New IRDA Rules for Motor Insurance: Speedy Claims, Mandatory 'Pay as You Drive,' and Fair Practices

These updates include strict timelines for settling motor insurance claims, mandatory 'pay as you drive' options, and modifications to the cancellation policy.

This directive is included in a comprehensive master circular of the general insurance sector, especially following the de-notification of tariffs and policy wordings. This move represents a transition towards more simplified and customer-centric insurance solutions.

One significant change is the introduction of flexible policy durations, allowing customers to choose motor insurance policies that last less than a year, annually, or for more than a year. This provides a range of options to suit individual needs and preferences.

In addition, the claim settlement process has been standardised and streamlined. The General Insurance Council (GIC) must now allocate surveyors through a tech-based solution within 24 hours of receiving a claim report. Surveyors are required to submit their reports within 15 days of allocation. Once the insurer receives the survey report, they are now required to decide on the claim within 7 days. This accelerated timeline aims to reduce delays and improve customer satisfaction.

Further, the regulator has mandated that no motor insurance claim can be rejected or repudiated due to the unavailability of documents. "No claim shall be rejected for want of documents. All required documents shall be requested at the time of underwriting the proposal," says the IRDA. Only if necessary, the insurer may request additional documents directly related to claim settlement, such as the claim form, driving license, permit, etc.

To simplify the process for motor insurance policyholders, the IRDA has outlined a detailed procedure and timeline for settling motor insurance claims:

• Once a policyholder initiates a claim, the insurer will be required to inform them of the turnaround time (TAT) for claim settlement. This turnaround time must also be prominently displayed on the insurer's website and in the customer information sheet (CIS).

• Surveyors must be allocated through the GIC's tech-based solution within 24 hours of the claim report.

• Surveyors will be required to submit their reports to the insurer within 15 days of allocation. It is the insurer's responsibility to obtain the survey within the specified timeframe.

• The insurer must decide on the claim within seven days of receiving the survey report.

• Any delay in claim settlement beyond these stipulated timelines is a violation of legislation/regulations, and the insurer may face penalties for such delays.

• The insurer cannot reject the claim in full or part if:

  • The breach of warranty or condition is not relevant to the nature or circumstances of the loss; or

  • There is any delay on the part of the policyholder that has not resulted in an increased amount of assessed loss.

When purchasing the motor insurance policy, the IRDA has directed insurers to provide two primary options: 1) 'pay-as-you-drive' insurance cover, and 2) a comprehensive cover that includes depreciation coverage.

Note, previously the 'pay-as-you-drive' option was not mandatory for motor insurance customers.

The pay-as-you-drive insurance product is a comprehensive own-damage (OD) plus the third-party (TP) policy. The third-party premium is determined by existing norms, while the comprehensive own-damage premium is based on the number of kilometres you plan to drive within a given period.

The principle behind 'pay-as-you-drive coverage' is simple: you pay a lower premium if you drive less. If you anticipate lower vehicle usage during the year, you can pay the insurance premium based on your actual usage instead of a flat rate.

Now, there are two basic types of 'pay-as-you-drive' policies: one based on the kilometres driven, and the second on the number of days the policy remains active.

To monitor usage, insurance companies typically install a tracking device in your car or use a mobile application.

Another variation is the 'switch on/off' motor insurance, where you can activate your own damage cover while driving and deactivate it when the vehicle is not in use.

The popularity of these customised motor insurance policies has surged in recent years, particularly since the COVID-19 pandemic, due to their convenience and affordability.

Additionally, the regulator has also introduced significant changes to policy cancellation rules. According to IRDA, "The insurer can cancel the policy only on the grounds of established fraud, with a minimum notice of 7 days to the retail policyholder."

Previously, a retail policy could be cancelled on the grounds of misrepresentation, non-disclosure of material facts, fraud, or non-cooperation by the insured. However, the new circular limits cancellation to only established cases of fraud, and even then, a seven-day notice must be given to the policyholder.

Additionally, IRDA stated, "Insurers cannot cancel statutory Motor Third Party Liability Insurance or any other compulsory insurance mandated by law, except in cases of double insurance or total loss."

Previously, motor insurance policies could only be cancelled due to double insurance. This has now been expanded to include cases of total loss as well as double insurance. However, if someone buys two third-party insurance policies for the same vehicle, the insurer can cancel one upon discovering the double insurance. Total loss refers to situations where a vehicle is severely damaged, and repair costs exceed 75% of the car's Insured Declared Value (IDV).

The refund of the premium will be as follows:

• For policies with a term of up to one year and no claims made during the policy period, a proportionate refund of the premium for the unexpired policy period will be given.

• For policies with a term of more than one year, a refund will be provided for the unexpired policy period, provided the risk coverage for those policy years has not commenced.

Additionally, the IDV will not be required to be displayed on insurance websites and included in the Customer Information Sheet (CIS).

The IDV of your vehicle is typically set at the start of each policy period. Insurers will also now be required to form a Product Management Committee (PMC) to approve the criteria for determining the IDV and any related depreciation scales. Insurers are also required to explain how they calculate the IDV of a vehicle on their website and include this information in the CIS.

To enhance customer awareness of their rights and the terms and conditions of insurance products, insurers are now required to provide the CIS for motor and other general insurance policies in an upgraded format. The CIS will outline the basic features of the policy in simple language, covering the scope of coverage, add-ons, the basis of sum insured, sum insured, exclusions, deductibles, special conditions and warranties, endorsements, and more as mandated by the regulator.

The CIS will also include important details about the insurance and insurer, such as the claim procedure, claim intimation and processing, principles for claim admissibility, sample claim calculation process for retail products, and the grievance redressal mechanism (including the contact details of the insurance ombudsman for the relevant jurisdiction). Policyholders can request the CIS in their local language if they prefer.

Insurers are required to obtain acknowledgement of the CIS from motor insurance policyholders, either in physical or digital format.

The introduction of the CIS is a pivotal move towards transparency. By providing clear, concise details about policy coverage, exclusions, and claim processes, the CIS will enable customers to make informed decisions. This measure will significantly reduce misunderstandings and disputes, enhancing trust in the insurance sector.

To conclude:

The IRDA's recent directives mark a significant shift towards more transparent and customer-centric motor insurance policies. By introducing measures such as flexible policy durations, mandatory 'pay as you drive' options, streamlined claim processes, and enhanced cancellation guidelines, the regulator has aimed to simplify and improve the insurance experience for policyholders.

The implementation of the Customer Information Sheet (CIS) further ensures that you, the policyholders are well-informed about their coverage and rights, fostering trust and reducing potential disputes. These comprehensive changes are expected to drive greater satisfaction and confidence in the insurance sector.

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