Insurance & Reinsurance 2020 Comparisons

Last Updated January 20, 2020

Contributed By Tuli & Co

Law and Practice

Authors



Tuli & Co was established in 2000, in association with Kennedys of London, to service the Indian insurance industry. Tuli & Co currently has offices in New Delhi and Mumbai but has working relations with other firms in all major centres in India; in addition to which, it relies upon a network of associated offices worldwide to service international cases. The firm’s focus on the insurance industry propogates a deep understanding of the legal, commercial and regulatory issues clients face. The firm’s primary aim is to provide clear, commercially aware and pragmatic advice, working in partnership with clients. Tuli & Co offers a “cradle to grave” service within the insurance sector, from drafting and revising policy wordings, interpretation and handling of coverage disputes, to setting up distribution and service networks and providing industry specific corporate and commercial advice.

The primary legislation regulating the Indian insurance sector comprises of the Insurance Act 1938 (Insurance Act) and the Insurance Regulatory and Development Authority Act 1999 (IRDA Act).

The Marine Insurance Act 1963 has its basis in the UK Marine Insurance Act 1906. Though the Marine Insurance Act primarily regulates marine insurance, the Indian courts (in a manner akin to the courts in the UK) have extended some of the principles of the Marine Insurance Act to non-marine insurance contracts.

Indian courts are constitutionally mandated to follow the precedent system, which is based on the doctrine of stare decisis, so far questions of law are concerned. The lower courts are bound to follow the decisions of the courts above them in the hierarchy. The decisions of the Supreme Court of India are, therefore, bidding on all lower courts. However, it is not uncommon to see conflicting decisions.

Insurance and reinsurance companies and insurance intermediaries in India are governed by the Insurance Regulatory and Development Authority of India (IRDAI). Pursuant to the powers granted to it under the IRDA Act, the IRDAI has issued various regulations for governing the licensing and functioning of insurers, reinsurers and insurance intermediaries.

The Indian insurance sector is highly regulated. The regulations issued by the IRDAI govern a wide range of aspects, including:

  • registration of Indian insurers;
  • the assets and solvency margins required to be maintained by insurers;
  • issuance of capital;
  • manner of preparation of financial statements;
  • commission/remuneration structures;
  • outsourcing arrangements; and
  • registration requirements and corporate governance norms for companies operating in the insurance sector.

The regulations issued by the IRDAI govern all insurers, that is:

  • life insurers;
  • general insurers;
  • stand-alone health insurers; and
  • reinsurers.

In addition, the IRDAI regulations govern all insurance intermediaries:

  • insurance brokers;
  • corporate agents;
  • web aggregators;
  • third-party administrators;
  • surveyors and loss assessors; and
  • insurance marketing firms.

Further, the Foreign Exchange Management (Insurance) Regulations 2015 (FEMA Insurance Regulations) regulate the manner in which a person resident in India (that is, a person who has been residing in India for more than 182 days in the preceding financial year) can take or continue to hold a general insurance or a life insurance policy issued by an insurer outside India.

The Reserve Bank of India (RBI) has also issued the Master Direction – Insurance of 1 January 2016 (as amended), which consolidates the foreign exchange regulations and provides guidelines on various issues, including issuing policies, collecting premiums and settling claims with respect to general, life and health insurance policies. Under the Master Direction, a person resident in India may take, or continue to hold, a health insurance policy issued by an insurer registered outside India, provided the aggregate remittance including the amount of premium does not exceed the limits prescribed by the RBI under the Liberalised Remittance Scheme (LRS) from time to time.

Under the Insurance Act, an Indian insurance company is permitted to carry on insurance business in India. An Indian insurance company is a public limited company formed under the Companies Act 2013, which exclusively carries on life insurance business or general insurance business or health insurance business or reinsurance business. An entity desirous to carry on insurance business is required to apply for a certificate of registration from the IRDAI in accordance with a three-stage process set out under the IRDA (Registration of Indian Insurance Companies) Regulations 2000, as amended (Registration Regulations).

A certificate for registration is required for each category of insurance business (ie, life, general, standalone health and reinsurance). In addition, the Registration Regulations also set out the essential requirements that an applicant applying for registration is required to fulfil, including, but not limited to:

  • permissible foreign investment limits;
  • ownership and control;
  • minimum capitalisation requirements;
  • minimum qualifications of the directors and principal officers;
  • planned infrastructure; and
  • general track record of conduct and performance of each of the Indian promoters and foreign investors in the business or profession they are engaged in.

The applicant must also provide adequate documentation in support of its application as prescribed under the Registration Regulations.

The Insurance Act also permits the establishment of foreign reinsurer branches and setting up of service companies under the Lloyd’s India framework. The IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers Other than Lloyd's) Regulations 2015 (Branch Office Regulations) prescribe that a foreign reinsurer is required to apply for registration of a foreign reinsurer branch. The Branch Office Regulations specify the eligibility criteria of a foreign reinsurer, such as credit rating, infusion of minimum assigned capital into the foreign reinsurer branch, in-principle clearance from home country regulator, and commitment to meet all liabilities of the foreign reinsurer branch. In addition, syndicates of Lloyd’s may participate under the Lloyd’s India framework (Syndicates of Lloyd’s India) through a service company set up in India in accordance with the IRDAI (Lloyd’s India) Regulations 2016 (Lloyd’s India Regulations).

Premiums received on account of insurance and reinsurance business attract applicable taxes, including goods and services tax. Income tax laws provide deductions to the policyholder on life and health insurance premiums paid.

