The insurance sector in India is regulated by the Insurance Regulatory and Developmental Authority of India (IRDAI), and there are, in addition, several consumer-centric regulations setting out various practice directions and guidelines to be followed by insurers, reinsurers and insurance intermediaries.

The IRDAI can investigate, either on its own motion or following a complaint or any other information received from policyholders/third parties, any alleged breach by insurers, reinsurers or insurance intermediaries, and the punishment can include a monetary penalty of up to INR10 million (approximately USD123,000) for each breach, resulting directions and/or cancellation of the relevant registration.

Apart from supervisory proceedings before the IRDAI and proceedings before any other regulators, such as the Securities and Exchange Board of India (SEBI), the Competition Commission of India (CCI) or the Central Consumer Protection Authority (CCPA), insurance and reinsurance disputes are generally adjudicated in the following forums.

• Arbitral tribunal – Most commercial general insurance contracts typically used to have a standard arbitration clause where any dispute on quantum – liability already having been admitted – could be referred to arbitration. This position has now changed on account of IRDAI’s circular dated 27 October 2023 by virtue of which the insured and insurer are at liberty to enter into a separate arbitration agreement. See 3.1 Enforcement of Arbitration Provisions in Commercial Contracts for a detailed discussion on this circular.
• Civil courts – Retail general insurance contracts, life insurance and health insurance contracts usually contain a jurisdiction clause in favour of the courts. For commercial general insurance contracts with an arbitration clause, insureds can approach a civil court when the dispute falls outside the scope of the arbitration clause.
• Consumer forums – Insureds can approach consumer forums with the relevant monetary and territorial (if applicable) jurisdiction. The right to approach a consumer forum is an independent option/remedy which cannot be curtailed even by an existing arbitration clause.

Litigation Process

An insured may, depending on the underlying facts, raise a dispute before an arbitral tribunal, an appropriate civil/commercial court or a consumer forum. See 1.3 Alternative Dispute Resolution (ADR) for a discussion on arbitration.

Disputes before a civil/commercial court

The Commercial Courts Act 2015 (the “CCA 2015”) prescribed the constitution of commercial courts for adjudicating commercial disputes of a specified value. The commercial courts have been set up at the district level as well as at the High Court level with the objective of having a more streamlined process for speedier adjudication of commercial disputes. It is mandatory to undergo a pre-mediation exercise before filing a commercial suit.

These courts are, effectively, civil courts with a specific mandate to hear only commercial matters. Insurance and reinsurance have been classified as “commercial disputes” under the CCA 2015. The pecuniary threshold for a dispute to be classified as “commercial” is INR300,000 (approximately USD3,575).

The commercial courts are governed by the Code of Civil Procedure 1908 (CPC) and the CCA 2015. If there is a conflict between the two, the CCA 2015 will generally prevail.

Civil courts in India are divided into district courts, high courts and the Supreme Court, in ascending order of hierarchy. There are approximately 688 district courts, 25 high courts and the Supreme Court, which is the highest court of law in India.

Out of the 25 high courts in India, the high courts at Calcutta, Bombay, Madras, Delhi and Himachal Pradesh have original jurisdiction to decide matters, including commercial matters, where the quantum of dispute is higher than an ascertained pecuniary value and, in relation to Calcutta and Madras, within a designated territorial limit from the High Court. Disputes below the prescribed monetary value would go to the commercial court with appropriate territorial jurisdiction at the district level or an ordinary civil court where the value is lower than INR300,000 (approximately USD3,575).

In all other cases, commercial courts at the district level with the necessary territorial jurisdiction can hear insurance/reinsurance disputes which are valued at INR300,000 (approximately USD3,575) and above. The hierarchy and designations of commercial/civil courts at the district level may be different across states in India.

Disputes before a consumer forum

The consumer commissions have a three-tier hierarchy, with District Commissions at the lowest rung, followed by a State Commission (for every state) and a National Commission at the apex level. District Commissions have the jurisdiction to deal with complaints arising out of contracts for services or goods involving allegations of “deficiency in service”, where the consideration does not exceed INR5 million (approximately USD60,000). For the State Commission, the threshold is over INR5 million up to INR20 million (approximately USD240,000), whereas the National Commission can take up original complaints where the consideration is above INR20 million. The District Commission and the State Commission must also have the necessary territorial jurisdiction. 

