It was a curious case of lightning striking twice and a reprieve the third time around as far as Sujata Sengupta was concerned. Two different insurance companies, A and B, rejected her application on medical grounds while a third insurer, C, within days of the second rejection, gave her the all-clear and sold her a life insurance cover for Rs 35 lakh.

The common factor in the two companies that rejected her — the examining doctor.

She became convinced that the doctor had taken an inexplicable dislike to her. Sengupta was shopping for medical and life insurance and had crossed the age of 45, which meant that a medical test was mandatory to process her application. However, as a mid-level career woman who led an excess-free life, she was confident of a clear chit.

Sengupta’s suspicion about the doctor’s bias was confirmed after she showed the medical report from Company B — which mentioned hypertension and an unnamed heart condition — to a neutral cardiologist. The latter said that there was nothing in her ECG report to merit such a conclusion.

Sengupta’s case highlights some interesting issues related to health check ups and disclosures when applying for life or medical insurance policies or both. For example, how do insurance companies safeguard against biases or errors in medical tests? What is the disclosure policy of insurance companies when a report is negative? And how does rejection by one company affect the insurance buyer who applies to another company?

Before going on to the answers, here’s how the business of insurance works. Insurance, as ICICI Prudential Life Insurance senior vice-president Poonam Bhardwaj puts it, is “about pooling risk”. Insurance companies aim to underwrite — cover a risk — successfully so that the ratio of collective large claims is less than the combined small premiums collected by any company. A fund should have enough money to pay out claims and still be profitable. That is the mantra for a successful balancing act.

A health check up is one of the criteria by which insurers determine the premium or the annual fee that a client pays for an insurance policy. In general, medical tests are not necessary below the age of 45. The premium is linked to factors such as age, fitness, the medical history of the client and that of his or her family, which may include hereditary conditions such as heart disease or diabetes, and risk factors such as smoking and drinking.

The good news is that irrespective of what turns up in the tests, insurance cover will be given in most cases after excluding an existing illness from the scope of the insurance policy. Pre-existing conditions that increase the chance of future disease are also left out of the cover. But the norm is that after two or more (the period depends on the company) claim-free years, everything is covered in medical insurance, says insurance consultant P.C. Narasimhan.

In the case of medical insurance, companies may either decide to increase the premium if tests reveal illness or disease or retain the normal premium since the exclusion factor comes into play.

Most insurance companies stress that the percentage of rejection is very low. For instance, Kotak Life Insurance puts it at less than 2 per cent and ICICI Prudential Life Insurance even lower — under one per cent. “We reject an application only if it is a ‘highly substandard’ life,” says Bhardwaj, citing those with a cardiac artery bypass graft or uncontrolled diabetes or those who indulge in excessive smoking.

Companies like ICICI have insurance plans even for systemic ailments such as hypertension or kidney problems if there is complete disclosure of information by the customer.

Insurers vary in their approach to sharing customers’ health reports with them. Some do it for a small fee. Others don’t. In some instances, depending on the kind of cover, the report is sent directly by the empanelled clinic to the customer who paid for the test as required by the insurance company. The reports can bring to light hidden conditions, errors in interpretation of data and also enable a customer who has been rejected to take up the issue with the insurance company.

“If the client insists on a medical report, we provide it to him free of cost post underwriting. These reports are sent directly to the clients and not through our life advisors to maintain confidentiality,” says M.G. Murlidhar, chief operating officer, Kotak Life Insurance.

Kotak Life Insurance also does a trend analysis of the reports being received from centres. It carries out “discreet checks / mystery shopping” to find out if the medical centres are following specified practices. “Based on the findings, we take necessary action. At times, it could even result in the suspension of centres following unethical practices,” adds Murlidhar.

Besides, most companies such as ICICI Prudential, Kotak Life Insurance and HDFC Standard Life have feedback and helpline mechanisms for aggrieved customers. In case of a rejection, Kotak’s medical team or chief medical officer will explain the reasons for the decision. “Sometimes our clients get their doctors to speak to us and the decision is either explained or reversed,” Bhardwaj adds.

But what do you do if your application for medical or life insurance has been rejected before? Do you disclose that fact or do you suppress it when you go to another company to buy insurance cover? “Life insurance companies look carefully at the box ticked ‘rejected’. They will then enquire about the grounds for rejection and call for more tests,” says Narasimhan.

Industry insiders agree that a full disclosure is always advisable. “Non-disclosure of a material fact is a no-no. It is better to be up front and go for exclusion,” Bhardwaj believes.

Murlidhar seconds this. “We respect and honour disclosure of a previous rejection.” Even if a customer has been rejected before, Kotak Life Insurance sends him for a medical examination and determines the risk as per its underwriting policies. “So it is possible that even if a proposal has been declined by another company, it may still be considered by us as per our guidelines,” says Murlidhar.

What if you do not disclose that your application for an insurance cover has been rejected before? Insurance companies can’t really do much about it. “It is difficult for insurers to prove that incorrect information was given at the time of application, in order to repudiate a claim,” says Narasimhan. However, though they cannot share clients’ medical reports with each other at the time of processing applications owing to a confidentiality clause, insurance companies can share information at the claims stage. The Life Insurance Council also has CEOs and senior insurance professionals who meet to discuss the “decline life database” — a database of applications for life insurance that have been rejected.

Reinsurers — companies that insure insurance companies — also share data. A reinsurer may cover several insurance companies, which may cross-reference information related to large or multiple policies from one claimant. “Copies of health check up reports are shared with reinsurers along with our recommendation,” says Metilda Stanley, head, operations, underwriting and claims at HDFC Standard Life.

Finally, was Sengupta being paranoid about bias or is it possible that doctors can be subjective? Sengupta would be consoled by what Bhardwaj has to say. Bhardwaj suggests that subjectivity could be an issue in her case if the doctor was the same in both rejections. “Maybe the doctor was trying to go by the results of the first treadmill test and did not want to show a different result.”

For now, Sengupta is bracing for her fourth round of tests: blood, urine, ECG, treadmill — the works. Having got “life” she still has to get “health”. “Rest assured, I am fighting fit,” she says.