The Insurance Regulatory and Development Authority of India (IRDAI) issued a Master Circular for General Insurance Business on Tuesday (June 11, 2024). The circular has introduced new rules that will help motor and other general insurance customers.
These changes will benefit general insurance customers, especially motor insurance policyholders, by streamlining claim settlements, offering more product choices, and improving the clarity of policy features and clauses.
Here is the full list of new rules announced in the circular that you should know:
Claims cannot be rejected for missing documents
“No claim shall be rejected for want of documents. All the required documents shall be called at the time of underwriting the proposal,” IRDAI said.
If necessary, the insurer may request additional documents directly related to the claim settlement, such as a claim form, a driver’s license, a permit, etc.
Insurers must settle claims within 7 days of survey reports
The insurance regulator has outlined new guidelines for claim settlements to benefit retail customers. Policyholders will be informed of the timelines for settling claims.
Surveyors must be allocated within 24 hours of a claim report, and they must submit their reports within fifteen days.
Insurers are required to decide on claims within seven days of receiving the survey report, except for property policies issued on a reinstatement value basis.
Any delay beyond these timelines can result in penalties for insurers.
Additionally, insurers cannot reject claims if the breach of warranty is unrelated to the loss or if a delay by the policyholder did not increase the assessed loss amount.
“Pay as you drive” must be a primary option
IRDAI, the insurance regulatory authority, has instructed insurance providers to present two primary choices to individuals purchasing motor insurance policies:
- Pay as you drive insurance cover
- A comprehensive cover inclusive of depreciation coverage.
Previously, selecting pay as you drive was not obligatory for motor insurance buyers.
The pay as you drive insurance is essentially a comprehensive policy covering own damage (OD) and third-party (TP) liabilities. Under this scheme, the third-party premium follows standard norms, whereas the own damage premium is determined based on the anticipated mileage within a specific period.
The concept behind pay as you drive coverage is straightforward: individuals who drive less should pay lower premiums. If you expect to use your vehicle infrequently throughout the year, you can opt to pay insurance premiums based on your actual usage rather than a fixed rate.
Pay as you drive policies typically come in two forms: one based on mileage and the other on the number of days the policy is active. Insurance companies usually employ tracking devices installed in vehicles or mobile applications to monitor usage.
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Another variant of pay as you drive insurance is the ‘switch on/off’ motor insurance, enabling policyholders to activate their own damage cover only when the vehicle is in use and deactivate it when not in use.
Important changes to cancellation rules
The regulatory authority has introduced significant alterations regarding policy cancellation.
According to IRDAI, insurers can now terminate a policy solely in cases of confirmed fraud, providing a minimum notice period of seven days to the retail policyholder.
Previously, retail policies could be canceled for reasons such as misrepresentation, non-disclosure of critical information, fraud, or lack of cooperation from the insured.
However, the latest circular improves this to allow cancellation only in established fraud cases, with a mandatory seven-day notice to the policyholder.
Additionally, the regulator emphasized that insurers are prohibited from canceling statutory Motor Third Party Liability insurance or any other compulsory insurance mandated by law, except in situations of double insurance or total loss.
In the event of a vehicle being covered by two third-party insurance policies simultaneously, the insurer may cancel one upon discovery of the double coverage.
Total loss refers to a scenario where the cost of repairing a vehicle exceeds 75% of its Insured Declared Value (IDV).
Refund of premiums will be handled as follows:
i) For policies with a term of up to one year, and no claims made during the policy period, a proportionate premium refund will be issued for the unexpired policy duration.
ii) Policies with terms exceeding one year will receive a refund for the unexpired policy period, provided the risk coverage for those policy years has not commenced.
IDV must be displayed on insurance websites and CIS
The Insured Declared Value (IDV) of your car or motorcycle is usually established at the start of each insurance period.
Now, insurance companies are required to form a Product Management Committee (PMC) to endorse the criteria for determining IDV and any relevant scale of depreciation.
Additionally, insurers must disclose on their website how they determine the IDV of a vehicle. Furthermore, the IDV calculation should be outlined in the customer information sheet.
Customer Information Sheet is mandatory for policies
In order to enhance customer awareness regarding their rights and the terms of their insurance products, insurers have instructed general insurance companies to provide an upgraded Customer Information Sheet (CIS) for auto and other general insurance policies.
The CIS will explain policy features in simple terms, covering aspects such as coverage scope, add-ons, basis of sum insured, sum insured, exclusions, deductibles, special conditions and warranties, and endorsements.
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The CIS will contain crucial information about both the insurance policy and the insurer.
This includes details like how to make a claim, the steps for notifying and processing a claim, the rules for deciding if a claim is valid, an example of how claims are calculated for regular purchases, and the system for handling complaints.
It also provides contact information for the insurance ombudsman in the relevant area. Policyholders can ask for the CIS in their preferred local language too.
Insurance companies are required to obtain acknowledgment of the CIS from auto insurance policyholders, either in physical or digital format.
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