Principles of Health Insurance(2).pptx

IT IS ALL ABOUT THE PRINCIPLES OF INSURANCE

1. Principles of Health Insurance 1

2. 7 basic principles that should be upheld in an Insurance Contract 1. Principle of Utmost good faith 2. Principle of Insurable interest 3. Principle of proximate cause 4. Principle of  indemnity 5. Principle of subrogation 6. Principle of contribution 7. Principle of loss of minimization 2

3. 1. Principle of Utmost Good Faith ( uberrimae fides)  This is the fundamental principle of insurance for buying and selling of products. Both the parties in an insurance contract should act in good faith towards each other. According to this principle, you have to disclose all the information that is related to the risk, to the insurance company truthfully. It is a duty not to misrepresent any matter relating to the insurance. You must not hide any facts that can have an effect on the policy from the insurer. It is a duty to disclose all material facts relating to the contract. If some fact is disclosed later on, then your policy can be cancelled. On the other hand, the insurer must also disclose all the features of a life insurance policy. Eg, Factors relating to the health, habits, personal history, family history, occupation. Thus the principle operates through a declaration by the proposer to the insurer. Example  – Jacob took a health insurance policy. At the time of taking insurance, he was a smoker and failed to disclose this fact. Later, he got cancer. In such a situation, the Insurance company will not be liable to bear the financial burden as Jacob concealed important facts. 3

4. 2. Principle of Insurable Interest According to this principle, the insured must have an insurable interest in the subject matter. That is, Insurance company will suffer financially if the insured dies and/or also lead to a financial loss if there is any damage, destruction or loss.  The insurance contract must provide some financial gain to the insured. The interest must be pecuniary i.e. capable of estimation in terms of money, anything which can’t be measured in terms of money like disadvantage, inconvenience or mental distress can’t be regarded as insurable interest. The interest must be lawful i.e. it should not be illegal or immoral. Every person is presumed to have insurable interest on his own health without any limitation. The insurable interest is very important at the time of accepting proposal for health insurance. It guides the insurance company who can pay the premium for that particular policy. Example  – the owner of a vegetable cart has an insurable interest in the cart because he is earning money from it. However, if he sells the cart, he will no longer have an insurable interest in it. 4

5. 3. Principle of Proximate Cause Also called the principle of ‘Causa Proxima’ or the nearest cause. While calculating the claim for a loss, the proximate cause, i.e., the cause which is the closest and the main reason for a loss should be considered. Example-An ordinary fire policy was given to cover a warehouse, and the policy excluded war or warlike operations, etc. Nevertheless, the warehouse was completely damaged by fire arising from a bomb being dropped from an enemy aircraft. The insurer repudiated the liability on the ground that even though the warehouse was damaged by fire, the proximate cause of the damage was a warlike operation (i.e., enemy action), and the fire was simply a remote cause. On the other hand, the judgment was given in favor of the insurer maintaining that the loss was proximately caused by an enemy action not covered by the policy. 5

6. What is a Proximate Cause? The term proximate cause refers to the nearest cause leading to the loss. It is the direct cause of a loss event. The principle of proximate cause is the cause that is primary to the occurred event. It could also be the most significant incident which cascades into the loss event. The insurer will entertain the claim only if this significant cause is close enough to the loss. 6

7. The Principle of Proximate Cause in Medical Claims Ms. Ho was admitted to hospital with lower back pain last month and was diagnosed with a prolapsed intervertebral disc which required a surgical operation to be performed. Unluckily, Ms. Ho's abdominal aorta wall was punctured during the operation and she went into shock with internal bleeding. As a matter of urgency, she was transferred to another hospital to undergo a repair operation on her blood vessel. Ms. Ho admitted that her operation for treatment of a prolapsed intervertebral disc was a pre-existing condition which should be excluded from the policy. When she was discharged from hospital, she only submitted a claim to her medical insurance company for reimbursement of medical expenses incurred during the second operation. However, the insurance company rejected her claim. Why was Ms. Ho's second hospitalisation not covered by her medical insurance policy? Ms. Ho thought that her emergency confinement for the second operation, the aim of which was to remedy the blood vessel puncture that occurred during the first operation, was entirely unforeseen and unexpected. As a result, she believed that her insurance company should reimburse her medical expenses incurred for the second operation. The second operation for remedying the puncture was caused by a potential operation risk arising from the first operation for her prolapsed intervertebral disc. If the first operation had not taken place, the second operation would not have been necessary. As the proximate cause of the second operation was related to the first operation and the first operation was excluded from Ms. Ho's medical policy, her insurance company was not liable for Ms. Ho's hospitalisation claim. 7

8. 4. Principle of Subrogation This principle comes into play when a loss has occurred due to some other person/party and not the insured. In such a case, the insurance company has a legal right to reach that party for recovery. Example  – If Mr A gets injured in a road accident, due to reckless driving of a third party, the company with which Mr A took the accidental insurance will compensate the loss occurred to Mr A and will also sue the third party to recover the money paid as claim.  8

9. 5. Principle of Indemnity The principle of indemnity states that the insurance will only cover you for the loss that has happened. The insurer will thoroughly inspect and calculate the losses. The main motive of this principle is to put you in the same position financially as you were before the loss. This principle, however, does not apply to life insurance and critical health policies. Example –  The owner of a commercial building enters an insurance contract to recover the costs for any loss or damage in future. If the building sustains structural damages from fire, then the insurer will indemnify the owner for the costs to repair the building by way of reimbursing the owner for the exact amount spent on repair or by reconstructing the damaged areas using its own authorized contractors. 9

10. 6. Principle of Contribution According to the principle of contribution, if you have taken insurance from more than one insurer, both insurers will share the loss in the proportion of their respective coverage. If one insurance company has paid in full, it has the right to approach other insurance companies to receive a proportionate amount.  The insured cannot make a profit by claiming the loss of one subject matter from different policies or companies. Example  – A property worth Rs. 5 Lakhs is insured with Company A for Rs. 3 lakhs and with company B for Rs.1 lakhs. The owner in case of damage to the property for 3 lakhs can claim the full amount from Company A but then he cannot claim any amount from Company B. Now,  Company A can claim the proportional amount reimbursed value from Company B. 10

11. 7. Principle of Loss Minimisation As a owner, it is obligatory to take all the necessary steps to limit or minimize the loss to the insured property. You must take all the necessary precautions to prevent the loss even after purchasing the insurance. The principle does not allow the owner to be irresponsible or negligent just because the subject matter is insured. Example – If a fire breaks out in your factory, you should take reasonable steps to put out the fire. You cannot just stand back and allow the fire to burn down the factory because you know that the insurance company will compensate for it. 11