Rules on Limitation

Limitation periods are generally governed by the Limitation Act 1963 (the “Limitation Act”), save for the limitation period to approach a consumer forum which is prescribed under the Consumer Protection Act 2019 (the “Consumer Act 2019”).

According to Schedule 55 of the Limitation Act, the limitation period of three years is calculated either from:

• the date of the occurrence causing the loss; or
• the date of denial of the claim under the policy.

Under the Consumer Act 2019, the limitation period is two years instead of three years. 

Some insurance contracts specify timelines to report claims and others require the reporting to be “as soon as reasonably practicable”, both forms of which are typically expressed as conditions precedent to the insurer’s liability. Therefore, the court may refuse to impose liability on account of a delay in notification of a claim, even if some portion of the limitation period still remains available to the insured. 

In situations where a loss has been notified to the insurer, and the claim has been rejected or the policy is avoided, the limitation period of three years will commence from the date of communication of such denial.

Mediation

Mediation, conciliation and arbitration are recognised as ADR mechanisms. High courts and district courts generally have mediation cells and mediation has particularly gained traction following the introduction of the CCA 2015, which makes mediation a prerequisite to bringing a suit.

The Mediation Act 2023 (the “Mediation Act”) was enacted to encourage institutional mediation for dispute resolution in India. While the Mediation Act was given assent by the President of India on 14 September 2023, only a few provisions have been notified at the date of writing.

Arbitration

On the adjudicatory front, arbitration is preferred for commercial disputes and most commercial contracts have an arbitration clause. The Arbitration and Conciliation Act 1996 (the “Arbitration Act”) has been amended over the years with the aim of making arbitration a more effective and attractive alternative to court proceedings.

There are set timelines for completing domestic arbitrations, while in international commercial arbitrations there are guidelines/best practices in relation to timelines.

There is also an option for “fast track” arbitration, where an award may be passed within six months if the requirements are met.

Settlement Outside Courts

Independently, where a court is of the view that there are elements of settlement that may be acceptable to parties before it, it may formulate the possible terms of settlement, take the view of the parties and refer the parties to either:

• arbitration;
• conciliation;
• judicial settlement, including settlement through Lok Adalat; or
• mediation.

This power is derived from Section 89 of the CPC. 

Such reference will require the consent of the parties where such consent/agreement is otherwise required under law, for instance in the case of arbitration. 

Insurance-Specific ADR

Specifically for insurance disputes, the government of India has created the Insurance Ombudsman Scheme, which enables individual policyholders to settle their complaints out of court in a cost-effective and efficacious manner. An aggrieved policyholder can approach the Insurance Ombudsman provided their claim value is under INR3 million (approximately USD36,000).

Retail general insurance, life insurance and health insurance contracts usually contain a jurisdiction clause in favour of the courts. Typically, standardised arbitration clauses were mostly found in commercial general insurance contracts where any dispute on quantum, liability having been admitted, could be referred to arbitration. This position has now changed on account of IRDAI’s circular dated 27 October 2023, by virtue of which the insured and insurer are at liberty to enter into a separate arbitration agreement. See 3.1 Enforcement of Arbitration Provisions in Commercial Contracts for a detailed discussion on this circular.

The enforcement and recognition of foreign judgments and decrees in India are governed by, inter alia, Section 44-A and relevant orders of the CPC. Only a foreign judgment of a superior court of a reciprocating territory, as notified by the government of India, can be enforced before the appropriate court in India.

In this regard, the Indian government has notified several reciprocating jurisdictions, including Bangladesh, the Colony of Aden, the Colony of Fiji, Hong Kong SAR, the Republic of Singapore, the Federation of Malaysia, Myanmar, New Zealand and the Cook Islands, the Trust Territories of Western Samoa, Papua New Guinea, Trinidad and Tobago, the Sultanate of Oman, the UAE and the UK.

Case Load

In India there are about 11,046,037 civil cases pending before various district and lower courts, about 4,354,682 before the high courts and 80,221 before the Supreme Court.

These statistics may not provide a completely accurate current position given that several of these matters may not even be in a position to be heard on account of the parties’ non-compliance.

Nonetheless, it is generally accepted that the disposal rate of individual judges and courts is on the higher side.

