Govt Changes Insurance Dispute Rules, Protects Interests Of Policyholders


To facilitate speedy and cost effective resolution of complaints regarding deficiencies in insurance services, the Centre stated amendments to the Insurance Ombudsman Rules.

The new rules enlarge the scope of complaints to Ombudsmen from mere disputes between insurers and the insured to deficiencies in service on the part of insurers, agents, brokers and other intermediaries.

Under the new rules, the Council for Insurance Ombudsmen will take over the duties of the Executive Council of Insurers. In a significant move, the new rules bring insurance brokers within the ambit of the Ombudsman.

The change in the rules comes after a parliamentary panel had indicated last year that the dispute resolution and complaint redressal mechanism in form of insurance ombudsmen required change as it was loaded in favour of the insurers and not the insured.

A senior official of the department of financial services said under the new rules, the timeliness and cost-effectiveness of the mechanism had been substantially strengthened in favour of those buying insurance policies. Policyholders can now file complaints digitally with the Ombudsman and a complaints management system will be created to enable them to track the status of their complaints online.

To facilitate dispute resolution, the Ombudsman can use video-conferencing facility for hearings. “The amended rules don’t just create a structure but will also ensure securing the independence and integrity of the Ombudsman selection process, while also building in safeguards to secure the independence and impartiality of the appointed persons while serving as Ombudsmen,” the official said.

The selection committee for ombudsmen will now include an individual with a track record of promoting consumer rights or advancing the cause of consumer protection in the insurance sector.

Reacting to the notification, a Mumbai-based insurance firm owner said the rules, for the first time, bring specific insured-friendly changes such as providing an online management system for submission and tracking of complaints to Ombudsmen.

Why Government Changed The Rules?

The Department of Financial Services under the Ministry of Finance had set up a panel to review the Insurance Ombudsman Rules, 2017.

The Lok Sabha’s Committee on Subordinate Legislation on September 22, 2020, stated that according to a 2017-18 annual report of the insurance regulator IRDAI, 74 per cent of the complaints made to the insurance ombudsman were adjudicated as non-acceptable and non-maintainable. The report stated that the 17 insurance ombudsman centres had a large number of pending cases. This was due to do insufficient staff strength hindering timely disposal of complaints against insurance companies.

The parliamentary panel had observed that the ombudsman rules were inadequate to carry out the objectives of the Insurance Regulatory and Development Authority Act, 1999, to protect the interest of policyholders or the insured.

The Department of Financial Services then had acknowledged the deficiencies in the rules, and expressed its willingness to review and suitably amend the rules. The panel had recommended that the department should complete the review and amend the law within three months.

Conflict Of Interest

The parliamentary committee had also expressed serious concerns over conflict of interest in the role played by the ombudsman. The committee had flagged that the ombudsmen failed to create a right balance between the protecting the interests of policyholders and insurers.

The report flagged that the Executive Council of Insurers — that plays a major role in appointment of ombudsmen and formulation of policies — is dominated by the insurers as of the nine members of the council, seven are from the insurance industry.

In a scathing remark, the parliamentary panel’s report had said, “The committee gathers an impression that depict insurance ombudsman as an agent of insurers leading to conflict of interest in the discharge of his/her duties to act impartially, fairly and independently in protecting the interests of the policy holders.”