from shareholder funds within the stipulated timeframe. It has also warned that any repeat of similar lapses will invite tougher regulatory action.