Overseas, non-admitted insurers cannot write direct insurance business in India. As a general rule, the purchasing of insurance from overseas insurers by Indian residents is prohibited in India, unless the purchase falls within the general or specific approval of the RBI.

However, Indian residents are permitted to purchase health insurance policies from overseas insurers provided the aggregate remittance (including premium) does not exceed the limits prescribed by the RBI under the LRS from time to time. Indian residents are also permitted to purchase insurance policies in respect of any property in India or any ship, vessel or aircraft registered in India with an insurer whose principal place of business is outside India only with IRDAI’s prior permission. 

Non-admitted insurers who have registered with IRDAI as cross-border reinsurers can write reinsurance of Indian risks from overseas in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business.

The overarching regulatory framework for the reinsurance of risks is laid down by the IRDAI (Re-insurance) Regulations 2018 (Reinsurance Regulations). The guiding principle is maximising retention within India, so each insurer must maintain the maximum possible retention commensurate with its financial strength and volume of business. The IRDAI can require an insurer to justify its retention policy, and can give such directions as may be required to ensure that the Indian insurer is not merely fronting for a foreign insurer.

Insurers must comply with various requirements provided by the Reinsurance Regulations, including filing:

  • the reinsurance programme, along with the insurer’s retention policy;
  • a catastrophe modelling report with the basis for the catastrophe protection purchased by the insurer for the perils covered;
  • board approved underwriting policy of the insurer;
  • every new reinsurance arrangement entered into by the insurer; and
  • reinsurer-wise details of actual placements made for each insurance segment.

Fronting is defined under the Reinsurance Regulations to mean a process of transferring risk in which an Indian insurer cedes or retro-cedes most of or all of the assumed risk to a re-insurer or retrocessionaire. The Indian regulatory framework prohibits reinsurance arrangements that result in the Indian insurer fronting for reinsurers.

The insurance sector has, in recent years, been abuzz with the news of new players looking to acquire stakes in insurance companies and insurance intermediaries. While such restructuring involves a complicated process in itself, the approval requirements stipulated by the IRDAI, additionally extend the process. Sections 35, 36 and 37 of the Insurance Act prescribe the procedure for obtaining the approval of the IRDAI for amalgamation and transfer of insurance business of insurers. The IRDAI has also notified the scheme rules which prescribe the procedure which is required to be complied with by insurers for the purpose of amalgamations and transfer of business.

The parties are required to prepare a scheme which sets out the agreement under which the transfer or amalgamation is proposed to be effected, and containing such further provisions as may be necessary for giving effect to the scheme. Two months prior to making an application to the IRDAI for the approval of such scheme, a notice of intention to make such application is required to be sent to the IRDAI, along with a statement of the nature of transaction and the reasons thereof and four certified copies of the following documents:

  • a draft of the agreement or deed under which it is proposed to effect the amalgamation or transfer;
  • balance sheets in respect of the insurance business of each of the insurers concerned in such amalgamation or transfer;
  • a report on the proposed amalgamation or transfer, prepared by an independent actuary who has never been professionally connected with any of the parties concerned in the amalgamation or transfer in the preceding five years;
  • actuarial reports and abstracts in respect of the insurance business of each of the insurers; and
  • any other reports on which the scheme of amalgamation or transfer was founded.

The Insurance Act, therefore, lays down, the manner in which approval of the IRDAI may be sought, the documents required as well as the pre and post approval actions required to be complied with by the parties.

In addition to the foregoing, pursuant to the powers conferred under Section 37A of the Insurance Act, the IRDAI also has the power to prepare a scheme of amalgamation of an insurer with another insurer, where the IRDAI is satisfied that such an amalgamation is necessary in the public interest, in the interest of policyholders, in order to secure the proper management of an insurer or in the interest of insurance business of the country as a whole.

Transfer of amalgamation of business of an insurer without the approval of the IRDAI is also a ground for suspension of certificate of an insurer as issued by the IRDAI.

Recently, HDFC ERGO General Insurance Company Limited and Apollo Munich Health Insurance Ltd have been merged. In addition, Star Health and Allied Insurance Company Ltd has been recently taken over by a consortium of investors.

Insurance intermediaries must obtain licences or certificates of registration under the specific regulations applicable to them. The IRDAI has issued regulations setting out the licensing or registration requirements and procedures for all recognised intermediaries, including insurance agents, corporate agents, brokers, surveyors, third-party administrators, web aggregators, insurance repositories and insurance marketing firms.

Individual Insurance Agents

An application for a licence as an individual insurance agent has to comply with the conditions provided under the Insurance Act and regulations notified by the IRDAI in this regard. Individual agents are required to have completed practical training and possess the requisite knowledge for soliciting insurance business before applying for a licence. Individual agents are expected to only engage in insurance distribution services and are permitted to solicit business for only one insurance company engaged in each class of insurance business.

Corporate Agents

Entities eligible to operate as corporate agents include firms, banks, non-banking financial companies, co-operative societies, NGOs and companies. Corporate agents are permitted to engage in any other business as its main business other than insurance distribution. However, if a corporate agent has a main business other than insurance distribution, the corporate agent is not permitted to make the sale of its products contingent on the sale of an insurance product, or vice versa. Corporate agents are allowed to have arrangements with a maximum of three insurers in each class of insurance business.

Insurance Brokers

Insurance brokers are required to exclusively carry on the distribution of insurance products. Any company, limited liability partnership or co-operative society may apply to the IRDAI for grant of an insurance broker certificate of registration. Applicants can register as direct brokers, reinsurance brokers, or composite brokers (involved in both direct and reinsurance broking). The minimum capital for direct brokers is INR7.5 million (circa USD104,627), INR40 million (circa USD558,012) for reinsurance brokers and INR50 million (circa USD697,515) for composite brokers. All insurance brokers are required to be part of the Insurance Brokers Association of India.

