What do the proposed insurance colour codes by IRDAI mean?

RDAI, India’s insurance regulatory authority, has proposed to colour-code insurance polices. It can help you choose the right policy for yourself.

What do the proposed insurance colour codes by IRDAI mean

Purchasing insurance can seem daunting, especially when you’re not familiar with the terms of the policy. This can result in a lot of disappointments, especially when you make a claim. Because of this, the Insurance Regulatory and Development Authority of India (IRDAI) has proposed that all insurance companies categorise their policies to have three distinct colour codes to let consumers know how easy or difficult the policy is to navigate.

What is the insurance policy colour-coding system?

The colour-coding system proposed by IRDAI sticks to the same three simple colours as a traffic signal for easy recognition: red, orange, and green. Each insurance policy is evaluated on a number of parameters, based on which they are given a score that fits into one of the three colour codes. A green colour code means that the policy is easy to understand, an orange colour code implies it is moderately complex, and a red code means there are a significant number of exclusions and conditions, and you need to go through the fine print carefully before deciding on the policy.

Related: Insurance cover for COVID-19 in India 

How exactly will insurance companies grade their insurance policies?

Insurance policies will be rated on eight unique aspects – the number of permanent exclusions, percentage of copay, the number of add-ons, deductibles, waiting period in months, the range of treatments covered, procedures or diseases to which sub-limits are applicable, and finally, simplicity of terms and conditions. Each parameter is assigned an equal weightage of 14.28% in the overall score. 

Here’s an example of how the scoring is done is: 0.15 points are added to the score for every month of waiting period, with a maximum of 6 points. If there are multiple waiting periods for different illnesses in a policy, the longest waiting period is considered for the score. The weighted average score of all the parameters is then taken into account, and this is the overall score for the insurance policy in question. An overall score of 0-2 will result in a green colour code, 2-4 will result in an orange colour code, and 4-6 will result in a red colour code being assigned to the policy.

One thing to note is that the colour coding applies to only individual policies and not group policies, so you will not be able to  benefit from colour coding if you're shopping for an umbrella insurance policy for your family.

Related: How to switch from group health to individual health insurance

Last words

Since this is just a proposed move, it hasn’t officially come into effect yet. It is part of a number of moves by IRDAI to increase the level of trust and understanding in insurance companies in India. The colour-coding is still in the draft stage, and it might be a while before it becomes a widely-implemented rule – but it is a big step forward in a sector where people are often intimidated by the technical language that is often present in insurance documents. Things to note when purchasing health insurance during COVID-19 pandemic


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