In 2022, insurance disputes accounted for a significant 27 per cent of cases in consumer courts, revealing the pervasive challenges within the industry. Out of a staggering 578,000 cases pending in consumer courts, over 161,000 were linked to the insurance sector.
Acknowledging the urgency of the situation, the Department of Consumer Affairs urged insurance companies to adopt measures ensuring consumer protection. The recommendations centred on simplifying policies, transparently stating exclusions and minimising multiple customer hearings, fostering expeditious case resolutions.
Dissatisfied customers of insurance companies have various redressal avenues. The internal grievance system is the initial step, followed by recourse to the office of the ombudsman. The customer, however, if dissatisfied with the order, can appeal to other consumer fora and the courts against the order. There is provision for an arbitration clause in almost all the policies. This clause provides only for quantum disputes. It does not envisage taking up admissibility of a claim, which would in effect involve interpretation of terms and conditions.
Favouring arbitration over dispute redressal
Recently, the Insurance Regulatory and Development Authority of India (IRDAI) made substantial modifications to the prevalent arbitration clauses, distinguishing between retail and commercial policies. Notably, the arbitration clause was entirely removed for retail policies. For commercial, the amendment allows parties to mutually agree on a separate arbitration agreement. This leaves the issue of arbitration open ended, raising concern about potential complications arising due to the multiplicity of agreements designed by insurers and customers.
On the other hand, if there is no agreement entered into, the only recourse would be to take it to the courts, which are already burdened with increasing number of cases. When the attempt is to increase the use of arbitration as a favoured method of dispute resolution, this action would create an opposite effect.
For existing policies, the original arbitration clause remains unchanged, unless the policyholder explicitly requests the application of the new clause. Policies issued after the circular’s implementation automatically adopt to the revised provisions. Insurers are mandated to promptly inform customers of these alterations.
An internal ombudsman in each company
This regulatory adjustment is prompted by a Supreme Court reference seeking IRDAI’s input on an arbitration clause dispute. The matter is scheduled for a hearing before the court, highlighting the significance of the issue.
In a parallel initiative, to fortify the ombudsman system, which aims for cost-effective and rapid grievance redressal, IRDAI has proposed the establishment of internal ombudsmen within insurance companies. They will be appointed by the company but operate independently from the internal grievance system, reporting administratively to the MD/CEO and functionally to the board.
The ombudsmen will serve for a fixed term of three years, with the option for renewal for one additional term. Their remuneration is determined by the respective companies. They will facilitate settlemens through agreement, reconciliation or mediation and their decisions are binding on the company. Dissatisfied customers can still pursue other fora for redressal.
Customer awareness increases complaints
In the fiscal year 2022-23, a total of 55,946 complaints were registered across all 17 insurance ombudsman offices, showcasing a rising trend. This can be attributed to heightened awareness. The regulatory interventions, along with the proposed internal ombudsman system, aim to enhance customer confidence, imperative for market growth and increased penetration.
While the fate of arbitration in insurance disputes rests on the Supreme Court’s decision, the recent regulatory changes may pose challenges for consumers. However, the introduction of internal ombudsmen is a positive stride, providing consumers with an additional avenue for addressing their grievances. The evolving landscape signals a dynamic shift, reflecting efforts to balance consumer protection and industry sustainability.