Insurance Marketing Firms

Entities that are licensed as insurance marketing firms are permitted to distribute insurance products along with mutual funds, pension products and certain other financial products, provided that permissions are in place to distribute those financial products from the respective regulator. IMFs are required to have a minimum capital of INR1 million (circa USD13,950). They are also permitted to undertake survey functions through licensed surveyors on its rolls, policy servicing activities, and other activities which are permitted to be outsourced by insurers under the applicable regulatory framework.

Web Aggregators

An entity such as a company or a limited liability partnership that is registered as a web aggregator is permitted to display on its website information on insurance products of those insurers with whom the web aggregator has entered into an agreement. The web aggregator is also permitted to display product comparisons on its website, carry out activities for lead generation and share leads with insurers. A web aggregator is required to have a minimum capital of INR2.5 million (circa USD3,4875).

POSP

The IRDAI has issued guidance for the appointment of a Point of Sales Person (POSP) for solicitation and servicing of point of sale products on behalf of life, general and health insurers. A POSP may be appointed by either an insurer or an insurance intermediary. The entity engaging the POSP is required to train the POSP and conduct an in-house examination of such POSP, in accordance with the norms issued by the IRDAI.

MISP

The IRDAI has recently notified the Guidelines on Motor Insurance Service Providers (MISP Guidelines) to regulate the role of automobile dealers in the distribution and servicing of motor insurance products. Pursuant to the notification of the MISP Guidelines, a duly registered MISP is permitted to solicit, procure and service motor insurance policies for insurers or insurance intermediaries, as the case may be, in accordance with the provisions of the MISP Guidelines.

All policies contain insuring clauses, general conditions, exclusions and definition sections. The insuring clause, exclusions and definition wording depend on the type of policy being issued and cover requested, though the conditions are fairly standard in that they will include notification, co-operation, consent, changes in material risk and other insurance clauses.

These clauses can be deleted or modified by way of endorsements.

In both general insurance and life insurance policy terms and conditions, it is compulsory to include references to:

  • the insurer's grievance redressal mechanism; and
  • the right of the insured to approach the Insurance Ombudsman, along with contact details of the nationwide Insurance Ombudsman network.

Insurance contract wording is highly regulated.

The former Tariff Advisory Committee (TAC), a statutory body that was established under the Insurance Act, issued a standard form of policy terms and conditions relating to fire, marine (hull), motoring, engineering, industrial risks and workmen compensation, which cannot be deviated from by insurers.

The guidelines on product filing procedures for general insurers provides for the classification of all products on the basis of their customer base into either "commercial" or "retail" and allows for file and use (where the product receives prior IRDAI approval) and use and file (where the product is launched first and approved by the IRDAI in due course) of general insurance products. Further, the guidelines for product filing for health insurance products provide for the classification of products into either "individual" or "group" and allow for the file and use or use and file of the products (as applicable). In addition, for health insurance policies, the IRDAI has specified a standard set of definitions, standard nomenclature for critical illness, and a standard list of generally excluded expenses. The IRDAI has also specified a number of regulatory requirements and conditions for health insurance policies, making these policies highly regulated.

In addition, all condition precedents and warranties must be stated in express terms in the policy documentation. Further, all product literature is required to be in "simple language" and "easily understandable to the public at large", and all technical terms used in the policy wording must be clarified to the insured.

There are also extraneous rules that impact policy terms. For example, the Insurance Act gives the policyholder a right to override contrary policy terms in favour of Indian law. The IRDAI (Protection of Policyholders' Interests Regulations) 2017 (Policyholders Regulations) prescribe certain terms to be incorporated into life insurance, general insurance and health insurance policies. For life insurance policies, the IRDAI requires insurers to include, inter alia:

  • the name and unique identification number (UIN) allotted by the IRDAI for the product governing the policy, its terms and conditions; name, code number and contact details of the person involved in sales process;
  • whether it is participating in profits or not, and whether it is linked or non-linked;
  • the manner of vesting or payment of profits such as cash bonuses, deferred bonuses, simple or compound reversionary bonuses;
  • benefits payable and the contingencies upon which these are payable and the other terms and conditions of the insurance contract;
  • the name and age of nominee(s) and the relationship and the name of the guardian in case of minor nominees;
  • details of riders being attached to the main policy;
  • date of commencement of risk, the date of maturity and the date(s) on which survival benefits, if any, are payable;
  • the premiums payable, frequency of payment, grace period allowed for payment of the premium, the date of last instalment of premium, the implication of discontinuing the payment of an instalment of the premium and also the provisions of guaranteed surrender value;
  • the details of revival schemes provided for reviving a lapsed policy and requirements to be submitted for a revival; the insurers must use the term "revival" which is currently used for renewing a lapsed insurance policy;
  • the name, address, date of birth and age of the insured as at the date of commencement of the policy;
  • the policy conditions for:
    1. conversion of the policy into paid up policy;
    2. surrender;
    3. foreclosure;
    4. non-forfeiture; and
    5. discontinuance provisions in the case of linked policies;
  • the contingencies excluded from the scope of the cover, both in respect of the main policy and the riders;
  • the provisions for the nomination, assignment, loans on security of the policy and a statement that the rate of interest payable on such a loan will be as prescribed by the insurer at the time of taking the loan;
  • any special clauses, exclusions or conditions imposed on the policy;
  • the address and e-mail of the insurer to which all communications in respect of the policy must be sent;
  • the notes to the policyholder highlighting the significance of timely notification to the insurer of any changes to their address;
  • details of the insurer's internal grievance redressal mechanism, along with the address and contact details of the insurance ombudsman within whose territorial jurisdiction the branch or office of the insurer or the residential address or place of residence of the policyholder is located;
  • the list of documents that are normally required to be submitted by a claimant in case of a claim under the policy.

