Assess whether savings-cum-insurance policies suit customers’ needs before issuing them, says IRDAI

IRDAI's new master circular on protection of policyholders' interests spells out claim settlement and grievance redressal turnaround timelines

In a bid to address criticism around inability to curb mis-selling practices in the life insurance sector, the Insurance Regulatory and Development Authority of India (IRDAI) has reiterated the need to assess the suitability of savings-cum-life-insurance policies for policyholders before concluding the transactions.

Ascertain suitability to curb mis-selling

“Assessment of suitability for life insurance is required to be done in case of savings related life insurance products and annuity products, except those annuities purchased from proceeds of National Pension System (NPS) and from employer offered superannuation fund,” the IRDAI said in its master circular on the new policyholders’ protection regulations, originally issued in March 2024.

It has directed insurers and distributors who source these policies to obtain details such as the need (of policyholders) for buying insurance, income and affordability, policyholders’ needs that the policy will fulfill, expected benefits and so on. Also, these should be confirmed by prospective policyholders and concerned salespersons involved in the transaction. “Based on the information obtained from the prospect, the insurer or distribution channel, as the case may be, shall recommend a suitable products meeting the needs of the prospect. Such need analysis shall be documented and copy of the same is provided to the prospect and copies of such need analysis shall be part of the policy document,” the circular says.

Insurers allowed to appeal against ombudsman orders

As per Insurance Ombudsman Rules, 2017, the orders of these quasi-judicial bodies were binding on insurers. However, now, the master circular states that the insurance companies can choose to appeal against awards passed by insurance ombudsman offices within 30 days. These offices adjudicate complaints involving amounts of up to Rs 50 lakh. 

Insurance companies have to comply with the awards within 30 days, and failure to adhere to this rule will invite a penalty of Rs 5,000 per day for each day of delay. “(However), this provision will not be applicable in case insurer chooses to appeal against the award of the Insurance Ombudsman within 30 days. In such case, due intimation shall be sent to the policyholder,” the circular says. Insurance industry officials who spoke to Moneycontrol on the condition of anonymity said that the change in rules was not in policyholders’ interests as it could prolong the grievance redressal processes.

Also read: Disappointed that some of our key suggestions on policyholder protection were not taken on board, says IBAI chief

Timeline for 14 days for grievance resolution

Insurers have to acknowledge customer grievances immediately and resolve them within 14 days, along with reasons for not admitting the complaint, specifying the terms and conditions of the policy applicable in such cases. Aggrieved policyholders can track their complaints through IRDAI’s Bima Bharosa portal. They can also access details of any unclaimed amounts through this website.

Also read: Claim rejection citing 'unreasonable' treatment costs a key cause of heartburn 

Death claims to be settled within 15-45 days

The IRDAI has asked life insurance companies to settle death claims that do not require investigation within 15 days, while claims that involve investigations ought to be settled within 45 days. “In case the claim is not settled within the specified timelines, then the claimant is entitled for interest at bank rate plus 2 percent from the date of receipt of intimation till the date of payment. Such interest shall be paid by the insurers suo moto along with the claim amount,” the circular says.

Timelines for processing health insurance proposals, claims

Insurance companies will have to process applications to purchase within seven days. They will also have to, in the case of cashless claims, grant final authorisation within three hours of the receipt of discharge intimation from the hospital. “In no case the policyholder shall be made to wait to be discharged from the hospital. If there is any delay beyond three hours, the additional amount, if any, charged by the hospital shall be borne by the insurer from shareholder's fund,” the circular said. Reimbursement claims will have to settled within 15 days from the date of claim submission.