Health insurance policies often include a material clause, which can be confusing for policyholders. To clarify, ICICI Lombard has stated that fresh underwriting or health-based premium loading will not apply at renewal. In other words, as long as the policyholder remains in good health, there will be no increase in premiums or restrictions during policy renewal.
The material clause requires policyholders to disclose significant health changes, such as new illnesses or conditions. Insurers can review policy terms at renewal based on these changes, potentially revising premiums or coverage.
However, the Insurance Regulatory and Development Authority of India (IRDAI) has strict rules to prevent misuse of this clause. Insurers cannot selectively raise premiums or reduce coverage for policyholders who develop health conditions after buying the policy.
Legally, premiums can only be revised if the policyholder opts to increase the sum insured, which triggers fresh underwriting. Any changes in premiums must follow IRDAI’s Product Management Committee guidelines and apply uniformly to all policyholders under the same product.
“While some insurers have introduced this clause in policies, this clause contradicts Irdai rules that prohibit denial or altering the policy during renewals based on previously made claims or recently declared changes in health conditions,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA) and founder and chief investment advisor of SahajMoney, a financial planning firm.
The material change clause is designed to encourage and reward good health behavior. It can enable wellness benefits, such as discounts or removal of loadings, rather than penalizing policyholders. If a policyholder develops a new health condition after the policy is issued, the clause allows the insurer to adjust specific policy terms, but not to impose penalties or increase premiums.