Court proceedings in India can often be time-consuming and potentially expensive. The establishment of commercial divisions has somewhat reduced the length of time, but the process is still lengthy and potentially expensive.

Domestic arbitrations have specified timelines for completion. According to Section 29A of the Arbitration Act, arbitration proceedings are required to be completed within 12 months from the date of completion of pleadings (a maximum period of six months for completing pleadings). Parties may, by mutual agreement, extend the 12-month period by another six months. Any further extension can only be granted by a court upon an application by a party.

There are no specific mandatory timelines for concluding an international commercial arbitration (arbitration seated in India with one non-Indian party), but Section 29A of the Arbitration Act states that the tribunal will endeavour to conclude such proceedings within 12 months from the completion of pleadings.

Arbitration-related court proceedings are generally disposed of relatively expeditiously.

There are limited grounds to challenge a purely domestic arbitral award. The grounds available for challenging an award arising out of an international commercial arbitration are further limited, as the ground of “patent illegality” is not available.

Costs of Proceedings

Courts in India refrain from awarding actual costs, and if costs are awarded in court proceedings, they are nominal.

In arbitration proceedings, Section 31A of the Arbitration Act gives the discretion to the arbitral tribunal to award costs to a party. The Arbitration Act defines costs as fees and expenses of the arbitral tribunal and lawyers, administrative fees and any other expenses incurred in connection with the arbitration proceedings. The costs awarded are typically “reasonable costs” as opposed to actual costs.

Indian courts generally strictly enforce arbitration clauses. This position also holds true for insurance and reinsurance contracts.

The seven-judge bench of the Supreme Court in its recent landmark decision in the case of In Re Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899 2023 SCC OnLine SC 1666 overruled the earlier five-judge bench decision of NN Global Mercantile Pvt Ltd v Indo Unique Flame Ltd 2023 SCC Online SC 495 and held that an unstamped instrument containing an arbitration clause is valid and enforceable in law. The Supreme Court has also held that an arbitration agreement is a separate contract, and the invalidity of the underlying instrument does not render the arbitration agreement void. On 27 October 2023, he IRDAI issued a circular directing that all policies issued under the commercial lines of business shall have a mandatory arbitration clause, which stipulates that “the parties to the contract may mutually agree and enter into a separate Arbitration Agreement to settle any and all disputes in relation to this policy”. In case parties mutually agree on an arbitration agreement, then the arbitration proceedings will be conducted as per the provisions of the Arbitration Act. The circular has further deleted arbitration clauses from all polices under the retail lines of business prospectively. For the existing retail policies, the existing arbitration clause shall remain valid until the term of the policy expires unless a policyholder specifically requests the insurer to replace it with the clause mandated by the IRDAI. This also applies to all existing policies issued under the commercial lines of business. 

A two-judge bench of the Supreme Court in another recent landmark decision in the case of Bombay Slum Redevelopment Corporation Private Limited v Samir Narain Bhojwan 2024 SCC OnLine SC 1656 held that the jurisdiction of a court while dealing with an appeal against an order which dealt with a challenge to an arbitral award, is limited to the restrictions provided in the Arbitration Act. The court is restricted from undertaking an independent assessment of the merits of the award and only has to determine if the award is within the scope of Section 34 of the Arbitration Act.

India is subject to the New York Convention as well as the Geneva Convention. Enforcement of an arbitral award rendered in a recognised jurisdiction is governed by Part II of the Arbitration Act.

The party applying for enforcement of a foreign award is required to produce, as evidence, the following:

• the original award or a duly authenticated copy of the award;
• the original arbitration agreement or a duly certified copy of the same; and
• such other evidence as is necessary to prove that it is a foreign award.

Refusal to Enforce a Foreign Award

Enforcement of a foreign award may be refused on any of the following grounds (among others):

• a party to the arbitration is under some incapacity or the arbitration agreement is not valid under the law to which the parties have subjected it or under the law of the country where the award was made;
• no proper notice of the appointment of an arbitrator or of the arbitration proceedings was served, or a party was otherwise unable to present its case;
• the arbitral award is beyond the scope of the arbitration agreement;
• the composition of the arbitral tribunal was not in accordance with the parties’ agreement or the law of the country where the arbitration took place;
• the award has not yet become binding on the parties, or has been set aside or suspended at the seat of the arbitration;
• the subject matter of the arbitration is not arbitrable under the law of India; and
• the enforcement of the award would be contrary to the public policy of India.

