Promoting Prudent Practices In Risk Management Related To Outsourcing Activities By Insurers

To safeguard the interest of policyholders and offer guidelines to insurers while outsourcing certain activities, IRDAI issued IRDAI (Protection of Policyholders' Interests and Allied Matters of Insurers) Regulations, 2024 ("PPIA Regulations").¹ These regulations consolidate 8 (eight) regulations² into a unified structure, focusing on several key objectives that ensure fair treatment of prospects during solicitation and sale of insurance policies as well as protects the interests of policyholders throughout their engagement with insurers and distribution channels. Some of the broad obligations of the insurers/ distribution channels are as follows:

1. provide the customer information sheet along with the policy document in the specified manner;
2. inform clearly and explicitly to the policyholder about the availability of the free look period;
3. ensure that the prospect or the policyholders are provided with necessary information about various services and widely disseminate information about all the services that may be availed, along with the procedure for availing such services including the turnaround times;
4. have a system, including IT systems, and a procedure for receiving, registering and disposing of grievances in each of its offices;
5. include their registered name along with their trade name or monogram or logo visible prominently while publishing their advertisements. All distribution channels must publish advertisements only as soliciting insurance products offered by insurers and not give any impression in the advertisement, as if the products are offered by them directly. No insurer or distribution channel will publish or cause to publish any misleading advertisement; and
6. have in place appropriate arrangements to ensure that the policyholder's liabilities that arise out of foreign operations are adequately ring-fenced to protect the Indian policyholder.

Subsequently, a master circular was issued to strengthen the governance measures on the operations and allied matters of insurer and to boost the policyholder centric reform in the insurance sector.³ It is in line with PPIA Regulations and is applicable to all life insurers, general insurers, health insurers and distribution channels. Some of the key provisions of the master circular are as follows:

1. insurers must have a tech based robust mechanism for efficient and speedy grievance redressal of policyholders, while also striving to move towards "zero grievances". Insurers must strengthen the resolution processes with internal escalation matrix and Internal Ombudsman Schemes;
2. Advertisement Committee, approved by IRDAI, and/or a senior level officer of the distribution channel must examine and approve the advertisements to ensure that they are true and are not misleading;
3. insurers are required to adopt a phygital approach (both physical and digital) to open places of business, to make insurance accessible at remote locations of the country;
4. insurers can outsource permitted activities only if they are economical and efficient in providing services to the customers and/or enhance value to their business; and
5. provisions to streamline group insurance business, such as:
   1. insurers to issue 'Certificate of Insurance' to all the members of a non-employer-employee group scheme;
   2. consent of nominee/policyholder/beneficiary is necessary for repayment of outstanding loan amount from the proceeds of an assigned policy; and
   3. no claim will be denied for non-availability of details of members of the group, in case of group mediclaim policies.

Footnotes

1. Notification dated March 20, 2024. F. No. IRDAI/Reg/11/205/2024

2. 8 regulations have been repealed, namely, IRDAI (Manner of Receipt of Premium) Regulations, 2002; IRDAI (Places of Business) Regulations, 2015; IRDAI (Fee for registering cancellation or change of nomination) Regulations 2015; IRDAI (Fee for granting written acknowledgement of receipt of Notice of Assignment or Transfer) Regulations, 2015; IRDAI (Issuance of e-Insurance Policies) Regulations, 2016; IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017; IRDAI (Protection of Policyholders' Interests) Regulations, 2017 and IRDAI (Insurance Advertisements and Disclosure) Regulations, 2021

3. Circular dated June 19, 2024 IRDAI/PPGR/CIR/MISC/97/06/2024

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.