For general insurance policies, insurance companies are required by the Policyholders Regulations to incorporate inter alia:

  • the name(s) and address(es) of the insured and of any banks or any other persons who are financially interested in the subject matter of the insurance, the UIN of the product, name, code number and the contact details of the person involved in sales process;
  • full description of the property or interest insured;
  • location or locations of the property or interest insured under the policy and, where appropriate, the respective insured values;
  • period of insurance;
  • sums insured;
  • risks covered and not covered;
  • any franchise or deductible applicable;
  • premium payable and where the premium is provisional subject to adjustment, the basis of the adjustment of the premium must be stated;
  • policy terms, conditions, warranties and exclusions, if any;
  • action to be taken by the insured upon occurrence of a contingency likely to give rise to a claim under the policy;
  • the obligations of the insured upon occurrence of an event giving rise to a claim and the rights of the insurer in the circumstances;
  • any special conditions attaching to the policy;
  • the grounds for cancellation of the policy which, in the case of a retail policy, for the insurer, can be only on the grounds of misrepresentation, non-disclosure of material facts, fraud or non-co-operation of the insured;
  • the address of the insurer to which all communications in respect of the insurance contract should be sent;
  • the details of the endorsements and add-on covers attaching to the main policy;
  • that, on renewal, the benefits provided under the policy and/or terms and conditions of the policy including premium rate may be subject to change; and
  • details of the insurer's internal grievance redressal mechanism along with the address and contact details of the insurance ombudsman within whose territorial jurisdiction the branch or office of the insurer or the residential address or place of residence of the policyholder, is located.

For health insurance policies, insurance companies are required by the Policyholders Regulations to incorporate, inter alia:

  • the name of the policyholder and the names of each beneficiary covered, UIN of the product, name, code number and contact details of the person involved in the sales process;
  • date of birth of the insured and corresponding age in completed years;
  • the address of the insured;
  • the period of insurance and the date from which the policyholder has been continuously obtaining health insurance cover in India from any of the insurers without break;
  • the sums insured;
  • the sub-limits, proportionate deductions and the existence of package rates, if any, with a cross reference to the concerned policy section;
  • co-pay limits, if any;
  • the pre-existing disease waiting period, if applicable;
  • specific waiting periods as applicable;
  • deductible amounts (both general and specific), if any;
  • cumulative bonus, if any;
  • frequency of payment of the instalments of the premium;
  • policy period;
  • policy terms, conditions, exclusions, warranties;
  • action to be taken on the occurrence of a claim for cashless and reimbursement options separately;
  • details of TPA, if any are engaged, their address, toll free number and website details;
  • details of the insurer's grievance redressal mechanism;
  • free look period facility and portability conditions. That is, a facility that allows a policyholder to cancel the policy within the "free look" period if the policyholder is not satisfied (for any reason) with the policy. Portability conditions are conditions applicable to porting a policy from one insurance company to another;
  • policy migration facility and conditions where applicable;
  • that, on renewal, the policy could be subject to certain changes in terms and conditions including a change in the premium rate;
  • provision for cancellation of the policy; and
  • address and other contact details of the ombudsman within whose territorial jurisdiction the branch or office of the insurer or the residential address or place of residence of the policyholder is located.

Where exclusions are to be stipulated in the policy, the Policyholders Regulations require that, wherever possible, insurers must endeavour to classify the exclusions into the following:

  • standard exclusions applicable in all policies;
  • exclusions specific to the policy which cannot be waived; and
  • exclusions specific to the policy, which can be waived on payment of an additional premium.

Similarly, to give clarity and understanding of the conditions to the policyholder, insurers are also required to try to broadly categorise policy conditions into the following:

  • conditions precedent to the contract;
  • conditions applicable during the contract;
  • conditions when a claim arises; and
  • conditions for the renewal of the contract.

The requirements to disclose material information as listed out above applies uniformly to consumer contracts as well as commercial contracts.

It is fundamental principle of insurance law that utmost good faith (Uberrimae Fide) must be observed by the contracting parties. The Indian Marine Insurance Act 1963 and the Policyholders Regulations mandate that an insured is under an obligation to disclose all material information sought by the insurer in the proposal before the inception of the policy. An insurer is therefore entitled to receive full and fair disclosure of the material information that would influence the judgement of the insurer in determining whether to accept or reject the risk. The insured’s duty to disclose is not confined to the facts which are within his knowledge but, extends to all material information which the insured ought to have known. The duty of good faith is of a continuing nature.

An insurer is entitled to receive fair presentation of the risk. If there is a misrepresentation or non-disclosure of a material fact, the insurer has the right to avoid the policy ab initio. Unless the misrepresentation or non-disclosure was fraudulent, the premium must be returned to the policyholder. In case of life insurance policies, the policy cannot be called into question on any grounds (including fraud) after the completion of three years from the date of the issuance or the revival of the policy.

An insurance intermediary involved in the negotiation of contract is required to recommend insurance to a prospect taking into consideration the needs of the prospect. Intermediaries are expected to act in the interest of policyholders.

