Draft Insurance Ombudsman (Amendment) Rules 2025: A Shift From Conciliation To Adjudication

Introduction

On 25 November 2025, the Ministry of Finance released the Draft Insurance Ombudsman (Amendment) Rules 2025 ("Draft Rules") proposing significant amendments to the Insurance Ombudsman Rules 2017 ("Ombudsman Rules")¹. The Ombudsman mechanism, introduced in 1998 and comprehensively revised in 2017, is the primary statutory forum for retail policyholder grievances. The Draft Rules represent the first structural redesign of this framework in almost a decade.

The proposals must also be read in the context of the IRDAI's broader conduct supervision agenda reflected across the 2024–25 Master Circulars on protection of policyholders, digital operations, and market conduct. The Draft Rules indicate an intended shift towards a more structured and supervisory grievance-handling architecture, with greater use of digital processes, clearer procedural accountabilities, and an added appellate layer under the oversight of the Authority.

The measures aimed at faster registration of complaints, online hearings, and penal consequences on Insurance Companies/intermediaries for non-compliance of awards signal a more standardised approach to grievance escalation, with corresponding expectations around documentation, internal controls and timelines.

Proposed Amendments

A brief summary of the proposed key changes in the Draft Rules is as follows:

• Introduction of an Appellate Authority (AA): Under the existing Ombudsman Rules, awards passed by the Insurance Ombudsman are final and binding on the Insurance Company unless the complainant elects to pursue remedies before other fora. Now, a new two-tier grievance redressal mechanism is proposed through insertion of Rule 17A², empowering the IRDAI to constitute an Appellate Authority ("AA") to hear appeals against Insurance Ombudsman awards. The IRDAI may set up multiple benches of the AA at locations it determines. While the Draft Rules set out the broad framework, procedural details (timelines, grounds for appeal, powers) may be addressed separately by the IRDAI.

The insertion of Rule 17A is, in substance, the most significant change proposed under the Draft Rules. While the Ombudsman currently operates as a final fact-finding body, the introduction of the AA under the supervision of IRDAI would inevitably increase the visibility of complaint patterns before the insurance regulator. This may also require Insurance Companies to re-examine their internal governance and documentation standards, given that reasons recorded at the Ombudsman stage will now be subject to appellate scrutiny.

Since the AA is constituted by the IRDAI, frequent appeals by an Insurance Company on settled issues may invite supervisory scrutiny. From a systemic perspective, the creation of an appellate tier also provides the IRDAI with an institutional mechanism to observe patterns in consumer complaints beyond the annual disclosures made under the regulations. The appellate track record may, over time, function as an evidence base for supervisory interventions on product suitability, sales conduct, disclosure standards and claims practices (all areas that already feature prominently in recent IRDAI inspections).

• Enhanced Penalty Framework: The Draft Rules significantly expand the punitive powers of the Ombudsman, introducing specific liability for "arbitrary" conduct and "mental harassment":
  1. In cases of undue hardship faced by the complainant due to unjust, arbitrary or mala fide action of the Insurance Company/insurance broker, the Insurance Ombudsman may impose a penalty (in addition to the claim amount) up to100% of the amount of award, capped at Rs 20 lakh for consequential loss, and/or up to Rs 1 lakh for mental harassment³.
  2. The Insurance Ombudsman may recommend regulatory penalties to the IRDAI against Insurance Companies or brokers that repeatedly engage in unfair practices or fail to comply with Ombudsman awards⁴.
  3. Currently, delays in complying with awards attract interest. The proposed amendment also adds a "penalty as specified by Authority" on the Insurance Company or insurance broker ⁵.

It is also notable that the Draft Rules separate (i) compensation payable to the complainant, from (ii) a regulatory penalty that the Ombudsman may recommend to the IRDAI. The combined effect of the enhanced penal framework is that Ombudsman proceedings may increasingly carry regulatory consequences. Insurance Companies and brokers may therefore wish to revisit their grievance redressal processes, escalation protocols, and timelines for settlement of claims and awards.

• Expansion of Territorial Jurisdiction: The Draft Rules propose to amend Rule 11(1) of the Ombudsman Rules⁶ to require that the office of the Insurance Ombudsman shall be located in each State Capital and UT (in addition to such other places as may be specified)⁷. Additionally, the Council for Insurance Ombudsmen ("Council") may also allocate online complaints across Ombudsmen based on workload⁸.
• End-to-End Complaints System: The Draft Rules propose to expand the complaints management system contemplated under Rule 14(6) of the Ombudsman Rules to include online submission of complaints, digital consent for mediation, document uploads, status tracking, filing of appeals, and Aadhaar-enabled authentication where required⁹.
• Digitisation Measures: The Draft Rules propose to expressly recognise the use of digital means for various procedural aspects, including acceptance of recommendations "through digital means"¹⁰, acceptance of mediation through "mutual written/digital" consent¹¹, and recording the consent of the parties electronically when the Insurance Ombudsman acts as a counsellor and mediator¹². Virtual hearings via video conferencing are also expressly permitted¹³.
• Complaint Registration Timeline: Complaints must be registered within one working day of receipt¹⁴.
• Ombudsman Eligibility Criteria: The Draft Rules propose to expand the eligibility criteria for appointment as Insurance Ombudsman to include persons who have served in the IRDAI at the level of Executive Director or above for at least 25 years¹⁵. At present, under Rule 7A, eligibility is limited to individuals from the civil service of the Union who have held the post of Joint Secretary or an equivalent position in the Government of India, or to those who have served as a Director on the Board of an Insurance Company.
• Funding and Administrative Amendments: Presently, funding is shared between Life Insurance Council and GI Council on a proportionate, industry-wide basis. There is no linkage between an individual Insurance Company's misconduct and its financial contribution. However, the funding framework is proposed to be expanded to include expenses relating to the AA. Further, while determining fund requirements, the Council must consider the number of awards not complied with by an Insurance Company, thereby indirectly linking an Insurance Company's funding contributions to its compliance track-record with Ombudsman awards¹⁶. Each Ombudsman office and AA bench is also required to submit an annual budget by 31 January every year¹⁷.
• Changes for Council: The Draft Rules propose to revise the composition of the Council by adding the CEO & MD of LIC and the Chairman of GIPSA as separate members¹⁸. The Chairperson of the Council is proposed to be selected from among these two members, on a rotational basis.

