The Insurance Regulatory and Development Authority of India (IRDAI) plays a vital role in ensuring the fair and transparent functioning of the insurance industry in the country. In a recent development, the IRDAI has undertaken an amendment to the arbitration clause in general insurance policies. This article provides a detailed analysis of this amendment, its implications, and the rationale behind it.
1. Background and Context:
- The Hon’ble Supreme Court of India made a reference to the IRDAI, prompting a comprehensive review of the existing arbitration clause in general insurance policies.
- The IRDAI, after thorough consultations with stakeholders, concluded that the current arbitration clause’s scope was limited and required revision. It was also recognized that individual policyholders may have alternative forums for grievance redressal.
2. Key Amendments: The IRDAI, empowered by the IRDA Act, 1999, has issued a directive that brings significant changes to the arbitration clause in general insurance policies. The amendments are as follows:
- Retail insurance policies shall no longer include an arbitration clause.
- Commercial insurance policies shall include a revised arbitration clause, which states that parties can agree to a separate arbitration agreement for dispute resolution under the Arbitration and Conciliation Act, 1996.
3. Transitory Provisions:
- New policies issued from the date of the circular will not have an arbitration clause for retail policies.
- Existing policies will retain their arbitration clause until the end of the policy term. However, policyholders can request its replacement with the revised clause for dispute resolution.
4. Immediate Implementation: The circular issued by the IRDAI came into immediate effect. It is incumbent upon insurers to inform policyholders of the changes and adjust policy provisions accordingly.
5. Conclusion: The IRDAI’s amendment to the arbitration clause in general insurance policies is a significant step toward enhancing the grievance redressal process. By eliminating the arbitration clause for retail policies and introducing a more robust arbitration provision for commercial policies, the IRDAI is addressing the needs of different policyholders. The immediate implementation of these changes underscores the regulatory authority’s commitment to providing fair and accessible insurance services to the Indian populace. This amendment aligns with the broader objectives of ensuring consumer protection and fostering transparency within the insurance sector.
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INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA
Ref: IRDAI/NL/CIR/MISC/188/10/2023
Date: 27th October, 2023
To
All CEOs/ CMDs of General Insurance Companies
Re: Amendment of Arbitration Clause in General Insurance policies
On reference made by the Hon’ble Supreme Court of India, IRDAI undertook a comprehensive review of the extant Arbitration Clause prevalent across various lines of business in the General Insurance Industry. After due consultation with stakeholders, IRDAI is of the view that the extant Arbitration Clause is limited in scope and need to be amended. It was also viewed that the retail/ individual policy hojlders may be kept out from the provisions of Arbitration Clause as they have alternative forums of Insurer’s Grievances System, Insurance Ombudsman and the Consumer Courts besides the Civil Courts available for redressal of their grievances/ disputes.
Accordingly, the Authority in exercise of its powers under Clause (i) sub Section (2) of Section 14 of the IRDA Act, 1999, hereby directs that
I. All policies issued under the Retail Lines of Business shall not have any Arbitration Clause.
II. All policies issued under the Commercial Lines of Business shall have an Arbitration Clause as under:
“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.
Arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996.”
- Transitory provisions
a. For all the new policies issued on or after the date of this circular:
- Arbitration Clause shall be deemed deleted from all the retail policies.
- Clause at ‘II’ above shall be deemed to be the Arbitration Clause in General Conditions of all the commercial insurance policies.
b. For all the existing policies:
- The existing Arbitration Clause shall remain valid till the term of the policy unless a policyholder specifically requests the insurer to replace it with the clause at “II” above.
- The clause at “II” shall be deemed replaced the existing Arbitration Clause in all the commercial policies from the date of renewal falling on or after the date of this circular
Insurers shall take necessary steps to bring it to the notice of the policyholders and to amend the relevant provisions of such policies.
This circular comes into force with immediate effect.
-Sd/-
Randip Singh Jagpal
Executive Director (NL)