Insurance is a contract of indemnity. Though insurance is a contract, in order to be a valid insurance contract it should have something more than what is general required under a normal contract as per the Indian Contract Act, 1872. It is not sufficient for an insurance contract that the contracting parties should have capacity to contract, a person entering into a contract of insurance must also have insurable interest in the subject-matter of the contract. The element of insurable interest must be present in all types of insurance, failing which it would simply be a wagering contract that would be void.

An insurance contract is required to contain certain mandatory clauses as enumerated in 6.1 Obligations of the Insured and Insurer.

The norms in relation to mandatory disclosures, as specified in 6.1 Obligations of the Insured and Insurer, are also applicable to group insurance policies where multiple beneficiaries are covered under a single policy.

The reinsurance regulations issued by the IRDAI define a contract of reinsurance as a legally binding document on all the parties that provides a complete, accurate and definitive record of all the terms and conditions and other provisions of the reinsurance contract. Reinsurance arrangements do not need to be pre-approved by the IRDAI, but they need to be documented and filed with the IRDAI within the stipulated time period.

ART has recently been recognised in India by way of the Reinsurance Regulations. The Reinsurance Regulations stipulate that an Indian insurer intending to adopt ART solutions, shall submit such proposals to the IRDAI. The IRDAI shall, after necessary examination and on being satisfied with the type of ART solution, may allow the ART proposal on a case to case basis. The Reinsurance Regulations do not expressly set out the benchmarks on which the IRDAI shall examine these proposals.

Per the directions of the IRDAI issued in 2004, any ART arrangement has to be accounted for based on the principle of “substance over form”. If the agreement is in the nature of re-insurance coupled with financing arrangement, and the components are capable of separation, each element should be accounted for as per the Generally Accepted Accounting Principles (GAAP).

However, in cases where the aforesaid components are not separable, the entire arrangement should be treated as a financial transaction and should be accounted for accordingly. All non-life insurers are required to account for the ART arrangements by looking into the “substance over form”, and account for the same as per the GAAP.

Indian Courts while interpreting the Insurance contracts have held that while construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not permitted for the Court to add, delete or substitute any words. It has also observed that, because upon issuance of an insurance policy the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed in order to determine the extent of the liability of the insurer.

The general rule is that, where the contract is expressed in writing, oral evidence is inadmissible to explain or vary the terms of a written contract. Although a contract must always be construed according to the intention of the parties, that intention can only be ascertained from the instrument itself and all other evidence of intention is excluded because, when an agreement is reduced to writing, the parties thereto are bound by the terms and conditions of it.

In the event that any policy provision is ambiguous or there is uncertainty as to the meaning or intention of the provision then, the same is to be construed contra proferentem, that is against the insurer.

Warranties are the clauses which forms the basis of the contract of Insurance. All warranties under an insurance policy must be strictly complied with, whether material to the risk or not. If a warranty is breached, an insurer is discharged from all liability under the policy.

Usually, an insurance policy will expressly state the provisions which are condition precedent to liability. If any condition precedent has been breached then, the insurer has the right to repudiate the claim. However, in the event it is not expressly stated then, the Indian Courts will make efforts to decide whether a particular clause is merely a condition or a condition precedent to the insurer’s liability.

Insurance policies are structured to incorporate comprehensive mechanisms for dispute resolution both in respect of coverage and quantum disputes. Insurance policies typically include details of the Insurance Ombudsman, who are appointed to address complaints by the insured, inter alia in relation to the settlement of claims.

The Insurance Regulatory and Development Authority of India (IRDAI) requires insurers to formulate a grievance redressal policy and file it with the IRDAI. An insurer is also required to provide the details of the grievance redressal mechanism within the policy. Policyholders who have complaints against insurers are first required to approach the grievance or customer complaints department of the insurer.

Insurers are required to necessarily form a part of the Integrated Grievance Management System (IGMS) put in place by the IRDAI to facilitate the registering/ tracking of complaints on-line by the policyholders. In cases of delay or no response relating to policies and claims, the IRDAI can take up matters with the insurers to ensure speedy resolution. While policyholders, claimants or the insured can approach the IRDAI for assistance, however, advocates, agents and other third parties are not allowed to approach the IRDAI. Regulations formulated by IRDAI inter alia stipulate obligations, that insurers follow certain practices at the point of sale of the insurance policy to ensure that the insured can understand the terms of the policy properly.

Insureds have no exclusive judicial venues available to them for resolution of insurance or reinsurance disputes. Insureds however are treated in law as consumers of insurance services and therefore can approach the Consumer Courts for relief. Insureds can also approach commercial courts, civil courts or invoke arbitration to claim monies for recovering monies under an insurance policy.

The Consumer Protection Act, 1986 lists insurance as a service and provides for a three-tiered consumer forum, which can hear insurance disputes. The Consumer Courts usually follow (in ascending order) District, State and National Consumer Dispute Redressal Commission. There are 629 District Consumer Dispute Redressal Commissions, which can accept claims up to a value of INR10 million (circa USD140,000) and 35 State Consumer Dispute Redressal Commission that can accept claims over INR10 million (circa USD140,000) and up to a value of INR100 million (circa USD1.4 million) and also appeals against the order of the District Commissions. At the apex lies the National Consumer Dispute Redressal Commission which accepts matters with a value exceeding INR100 million (circa USD1.4 million) and appeals against the decisions of the State Commissions. An appeal from the decision of the National Commission lies before the Supreme Court of India. The consumer fora follow a summary procedure to ensure quick adjudication of disputes.