For completeness, it is relevant to note that the Draft Rules do not propose any expansion of the category of entities against whom a complaint may be filed. The operative provisions under Rules 13 and 14 of the Ombudsman Rules remain unchanged in substance, and continue to permit complaints only against an Indian Insurance Company or an insurance broker. While the conduct of agents and intermediaries may be examined to the extent it is attributable to the Insurance Company, they are not independently named as respondents. Reinsurers remain outside the scope of the Ombudsman framework, consistent with the fact that the scheme applies only to policyholder-level grievances concerning insurance policies issued to individuals, groups, sole proprietorships and micro-enterprises as reflected in Rule 3.

Critical Observations

While the Draft Rules introduce several reforms, some provisions may warrant further clarification to ensure consistent implementation across Ombudsman offices and regulated entities. A few areas that may merit consideration during the consultation period are set out below:

• Absence of resolution timelines: While the Draft Rules propose to mandate registration of complaints within one working day, prescribing indicative timelines for disposal of complaints could further enhance predictability and support efficient case management.
• Clarity on mental harassment compensation: While the proposed introduction of compensation for mental harassment is typically viewed as a progressive measure, additional guidance on the factors that may be considered while determining such quantum (for example, nature of conduct, duration of delay, communication standards, and supporting evidence) may promote consistency across Ombudsman offices and better align with principles of proportionality.
• Data concerns relating to Aadhaar authentication: The Draft Rules contemplate that the proposed online complaints platform may permit Aadhaar-enabled authentication. While this may facilitate seamless verification of complainants, it also requires clarity on the manner in which Aadhaar-linked information (including authentication meta data and documents uploaded by complainants) will be handled by the platform and shared with Insurance Companies. Without guidance on data retention norms, access controls, onward-disclosure parameters, localisation requirements and alignment with the Digital Personal Data Protection Act 2023, there is a risk that existing technological and outsourcing arrangements may inadvertently result in non-compliance once Aadhaar data flows through the Ombudsman platform.
• Transitional clarity for pending complaints and awards: Further, the Draft Rules do not presently address transitional matters. Guidance on the treatment of pending complaints, applicability of enhanced penal provisions to ongoing matters, and the extent to which existing recommendations or awards may be brought within the jurisdiction of the AA would reduce ambiguity for stakeholders. Clarity on transitional applicability would be particularly relevant for Insurance Companies already managing high volumes of legacy disputes.

Concluding Remarks

The Draft Rules propose one of the most comprehensive updates to the insurance grievance redressal framework in recent years.

The Draft Rules 2025 primarily signal that the "conciliatory" era of the Ombudsman is evolving into a stricter adjudicatory model. For Insurance Companies, the immediate imperative is to treat Ombudsman proceedings as potential precursors to regulatory action.

The introduction of an appellate layer, enhanced penal powers, wider territorial reach, and an end-to-end digital platform also mean that Insurance Companies, brokers and distribution partners may wish to internally assess their current customer-handling frameworks, audit trails, digital infrastructure and outsourcing arrangements to ensure readiness for the shift. For policyholders on the other hand, the Draft Rules promise a more responsive and modernised grievance redressal system.

Stakeholder comments have been invited by 9 January 2026.

Footnotes

1. The Ombudsman mechanism is notified under §24 of the Insurance Regulatory and Development Authority Act 1999 and functions as an alternative dispute redressal forum for retail policyholder grievances.

2. The proposed Rule 17A under the Draft Rules is in the following terms:

3. The proviso to the proposed Rule 17(3) under the Draft Rules is in the following terms:

4. The proposed Rule 13(6) under the Draft Rules is in the following terms:

5. The proposed Rule 17(8) under the Draft Rules is in the following terms:

6. Rule 11(1) of the Ombudsman Rules is in the following terms:

7. The proposed Rule 11(1) under the Draft Rules is in the following terms:

8. The proposed Rule 11(2) under the Draft Rules is in the following terms:

9. The proposed Rule 14(6) under the Draft Rules is in the following terms:

10. The proposed change under Rule 16(2) under the Draft Rules is in the following terms:

11. The proposed change under Rule 16(1) under the Draft Rules is in the following terms:

12. The proposed Rule 13(2) under the Draft Rules is in the following terms:

13. The proposed proviso to Rule 15(5) under the Draft Rules is in the following terms:

14. The proposed proviso to Rule 15(1) under the Draft Rules is in the following terms:

15. The proposed Rule 7A(iii) under the Draft Rules is in the following terms:

16. The proposed Rule 12(2) under the Draft Rules is in the following terms:

17. The proposed Rule 12(3) under the Draft Rules is in the following terms:

18. The proposed Rule 5(2)(vi) under the Draft Rules is in the following terms:

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