Most commercial general insurance contracts typically have a standard arbitration clause where any dispute on quantum, liability having been admitted, can be referred to arbitration. Under such limited arbitration clauses, the insured would be precluded from arbitrating disputes where the claim has been rejected in its entirety as not being covered under the policy or the policy has been repudiated. However, the insured may also choose to approach the consumer forum (if applicable), which is a summary procedure, or the relevant civil/commercial court.

The Supreme Court has recently settled the question of whether corporate insureds can be considered as “consumers” under the Consumer Protection Act 1986 (the “Consumer Act 1986”). The Supreme Court in the case of National Insurance Co Ltd v Harsolia Motors (2023) 8 SCC 362 has held that since insurance contracts are contracts of indemnity there exists no element of profit generation and therefore insurance disputes come within the purview of the Consumer Act 1986.

Applicable Rules

The arbitration clauses must be standardised and the arbitration is governed by the provisions of the Arbitration Act, including in relation to the procedural rules for conducting the arbitration. That being said, an arbitrator/arbitral tribunal, with the consent of the parties, may adopt its own procedural rules for conducting the proceedings as long as such rules are not in contravention of any non-derogable provisions of the Arbitration Act. The Arbitration Act is based on the principles of party autonomy, and the power to determine procedural rules governing the arbitration proceedings is enshrined in Section 19 of the Arbitration Act.

Challenge to an Award

Section 34 of the Arbitration Act provides a party with a right to approach a court to set aside an arbitral award. A court hearing a challenge of an award does not sit as a first appellate court over the decisions of an arbitral tribunal, and therefore, it cannot re-examine the evidence/merits to arrive at a different possible conclusion or finding.

The court’s scope of interference is limited to the grounds laid out in Section 34, which includes incapacity of a party to enter into arbitration, improper notice of arbitration, ultra vires jurisdiction, invalid composition of the arbitral tribunal, a conflict with the public policy of India, and patent illegality appearing on the face of the award. Also, by way of the amendment to the Arbitration Act in 2015, the scope of “public policy” has been narrowed down to include only those instances where:

• the making of the award is fraudulent or corrupt;
• the award is in contravention of the fundamental policy of Indian law; or
• the award is in conflict with the most basic notions of morality or justice.

The scope of interference is further restricted where an arbitral award has been passed in an international commercial arbitration, in which case the ground of “patent illegality”, which includes perversity, is not available.

An application for setting aside an award must be made before the expiry of three months from the date on which the award was received by the party concerned. The courts can entertain the application beyond three months, but within 30 days, if the party concerned is able to demonstrate sufficient cause.

The order by the court under Section 34 of the Arbitration Act can be appealed, under Section 37, to the court with the necessary jurisdiction to hear appeals from the court in question. There is no statutory right to appeal from an order passed under Section 37. However, a party may prefer a special leave petition, under Article 136 of the Constitution of India to the Supreme Court. It is at the discretion of the Supreme Court to entertain such a petition, which it does sparingly.

Under Indian law, there are a number of terms that are implied into a contract of insurance. For instance, even though a policy may not expressly say so, all contracts of insurance are of utmost good faith and insurers are entitled to a fair presentation of the risk before its inception. The duty of utmost good faith places an obligation on the insured to voluntarily disclose all material facts relevant to the risk being insured. If there has been a misrepresentation or non-disclosure of a material fact, then an insurer can avoid the policy from its inception.

Another implied term is the right of subrogation, for which there is also statutory and judicial recognition. While there may not be a need for a separate contractual clause to trigger it, in practice, policies do contain subrogation clauses.

Insurers are entitled to a fair presentation of the risk before a policy’s inception and this entitlement is derived from the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties. This forbids the insured from concealing what they privately know, with a view to drawing the insurer into a bargain based on their ignorance of that fact. Insurers can avoid the policy if there is fraud, misrepresentation or non-disclosure by the insured prior to the inception of the policy.

