MC EXPLAINER Why IRDAI wants insurers to appoint an in-house ombudsman and what it means for policyholders

According to IRDAI’s proposal, the move aims to strengthen policyholder protection by improving the speed, transparency and independence of grievance resolution within insurance companies. According to IRDAI data, the current grievance redressal system, which involves insurers’ internal grievance redressal officers (GROs) and external ombudsmen, is increasingly overwhelmed. In FY24 alone, the 18 external insurance ombudsman offices received over 52,575 complaints, many of which faced delays due to inadequate capacity and lengthy processes. The IO model is intended to be more independent than GROs but faster and more accessible than external escalation.

Who will the IO be, and how will they function?

Under the proposed framework, each insurer will be required to appoint at least one IO, selected from among retired or senior professionals with experience in legal, consumer affairs or insurance. The key criteria, according to ex-IRDAI member and current independent director of TATA AIA Nilesh Sathe, is that the ombudsman must not report to the CEO or MD but instead to a board-level committee or the chairperson directly. This structural design ensures they can make impartial decisions. The ombudsman will review complaints that are either fully or partially rejected by the GRO before a final decision is conveyed to the customer. The IO’s decision will be binding on the insurer, though the customer will still retain the right to escalate the matter to the external ombudsman or to court.

How is this different from the existing ombudsman system?

India already has a government-appointed external redressal system, which is the Insurance Ombudsman Scheme, administered through 17 offices under the Council for Insurance Ombudsmen. This external ombudsman is completely independent of the insurer and acts as the official authority for customer complaints. However, Sathe said, “The IRDAI is of the view that the volume of cases and limited infrastructure has led to long resolution timelines.” The IO, by contrast, sits within the insurer’s organisation but operates with a defined layer of independence. While the GRO is part of the operational team, the IO is a quasi-independent authority whose decision is binding on the insurer. The IO also allows for faster turnaround and aims to resolve grievances before they leave the insurer’s ecosystem.

How will IRDAI ensure independence and prevent bias in IOs?

To preserve impartiality, IRDAI has built multiple safeguards into the draft guidelines. The IO must not report to any operational executive and must be structurally placed under a board-level committee or the chairperson. Their remuneration, though paid by the insurer, cannot be linked to performance metrics or internal reporting lines. Insurers are required to provide the IO with adequate resources and infrastructure to operate independently. Additionally, the IO must submit quarterly reports to the board and periodic updates to IRDAI. Sathe added that it is unclear at the moment if these reports will be disclosed to the public. Importantly, the insurer cannot override the IO’s decisions. These safeguards are designed to ensure that despite being part of the insurer’s ecosystem, the IO functions as an unbiased authority focused on fair grievance redressal.

What kinds of complaints will the IO handle?

The internal ombudsman will handle complaints involving insurance claims or policy servicing issues, provided the customer has first approached the insurer and either received a negative response or no response. The IRDAI in its proposal noted that the IO will have jurisdiction over cases involving claims of up to Rs 50 lakh, across both life and general insurance categories. However, complaints involving allegations of fraud, misrepresentation or criminal conduct will remain outside the IO’s purview and continue to be addressed by courts, law enforcement agencies or the external ombudsman system, Sathe clarified.

How will the grievance redressal process change for consumers?

Currently, policyholders must first approach the insurer’s GRO and, if unsatisfied, escalate the matter to the external ombudsman or move court. Under the proposed framework, insurers will be required to refer any complaints they intend to reject, whether fully or partially, to the IO before finalising their response. This effectively inserts an additional layer of redressal within the insurer, offering policyholders another opportunity for their complaint to be reviewed fairly and independently. The IO is required to provide a decision within 30 days. The final communication to the policyholder must include the IO’s decision as well as details of the option to escalate externally if needed.

What would be the role of the insurers?

Insurers will be responsible for setting up the processes that would enable the IO to operate independently. The ombudsman must have direct access to case files, systems and customer history without interference. To ensure long-term effectiveness, IOs will also be empowered to make recommendations for process improvements wherever recurring complaints reveal systemic weaknesses. Their performance and complaint-handling statistics will be regularly reviewed by both the insurer’s board and IRDAI.

What is the implementation timeline?

The draft guidelines are currently open for feedback until August 17. After reviewing suggestions from insurers, consumer groups and other stakeholders, IRDAI is expected to finalise the regulations by Q3FY26. All insurers will then be required to comply with the framework and appoint IOs by December 31, 2025. This gives companies a window of four to five months to make all the structural changes required.

What are the potential challenges in implementing this?

According to experts, while the proposal by IRDAI is consumer-friendly and well-intentioned, its on-ground implementation may pose practical challenges, especially for smaller players. The pool of retired professionals with legal, insurance or consumer affairs backgrounds, and without prior affiliations that could create conflicts of interest, is relatively limited, they said. Additionally, insurers will need to restructure their internal grievance redressal workflows to integrate the IO as a mandatory checkpoint before rejecting any complaint. This could involve reengineering processes, setting up dedicated review systems and retraining grievance teams, all of which will take time and resources.