In the recent years, Indian law has significantly carved out ways to settle disputes over coverage and claims by way of alternative dispute resolution mechanisms by adding arbitration clauses in the policy itself.

The limitation period for making an insurance claim is three years from the date of rejection of the claim by an insurer or from the date on which the claim arose.

Indian Courts are increasingly enforcing the choice of law and jurisdiction made by parties in a contract. Party autonomy is respected save where public interest issues are involved. Where an express choice of law and jurisdiction has not been expressed in a contract, Indian Courts will usually apply conflict of law principles to determine the forum and law which is closest to the dispute. Even in case of Arbitration, a similar approach has been followed, and Courts are increasingly refusing to intervene in matters where the parties have decided that the seat of arbitration will be in a foreign jurisdiction. India is a signatory to the New York convention for enforcement of foreign awards.

The Civil Court and Consumer Courts in India have a three-tiered hierarchy. The Consumer Courts usually follow (in ascending order) District, State and National Consumer Dispute Redressal Commission. Proceedings before the Consumer Courts are summary in nature. This means that no cross examination of witness’s takes place and the dispute is adjudicated based on the documents filed and arguments led by the parties.

The broad ascending hierarchy of the Civil Courts too is similar. This comprises circa 600 District Courts, 24 High Courts and the Supreme Court (highest court in India). Amongst 24 High Courts, four are termed Charter High Courts (ie, Calcutta, Madras, Bombay and Delhi High Courts) which have original jurisdiction to accept and hear matters which fall above certain pecuniary thresholds, exempting the District Courts from hearing these matters due to a higher pecuniary limit. The rest of the District Courts have unlimited pecuniary jurisdiction, as do the competent Courts of first instance to hear any insurance dispute falling under their territorial jurisdiction. There is no right to a hearing before a jury in India, as the jury system has been abolished and the cases are heard and decided by the judges.

Trials before the Civil Court follow the usual process of pleadings, evidence and arguments as in other common law jurisdictions and can take an unusually long time to conclude.

In addition, the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act 2015 ("Commercial Courts Act 2015"), carves out special benches in all existing civil courts which will adjudicate commercial matters exclusively. There are fixed timelines that all commercial courts need to follow and the legislation is meant to speed up the adjudication process. The Commercial Courts originally had jurisdiction over disputes having a value of INR10 million (circa USD393,914). This was changed recently to a minimum pecuniary threshold of INR300,000 (circa USD4,125). The amendment also mandates compulsory mediation before a suit is instituted, save such cases where urgent relief is required to be obtained. Proper mechanisms and infrastructure to facilitate mediation, however, are yet to be set up. Appeals against the orders of the Commercial Courts of first instance lie before the Commercial Appellate Courts or the Commercial Appellate Division of the concerned High Court (as the case may be), and the Commercial Courts Act 2015 does not allow for any further appeals from the orders of either the Commercial Appellate Court or the Commercial Appellate Division of a High Court. Commercial Courts have the jurisdiction to hear insurance and reinsurance matters.

Indian litigation is slow and time consuming. The number of reported pending cases is close to circa 30 million. Attempts to clear the backlog have not yielded the desired results, even though the inception of Commercial Courts expedited the trial process. Overall no consistent improvement has been noticed.

The Indian Code of Civil Procedure, 1908 (CPC), lays down the procedure for enforcement of Indian and foreign judgments. The basic principles which are followed while enforcing a foreign judgment or decree in India is to examine if the foreign judgment or decree is a conclusive one, passed on the merits of the case and by a superior court having competent jurisdiction. Furthermore, a foreign judgement can be enforced in India by filling an execution petition under Section 44-A of the CPC, if the judgement is passed by a court in a reciprocating territory. In case of a judgement passed by a court in a non-reciprocating territory, a suit may be filed upon the foreign judgement or decree. To add, in such situations the foreign judgement is considered evidentiary.

While filing the execution application the original certified copy of the decree along with a certificate from the superior court stating the extent to which the decree has been satisfied or adjusted has to be annexed to the application.

The process of enforcement of judgments can also prove to be slow.

Arbitration clauses are enforceable and most courts will enforce the arbitration clause or agreement unless the existence of the arbitration agreement is disputed. The Supreme Court of India has also carved out seven categories of dispute which are considered non-arbitrable. In addition, disputes involving serious allegations of fraud are also considered to be non-arbitrable.

The Indian Arbitration and Conciliation Act 1996 (ACA) is based on the UNCITRAL model law. The ACA preserves party autonomy in relation to most aspects of arbitration, such as the freedom to agree upon the qualification, nationality, number of arbitrators, the place of arbitration and the procedure to be followed by the Tribunal. The principle of party autonomy has been consistently confirmed by the Supreme Court in various decisions, including the Constitutional Bench decision in Bharat Aluminium Co v Kaiser (2012).

An arbitration agreement, as per the ACA, needs to be in writing and should be signed by the parties to reflect the intention of the parties to submit their dispute(s) to arbitration. There is no prescribed form required for the purpose of an arbitration agreement. An arbitration agreement can also come into existence if it is contained in a subsequent exchange of letters, telex, telegrams or other means of telecommunication, including communication through electronic means which provide a record of the agreement. An arbitration agreement can also be incorporated by reference. The ACA contemplates arbitration not only between parties who are signatories to the arbitration agreement, but also those "claiming through or under" the signatories to the arbitration agreement.

Furthermore, in relation to domestic arbitration, the ACA bars intervention by the courts except for some specific instances where the courts are allowed to intervene – for example, for interim relief, reference to arbitration when an action has been instituted before the court, for the appointment of arbitrators, where parties have failed to nominate arbitrators within the stipulated time frame and providing assistance in recording of evidence before the arbitral tribunal.