In the past year, the courts have addressed a significant number of insurance-related issues, particularly in relation to interpretation of insurance policies, disclosure of material facts, and repudiation of claims by insurers on grounds of non-production of documents. There has been a trend towards stricter interpretation of terms and conditions of policies. The Supreme Court has held that the terms of an insurance policy should be strictly construed, without altering the nature of the contract, as it may adversely affect the interest of the parties.

In terms of disclosure requirements for health insurance policies, the Supreme Court has held that if any query or column in a proposal form is left blank, then the insurer should ask the insured to complete it.

On the issue of overlapping insurance policies, the Supreme Court has held that a contract of insurance is one of indemnity. Double insurance is when an insured is indemnified by two or more insurers for the same risk. In instances where the insured has been fully indemnified for the loss by one insurer, the second insurer can decline the claim regarding the same incident.

Insureds in India can:

• resort to the dispute resolution mechanism set out in the policy document (usually arbitration in the context of commercial general insurance contracts);
• approach the internal grievance redressal mechanism of the insurer, the grievance cell of the IRDAI or the insurance ombudsman under the Redress of Public Grievance Rules 1998 (depending on the nature of the grievance); or
• initiate formal legal proceedings against the insurer before the consumer protection forums or the Indian civil courts.

Reinsurance contracts are also contracts of insurance and, therefore, the position on these is the same. In fact, the CCA 2015 defines a commercial dispute as including both insurance and reinsurance over the value of INR300,000 (approximately USD3,575).

By operation of law, an insured can approach a consumer forum, inter alia, in relation to any claim against an insurer in India. This forum can be approached independently of any right that the insured may have under the policy terms, including its right to initiate arbitration proceedings.

The consumer courts follow a summary procedure, which does not usually involve detailed evidence or cross-examination of witnesses. The fee for filing a complaint before a consumer forum is also nominal, as opposed to before a civil court, where the fee is ordinarily determined based on the claim amount.

There is no equivalent law in India of the UK Third Parties (Rights Against Insurers) Act 2010. As a general rule, Indian law recognises the principle of privity of contract and consequently, a third party may not be able to bring a direct action or claim against an insurer.

That being said, it is common practice for third parties to name the defendant’s insurer in motor accident-related proceedings. The Motor Vehicles Act 1988 (MVA) provides that the rights of an insured under a policy are transferred to a third party claiming against the insured in the event of the insured’s insolvency. The MVA empowers the Motor Claims Tribunal to seek the insurers’ involvement in a third-party action against the insured if the tribunal believes the claim is collusive or if the insured fails to contest the claim. However, Section 164 of the MVA limits the insurer’s liability concerning third-party insurance with effect from 1 April 2022 in the following terms:

• in the case of death, INR500,000 (approximately USD6,000); and
• in the case of grievous hurt, INR250,000 (approximately USD3,000).

There are presently no limits on the insurer’s liability in cases of permanent disability or minor injury.

Insurance bad faith does exist in India, but it is not expressly codified. Both the insurer and the insured are required to disclose material information to each other, and insurers cannot avoid reasonably clear liability by acting in bad faith or by resorting to unfair trade practices.

There is also a separate constitutional duty on government insurers to act in a fair and reasonable manner before and after inception of the insurance policy.

The IRDAI (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations 2024 (the “PPHI Regulations 2024”) requires insurers to set their own timelines for making a claim payment, and while no specific penalty has been set out under the PPHI Regulations 2024, insurers will be expected to deal with this matter in their respective board-approved policy. In addition, there are other civil penalties which can also be imposed on insurers, including damages for breach of contract, compensation for deficiency in service, etc.

The Consumer Act 2019 has also introduced a centralised agency called the Central Consumer Protection Authority (CCPA). The CCPA has wide powers, including the power to initiate investigations and impose sanctions and penalties as may be required and allowed in the circumstances.

The relationship between an insured and a broker is that of a principal and agent. An insurance broker is an agent of the insured and whether a representation made by a broker is binding or not would depend on whether the broker was authorised by the insured to make such a representation. In the absence of such authorisation, it is unlikely that representation made by the broker will be binding on the insured. It is pertinent to note that as the insured signs the proposal form, the insured must bear all the consequences arising out of the form.

