Imagine you or a family member gets hospitalised. The disease for which you have been diagnosed is covered under your policy; you should also get this double-checked with the insurer. Your room rent limit is INR 10,000, and you take an INR 8,000 bed. Your overall policy coverage is INR 20 lakhs, and your final bill is INR 15 lakhs. You surely feel you would get the entire INR 15 lakhs coverage, less maybe a few thousand deducted, but ultimately, to your shock, only INR 12 lakhs is approved.
About the author: Jay Sheth, SEBI Registered Investment Adviser and a member of Fee-only India, a group of fixed-fee-only advisors. He can be contacted via his website shwealth.in.
What just happened? You had all bases covered, but still, why was INR 3 lakhs not given by the insurer? This is due to a hidden and powerful clause buried in every insurer’s policy:
“Expenses exceeding the reasonable and customary charges for the locality will not be payable.”
This is called the Reasonable and Customary (R&C) clause — and it can quietly reduce your claim payout, even when everything else seems in order.
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What Exactly Is the R&C Clause?
The R&C clause allows insurers to limit reimbursement to what they believe is the average market cost for a given treatment in that city or region.
For instance:
- If the usual cost for a cataract surgery in Mumbai is ₹35,000,
- But your hospital charges ₹65,000,
- The insurer may cap reimbursement to ₹35,000 + room rent proportion — citing the R&C clause.
Why the Clause Exists
In principle, the clause protects insurers (and indirectly, policyholders) from hospital overcharging. However, “reasonable” is not clearly defined anywhere in the Insurance Regulatory and Development Authority of India (IRDAI) guidelines. Each insurer maintains its own internal database of average costs, which is neither public nor consistent across companies. However, insurers are not always wrong in applying this clause or else hospitals would make merry by getting Clients who have \insurance coverage and overcharging them.
Why This Happens More Often in Metro Cities
Hospitals in cities like Mumbai, Delhi, and Bengaluru often:
- Charge higher rates due to location and overhead costs.
- Bundle consumables or procedure packages differently.
- Bill premium room types that automatically increase surgery costs (since surgeon/OT charges scale with room rent).
- The top 3-5 doctors of each branch of medicine charge exorbitant rates
So, even a fully covered procedure can trigger R&C deductions because the insurer’s benchmark may still be based on “average” mid-tier hospital rates, not the premium ones where many urban families actually go.
How can a client protect himself against this clause
- Take an estimate beforehand from the hospital of your choice. Take quotes from competing hospitals. If one hospital has a very high estimate compared to others, be prepared to be hit by the R&C clause
- Choice of health insurer is critical
- If billing is very high compared to the actual standard, expect every insurer to make a haircut to the claim. However, there are a few insurers who use R&C at every opportunity and others who are very liberal to it.
- Cost of Procedure / Hospitalisation: The larger the bill, the more painful it is for the insurer to make the payout and the more opportunities they would look at cutting corners. There are insurers whose claim settlement ratios vary with the size of the invoice, whereas some insurers have consistent ratios across the size of the invoice
Conclusion
The R&C clause sits in a grey zone: it isn’t illegal, and it helps prevent systemic cost inflation — but it also puts the burden of due diligence on the insured.
Unfortunately, few customers even know such a clause exists until their first claim deduction.
R&C deductions are invisible until the day of billing — and by then, it’s too late.
Before selecting an insurer or hospital, understand how R&C limits could affect you.
Even if you cannot eliminate the clause entirely, you can minimise its bite through careful planning, policy choice, and transparent disclosure.
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