As far as foreign seated arbitration is concerned, the Indian Courts subsequent to the judgment of the Constitutional Bench of the Supreme Court of India in Bharat Aluminium Co v Kaiser have consistently declined to intervene. The ACA was amended in the year 2015 and then again in 2019 and the scope for the Indian Courts to intervene in foreign seated arbitrations stands curtailed save in cases where a party seeks interim relief or in the appointment of arbitrators. 

In recent times there has been an attempt to encourage institutional arbitration and the government has established a corporate body being the Arbitration Council of India to promote institutional arbitration in the country.

India prior to the constitutional bench judgment of the Supreme Court of India in 2012 in Bharat Aluminum Co v Kaiser Aluminum Technical Service, Inc (2012) 9 SCC 552 was not seen as a pro-arbitration jurisdiction. Indian courts habitually failed to enforce arbitration provisions or interfered once the award had been handed down. That dynamic has changed since 2012 and Indian Courts have consistently refused to intervene in arbitrations. The ACA, as amended in 2015 and then again in 2019, reduces the Courts intervention in the arbitration process.

A key dynamic that has assisted in the enforcement of arbitration awards is that an arbitration award is no longer automatically stayed on pronouncement. Prior to the 2015 amendment, the execution of an Arbitration Award was automatically stayed on pronouncement, this meant that the winning party had to wait for one stage of the challenge process to be completed before it could take steps towards execution. After the 2015 amendment the position has changed and there is no automatic stay on an arbitration award. The losing party is now required to obtain a stay on the execution of the award which is granted only after the losing party deposits the entire award sum or a percentage of it in court as security. This has resulted in a quicker execution of arbitration awards.

India is a party to the New York and Geneva Convention, and therefore if the seat of arbitration is a country which is signatory to the New York or the Geneva Convention dealing with recognition and enforcement of foreign awards, Indian courts would be in a position to enforce convention awards. The grounds for refusing enforcement of a foreign award in India are the same as those laid down in the New York Convention. These include:

  • incapacity of parties;
  • violation of principles of natural justice;
  • dispute is not covered by the award;
  • composition of the tribunal is not in accordance with the agreement between the parties;
  • the award has not yet been binding between parties or has been set aside or suspended; and
  • public policy.

In addition, under Indian law, Public Policy is also a ground for refusing enforcement. In the context of a foreign arbitration, the scope of Public Policy this has been watered down to reduce the scope of court intervention.

The Indian law recognises arbitration, mediation and conciliation as means of alternative dispute resolution under the ACA. These modes of dispute resolution are being increasingly adopted, even in insurance and reinsurance disputes.

Section 89 of the CPC sets out the provision for settlement of disputes outside the Court, keeping in mind the delay in legal procedures and the limited number of judges available. Courts in India are now progressively encouraging, parties to explore the possibilities of an out-of-court settlement with a view to end litigation between the parties at an early date. The Courts usually have an in-house mediation centre where experienced senior lawyers are appointed to act as mediators to try and resolve long pending disputes. All proceedings at the mediation centre and settlement discussions are kept confidential from the Court and do not prejudice either party in case mediation fails. In certain circumstances, however, the mediator may file a report before the Court if directed to do so. Parties are of course free to return to the Court process.

The amended Commercial Courts Act 2015 now requires a plaintiff (to a suit) to mandatorily exhaust the remedy of "pre-institution mediation" before it can institute the suit, provided that urgent interim relief(s) are not sought in the Suit.

The consent of the parties is a condition precedent to the reference to the mediation. There are no formal sanctions if proceedings are not followed through to their logical end. However, a dispute falling under the Commercial Courts Act 2015 will not be entertained by the Court if the statutorily required mediation has not been exhausted.

The Policyholders Regulations prescribe the claims procedure that is required to be followed by the insurers to ensure expeditious processing of claims. These regulations, as notified, work towards ensuring that insurers settle the claims on time. Insurers are required to pay interest at the rate of 2% above the prevalent bank rate, in cases where there is delayed payment of the claim amount.

Applications, artificial intelligence, telematics and Internet of Things (IoT) are examples of insurtech which are being utilised by insurers in India for transforming the way insurers do business in India. Some of the examples of use of insurtech are listed below.

  • Indian insurers and intermediaries are partnering with tech companies to develop websites and mobile applications to facilitate the sale and servicing of insurance policies online. Insurers are also collaborating with various tech companies to digitise customer verification, underwriting, premium payment and claims processing functions to automate the policy issuance and claims settlement processes.
  • Health insurers are collaborating with fitness technology firms to track user’s behaviours and offer insurance discounts to those who have a healthier lifestyle. General insurers are collaborating with tech companies to explore IoT solutions to track, inter alia, cargo, theft, hijack attempts and wastage.
  • Indian insurers have started contemplating various ways in which block-chain technology may be implemented to facilitate ease of business and to counteract against insurance fraud and money laundering. It is reported that a consortium of the 15 leading Indian life insurers have partnered with a global technology firm to develop a block chain solution facilitating cross-company data sharing.