The PPHI Regulations permit Indian insurers to outsource activities that would usually be undertaken by the company internally, subject to the prescribed compliance requirements being fulfilled, and provided that the activities proposed to be outsourced do not fall within the ambit of the defined “core activities”. Broadly, Indian insurers are prohibited from outsourcing product design, underwriting, claim handling or actuarial functions to a third-party service provider, as these activities form a part of the company’s core functions.

In terms of delegating underwriting or claims handling to external parties, an Indian insurer is prohibited under Section 21 of the IRDAI’s “Master Circular on Allied Matters of Insurers of 19 June 2024” from outsourcing “decision making in underwriting and claims”.

Professional indemnity (PI), directors’ and officers’ liability (D&O), errors and omissions (E&O), employment practice liability (EPL) and cyberliability policies are examples of the types of policies that provide cover for defence costs incurred by insureds provided that the policy terms and conditions are satisfied.

There is unlikely to be change in this area of the law in the next few years.

There is familiarity and demand for liability insurance, and over the past five years there has been a steady upward trend in claims made under PI policies. It remains the busiest claims area, followed closely by D&O. In fact, PI and D&O claims make up at least half of the total claims that this firm has seen being made under liability policies.

Not only has there been an upsurge in the frequency of claims, but there has also been a sharp increase in the quantum being claimed by the insureds under liability policies, which means that claim severity is also on the rise.

PI and D&O claims are likely to continue to make up the largest share of claims. There is also likely to be a rise in EPL – while previously claims were usually made in other jurisdictions, a number of claims have recently been made in India, with high-value settlements demanded.

The cyber-insurance sector is also seeing increasing interest and development in terms of the wording and post-claim support being offered by insurers, reflecting the increase in claim notifications and related quantum. This is specifically because of the remote working environment introduced by the COVID-19 pandemic.

An insured can avail of protection against its costs risks for third-party claims under different types of insurance policies, including PI, public liability, D&O, EPL, E&O and product liability policies.

Under the principles of subrogation, the insurer has the same right as the insured to recover a loss from the third party responsible for the loss/the wrongdoer.

Subrogation applies in all types of insurance, except life insurance and personal accident insurance. The right of subrogation has been recognised by statute under Section 79 of the Marine Insurance Act 1963 (the “Marine Insurance Act”) and case law, including Economic Transport Organization v Charan Spinning Mills Ltd ((2010) 4 SCC 114), where the Supreme Court classified subrogation into three broad categories.

Subrogation by Equitable Assignment

This is not evidenced by a document. It is based on the insurance policy and the insured receiving the claim amount. The insured cannot deny the equitable right of subrogation, even if there is no written evidence to support it.

Subrogation by Contract

This is evidenced by a document. The court recognises that insurers usually obtain a written letter of subrogation to avoid disputes about the right to claim reimbursement, or to settle the priority of claims between them or confirm the reimbursement amount under the subrogation, and to ensure the insured’s co-operation. If the insured executes a letter of subrogation, the insurer’s rights against the insured are governed by its terms.

Subrogation-cum-Assignment

The insured executes a letter of subrogation-cum-assignment. This enables the insurer to retain the entire amount recovered and sue in the name of the insured or in its own name if the letter so provides. The insured is then left with no right or interest and can no longer sue in its own name and for its own benefit.

A subrogation right cannot usually be waived. However, in some cases, the insurer and insured can agree to waive subrogation entirely, or in relation to specific individuals/entities.

The right of subrogation has been recognised by statute under Section 79 of the Marine Insurance Act and the insurer can exercise this right in the name of the insured.

Claims have been received by insurers in India where the insured has claimed for business interruption losses on account of the COVID-19 pandemic and the consequent lockdowns. However, since such policies require there to be a physical loss which, in turn, results in business interruption losses, the claims of insureds have often been rejected.

Currently, there are no authoritative rulings specific to claims of business interruption losses stemming from COVID-19-related disruptions.

As stated in 7.1 Type and Amount of Litigation, there are presently no authoritative rulings on whether the COVID-19 pandemic and/or the lockdowns would amount to a physical loss, thereby enabling the consequent claim of business interruption. It is difficult to predict, particularly given the stage of the pandemic, whether any such ruling will be available in the next 12 months.

