IRDAI’s draft regulations on insurance policies

The Insurance Regulatory and Development Authority of India (IRDAI) has recently unveiled Draft regulations on insurance policies under the title “Protection of Policyholders’ Interests and Allied Matters of Insurers Regulations, 2024.

About Protection of Policyholders’ Interests and Allied Matters of Insurers Regulations, 2024:

• The IRDAI formulated these regulations under the authority vested in it by the Insurance Act, 1938, and the IRDA Act, 1999.
• The genesis of these regulations is the result of collaborative efforts between IRDAI and Insurance Councils, facilitated by the Regulations Review Committee (RRC).
• The RRC, entrusted with consolidating various regulations, proposes a unified framework to safeguard policyholders’ interests and address matters related to insurers.
• It consolidates eight separate regulations into a unified and comprehensive framework.
• The draft consolidates provisions from multiple regulations, streamlining various aspects such as:
  • Manner of Receipt of Premium (2002)
  • Places of Business (2015)
  • Fee for registering cancellation or change of nomination (2015)
  • Fee for granting written acknowledgement of receipt of Notice of Assignment or Transfer (2015)
  • Issuance of e-Insurance Policies (2016)
  • Outsourcing of Activities by Indian Insurers (2017)
  • Protection of Policyholders’ Interests (2017)
  • Insurance Advertisements and Disclosure (2021)
• The consolidation of eight regulations under one roof will reduce the complexity in compliance for all the stakeholders.

Key Proposed Changes

Free Look Period Extension:

• The draft suggests extending the free look period for all life insurance policies to 30 days from the date of receipt of the policy document.
  • A free look period is a time when an insurance policyholder can review the policy and cancel it without paying surrender charges.

Bank Details Collection:

• In order to facilitate electronic transmission of refunds and payment of claims, the insurer must gather the insured’s bank account information during the proposal stage.

Mandatory Nomination:

• No life insurance policy can be issued without obtaining a nomination.
• Nomination provisions for general and health insurance policies are also introduced.

Electronic Policy Issuance:

• Insurance policies meeting defined criteria can be issued in electronic form.
• Policies provided in electronic format shall be accompanied by measures to ensure data privacy.

Advertisement Regulations:

• The filing requirement for advertisements with the Authority is dispensed with, promoting flexibility in marketing strategies.

Opening of Place of Business

• No prior approval is required for insurers meeting specified criteria.
• Foreign branches, including offices at the International Financial Services Centre Authority (IFSCA), can be opened by insurers with a specified solvency ratio, profitability in 3 out of 5 years, and a satisfactory track record.

Outsourcing Reporting Requirement

• Reporting requirements for outsourcing are dispensed with, and insurers are mandated to make necessary disclosures in their annual reports.

Preventing unfair business practices:

• Insurers must prevent mis-selling and unfair business practices.

Grievance redressal:

• Every insurer must have a system for registering and addressing grievances in each of its offices.

Challenges to insurance sector from policyholders’ perspective:

• Insurance penetration: The IRDAI report indicates that insurance penetration in India stands at 4% of its GDP.
  • This marks a decrease from 4.2% of the GDP in FY 22 to 4% of the GDP in FY 23.
• The problem stems from challenges such as low awareness, limited understanding of products, complex processes, low affordability of products, lack of trust, delay in claim settlements and inadequate distribution channels.
• Issues such as high premiums and the imposition of an 18% GST on insurance premiums, coupled with challenges related to mis-selling due to insufficient awareness and knowledge about coverage, pose concerns in the insurance sector.

About Insurance Regulatory and Development Authority of India (IRDAI):

• IRDAI is a statutory body set up under IRDA Act, 1999.
• Objectives include protecting policyholders’ interests, fostering organized growth in the insurance sector, maintaining high standards of integrity, ensuring prompt claim settlements, preventing fraud, promoting fairness and transparency in financial markets, and encouraging self-regulation.
• IRDAI is implementing initiatives such as Bima Sugam, Bima Vahak, and Bima Vistaar, among others, to realize its vision of achieving ‘Insurance for All’ by the year 2047.

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