The IRDAI has issued various norms to address technological advancements and to regulate insurtech developments. The key regulatory changes are summarised below:

  • With the significant increase in e-commerce transactions over recent years, the IRDAI has recognised the sale and servicing of insurance products online. In addition, the IRDAI has also recognised the issuance of e-insurance policies. The IRDAI has also issued the “Guidelines on Insurance e-commerce” of 9 March 2017 (E-commerce Guidelines), which laid down provisions for setting up Insurance Self-Network Platforms (ISNP) by insurers and insurance intermediaries for undertaking sale and servicing of insurance activities in India. Recently, IRDAI issued the Brokers Regulations, in line with the provisions governing web aggregators, as notified by the IRDAI in 2017. The Brokers Regulations state that a broker can solicit insurance products online and by telemarketing and distance marketing in line with the provisions specified for web aggregators under the applicable laws.
  • To counteract against issues of data privacy and data breach, the IRDAI has notified the “Guidelines on Information and Cyber Security for Insurers” of 7 April 2017 (Cyber Security Guidelines), to stipulate the norms on, inter alia, information asset management, data security, application security, endpoint security, cloud security and incident management, which are required to be complied with by insurers and reinsurers.
  • In addition, the IRDAI has notified the Exposure Draft on "Revisiting the product structure for Motor Own Damage" of 25 November 2019, pursuant to which the IRDAI proposes to recommend that insurers adopt telematics for motor insurance. It is further proposed that a central repository of telematics data be created where data from various sources flows to create a common pool.

We have seen a growing number of cyber insurance covers being issued and claims being made under them. This has also led to an increased requirement for forensic expert analysis for the purposes of assessment of coverage under such policies. This trend is likely to continue in view of the growing cyber risks. However, since the cyber cover is comparatively recent in this jurisdiction, we have not come across any litigation involving cyber policies.

Recently, the Indian insurance industry has seen a wave of new insurance products, partly due to regulatory and/or statutory changes or due to new risks emerging through innovations in other industries. While the industry has been typically slow to immediately adapt and embrace new trends in terms of product offerings, we have seen new products filed in terms of long term insurance covers, telematics based riders, specific endorsements for data protection and impersonation frauds (which even cover the resultant fund transfers) in both cyber and crime insurance, as well as a new range of fitness and wellness focussed products in the health sector.

The IRDAI (Unit Linked Insurance Products) Regulations 2019 and the IRDAI (Non-Linked Insurance Products) Regulations 2019 were issued to replace the erstwhile IRDA (Linked Insurance Products) Regulations 2013 and the IRDA (Non-Linked Insurance Products) Regulations 2013, respectively. The new regulations define the revised norms vis-à-vis the design and issuance of linked and non-linked life insurance policies by life insurers in India.

Recently, the IRDAI has issued the IRDAI (Health Insurance) (Amendment) Regulations 2019 pursuant to which, inter alia, wellness benefits/products and a standard health insurance policy may now be issued by insurers in accordance with the guidelines as may be issued by the IRDAI. Further, the IRDAI has also issued specific norms under the “Guidelines on Standardisation of Exclusions in Health Insurance Contracts” of 27 September 2019, which expressly specify, inter alia, the exclusions that are not allowed under health insurance policies and standard exclusions that may be included in health insurance policy wordings.

The recent years have been significant for the insurance sector as it witnessed the notification of several regulations and guidelines issued by the IRDAI, including:

The IRDAI (Insurance Brokers) Regulations 2018 were issued to replace the previous IRDA (Insurance Brokers) Regulations 2013.

Reinsurance Regulations which are applicable to life, general and health insurers, were issued to replace the IRDAI (General Insurance – Reinsurance) Regulations 2016 and IRDAI (Life Insurance – Reinsurance) Regulations 2013. They also amend to some extent the Branch Office Regulations and the Lloyd’s India Regulations. The Reinsurance Regulations prescribe significant changes to the erstwhile order of preference which Indian insurers were required to follow for placement of reinsurance business. Furthermore, the Reinsurance Regulations also provide that Indian insurers may now adopt alternative risk transfer solutions (also called “financial reinsurance” in life reinsurance business) to fit their specific needs and profile, subject to the prior approval of the IRDAI.

The IRDAI has notified the RS Regulations which aims to facilitate the creation of a regulatory sandbox environment for testing new business models, processes and proposals/applications, to strike a balance between orderly development of insurance sector by facilitating innovation on one hand and the protection of policyholders’ interests on the other. Various insurers have submitted their proposals under the RS Regulations for the IRDAI’s consideration.

In addition, the IRDAI has recently issued the “Exposure Draft on Insurance Regulatory and Development Authority of India (Conflict of Interest) Guidelines, 2019” (Conflict of Interest Exposure Draft), in order to address conflicts of interest arising out of appointment of common directors between insurance companies, insurance company and insurance intermediaries and common promoters of general insurers and health insurers. In this regard, the Conflict of Interest Exposure Draft propose that where conflict of interest arises due to common directors between an insurer and an insurance intermediary within the same group, the Board of Directors of the insurer/insurance intermediary shall formulate a conflict policy. Further, it is proposed that common whole-time directors and independent directors between an insurance company and an insurance intermediary, shall not allowed between entities which are not part of the same group.

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Law and Practice in India

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Tuli & Co was established in 2000, in association with Kennedys of London, to service the Indian insurance industry. Tuli & Co currently has offices in New Delhi and Mumbai but has working relations with other firms in all major centres in India; in addition to which, it relies upon a network of associated offices worldwide to service international cases. The firm’s focus on the insurance industry propogates a deep understanding of the legal, commercial and regulatory issues clients face. The firm’s primary aim is to provide clear, commercially aware and pragmatic advice, working in partnership with clients. Tuli & Co offers a “cradle to grave” service within the insurance sector, from drafting and revising policy wordings, interpretation and handling of coverage disputes, to setting up distribution and service networks and providing industry specific corporate and commercial advice.