Unlike the Financial Conduct Authority business interruption insurance test case in the UK, there has been no test case in India. However, the COVID-19 pandemic did give rise to business interruption claims under property insurance policies. In some cases, insurers have denied liability for COVID-19 notifications on the basis that material damage to property is a prerequisite for an indemnifiable claim for business interruption, and the COVID-19 pandemic did not cause any physical damage or loss to the insured property.

Due to the COVID-19 pandemic, several regulatory changes were also introduced by the insurance regulator with the aim of stabilising the insurance market and securing the protection of policyholders’ interests. In this regard, with a view to furthering the business continuity of Indian insurers and other insurance entities, and ensuring proper service to policyholders, the IRDAI issued directions on, inter alia, the handling of COVID-19 claims, extension of grace periods for premium payments, relaxation of regulatory timelines and expeditious servicing of insurance policies.

Factors such as the war in Ukraine and the pandemic have made insurers a lot more cautious about the risk they are taking. Premiums have been revised to take account of potential losses, and the coverage afforded has been under review.

The Indian insurance industry is a relatively new market compared to various global markets. As a result, the industry is still considered to be in a relatively nascent stage of development, particularly for various lines of insurance products which have recently been introduced in India. In relation to these products, the insurer’s underwriting is derived, to some extent, from global claims experience, in the absence of specific Indian claims experience.

The IRDAI has recently introduced the IRDAI (Corporate Governance for Insurers) Regulations 2024 (the “CG Regulations”), which require all insurers (including FRBs and Lloyd’s India) to have a board/executive committee-approved ESG framework and monitor ESG activities. However, these regulations do not provide any specific guidance in terms of any activities to be undertaken, the contents of the ESG framework or reporting/disclosure requirements.

Recently, the Indian market has witnessed an increase in the volume as well as the quantum of claims reported, due to various ESG factors. Additionally, there has been a significant increase in premiums, particularly for life and health insurance, attributed to adverse mortality and morbidity rates, experienced in large part as a result of the COVID-19 pandemic.

Broadly, the norms on data security and confidentiality in India arise from statutory law, that is, the Digital Personal Data Protection Act 2023 and the Information Technology Act 2000. In addition, certain similar norms under the Indian insurance regulatory framework are set out under the PPHI Regulations and the IRDAI Guidelines on Information and Cyber Security of 24 April 2023, which essentially place an obligation on insurers and insurance intermediaries to maintain the confidentiality of data. However, these norms also permit disclosure of data, after obtaining consent from the data owner, and remain subject to requirements to maintain data security and other similar requirements.

Typically, in terms of market practices in India, it is understood that gaining the express consent of customers would allow insurers to disclose information to concerned entities, despite the existence of the confidentiality requirements under the statutory and regulatory framework. For this purpose, it is a common practice for insurers to request such consent in the initial proposal forms, which are signed by customers at the time of proposing/purchasing insurance. For capturing consent, insurers generally incorporate a broadly worded consent provision as part of the declaration under these forms. Thereafter, once the consent of the proposer/applicant is captured, this data is typically shared with reinsurers for their own underwriting and claim settlement purposes.

Furthermore, in terms of litigation, considering that the Indian data protection framework is in a nascent stage and the provisions set out under the current statutory framework are limited, there do not appear to have been any significant disputes of note concerning data protection in the insurance industry at the time of writing.

The Indian insurance sector is highly regulated and there have recently been many significant regulatory developments in the sector. Some of these developments are listed here.

• The IRDAI has notified the IRDAI (Registration, Capital Structure, Transfer of Shares and Amalgamation of Insurers) Regulations 2024, which consolidate and repeal the erstwhile norms in relation to registration, permitted capital structure, transfer of shares and amalgamation of insurers. In furtherance of these regulations, the IRDAI also issued the “Master Circular on Registration, Capital Structure, Transfer of shares and Amalgamation of Insurers 2024” of 15 May 2024, which provides certain clarifications and prescribes the various forms referred to in the regulations.
• The IRDAI has notified the IRDAI (Corporate Governance for Insurers) Regulations 2024 and the “Master Circular on Corporate Governance for Insurers 2024” of 22 May 2024. These regulations, along with the master circular, provide a governance structure framework for all insurers (excluding FRBs) and include norms pertaining to the composition of the board along with its power, roles and responsibilities, required board committees, appointment and remuneration of KMPs, disclosure and reporting requirements.
• The IRDAI has notified the PPHI Regulations, which consolidate and repeal the earlier norms on the policyholders’ interests, advertisements by insurers, outsourcing by insurers, manner of receipt of premium, place of business of insurers, and procedural matters pertaining to nomination and assignment of insurance policies. In furtherance of these regulations, the IRDAI also issued the “Master Circular on Operations and Allied Matters of Insurers” of 19 June 2024, which specifies further norms on advertisements, outsourcing, places of business, grievance redressal procedures, group insurance and usage of trade logos by insurers.
• The IRDAI has notified the IRDAI (Expenses of Management, including Commission, of Insurers) Regulations 2024 and the “Master Circular on Expenses of Management, including Commission, of Insurers, 2024” of 15 May 2024, which together consolidate and repeal the recently revised norms on expenses of management of insurers and commission payable to insurance agents and intermediaries.
• The IRDAI has notified the IRDAI (Actuarial, Finance and Investment Functions of Insurers) Regulations 2024, which consolidate various norms in relation to an Indian insurer’s (i) appointed actuary appointment as well as duties and responsibilities, (ii) valuation of assets, liabilities and maintenance of solvency margin, (iii) financial statements preparation, (iv) investments, and (v) loans and advances. In furtherance of these regulations, the IRDAI has also issued the “Master Circular on Actuarial, Finance and Investment Functions of Insurers” of 17 May 2024, which provides additional guidance on actuarial, finance and investment functions of insurers including FRBs exclusively engaged in reinsurance business, unless expressly specified otherwise at specific junctures.
• The IRDAI has notified the IRDAI (Insurance Products) Regulations 2024, which provide the required form and permitted features for life, general and health insurance products and consolidate and repeal the earlier norms on life insurance products (linked and non-linked), health insurance products, and micro insurance products. In furtherance of these regulations, the IRDAI has issued three master circulars on life, general and health insurance products, respectively to further specify the form and features of life, general and health insurance products as well as the filings with the IRDAI or internal committees as the case maybe.
• The IRDAI has notified the IRDAI (Registration and Operations of FRB and Lloyd’s India) Regulations 2024, which consolidate and repeal erstwhile norms on registration and operations of FRBs and Lloyd’s India.
• The IRDAI has notified the IRDAI (Re-insurance) (Amendment) Regulations 2023 of 22 August 2023, which amend certain provision under the IRDAI (Re-insurance) Regulations 2018 and the norms pertaining to FRBs and Lloyd’s India. The regulations, inter alia, amend the “order of preference” to be followed by Indian cedants while placing reinsurance business, where FRBs and certain IFSC Insurance Offices are now placed in the same category after the Indian Reinsurer and also specify the norms in relation to the minimum retention requirements applicable to insurers, FRBs and Lloyd’s India.
• In addition, the IRDAI has issued the “Master Circular on Reinsurance 2024” of 31 May 2024, to specify norms on operational matters pertaining to FRBs and Lloyd’s India, issuance/renewal of file reference number of Cross Border Reinsurers (CBRs), and the requirement of obtaining collaterals while placing reinsurance business with CBRs.
• The IRDAI has issued the “Master Circular on Submission of Returns” of 14 June 2024, to specify the returns and business statistics to be filed with the IRDAI under the various regulations.
• The IRDAI issued a gazette notification on 22 January 2024, which de-notifies the tariff wordings under certain classes of insurance business (ie, fire, motor, engineering miscellaneous and marine).
• The IRDAI issued a circular on 10 October 2023, to amend specific provisions of the IRDAI’s Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) 2022 of 1 August 2022, including in relation to having group-wide programmes against money laundering and terrorist financing, client due-diligence at the claim/payout stage of insurance policy, and KYC undertaken by a third party.
• The IRDAI has notified the IRDAI (Bima Sugam-Insurance Electronic Marketplace) Regulations 2024, to specify norms on the establishment, governance, functioning and other related matters of an insurance electronic marketplace called Bima Sugam.
• The IRDAI has issued the IRDAI (Bima Vahak) Guidelines 2023 of 9 October 2023, in furtherance of the exposure draft with the same title and which establish a dedicated distribution channel responsible for distribution of the Bima Vistaar product (a comprehensive insurance product proposed to be issued in due course) along with other products as approved by the IRDAI, at a local/village level.