The erstwhile IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 (“Erstwhile Outsourcing Regulations”) prohibited insurers from outsourcing product designing, all actuarial functions and enterprise-wide risk management, policyholders’ grievance redressal, decision to appoint insurance agents, surveyors and loss assessors and approving advertisements, in any manner. Insurers have now been permitted to outsource the aforementioned activities, except the ‘decision-making’ on product designing, actuarial functions, enterprise-wide risk management and policyholders’ grievance redressal.

Previously, insurers could outsource material activities only to prescribed entities (such as companies, limited liability partnerships, registered cooperative societies, partnership firms, etc.). Insurers are no longer required to carry out material outsourcing activities only through such entities and may now utilize other categories of outsourcing service providers, including individuals.

Additionally, insurers are now required to report details of all outsourcing activities including pay outs made to its related parties and related parties of insurance intermediaries, as opposed to the earlier requirement for reporting only such arrangements where the annual pay-out per outsourcing service provider/ activity was INR 1 crore or more. 

These changes reflect the IRDAI’s transition to a ‘principle-based’ approach for regulation of insurance companies.

• Group Insurance Policies: As was always the case, no group can be formed for the sole purpose of availing insurance and a person negotiating ‘group’ rates and then forming a group to insure is not considered as a legitimate group.

Pursuant to the PPI Regulations, every insurer and the distribution channel is now required to ensure that the group considered for availing insurance shall be in existence before issuance of the insurance policy. A master policyholder should only obtain an insurance policy after a group has been formed and members have been enrolled into such group. This clarification is particularly relevant for providers of assistance services, wellness subscription and healthcare benefits with insurance product as an offering. Such providers may need to re-examine their embedded insurance models, in light of the clarification provided by IRDAI on group insurance.

• Free Look Period: For health insurance policies, a free look period of 30 (thirty) days, from the date of receipt of the policy document is available to the policyholder to review the terms and conditions of the policy and to exercise the option to cancel the said policy. Similarly, for life insurance policies with a term of 1 year or more, the policyholder has a free look period of 30 (thirty) days from the date of receipt of the policy document. The policyholder in such cases has an option to cancel the policy and ask for a refund of the premium paid, subject only to a deduction of a proportionate risk premium for the period of cover, medical examination expenses and stamp duty charges.

Under the erstwhile IRDAI (Protection of Policyholders’ Interests) Regulations 2017 (“2017 PPI Regulations”), the free look period for life insurance policies was 15 (fifteen) days from the date of receipt of policy document but a longer period of 30 (thirty) days was available for electronic policies and policies obtained through distance mode.

The 30 (thirty) day free look period now applies to all life insurance policies with a term of 1 year or more, allowing policyholders to review the policy terms and conditions and cancel such policies within such period if they disagree with any of the terms and conditions.

• Opening of Places of Business of Insurers: All insurers are required to have a board-approved annual business plan for every financial year.

Pursuant to the PPI Regulations, the board approved ‘places of business’ plan must be for a period of 5 (five) years, and should contain certain details such as proposed capital and operational expenditure expected to be incurred initially and subsequently at regular intervals in opening and running each of the places of business, the staffing requirement and associated costs for such places and the premium revenue expected to be generated from each of the proposed places of business, which were not required to be detailed under the erstwhile 2017 PPI Regulations.

The IRDAI has relaxed the requirements for a location to have a population of less than 1 (one) lakh for opening a place of business without the prior approval of the IRDAI. Insurers are permitted to open place of business within India without the prior approval of the IRDAI if they meet the minimum control level of solvency and the expenses are within the prescribed limit on expenses of management. If the insurer is not compliant with the aforesaid stipulations, an insurer can open a place of business only after obtaining approval of the IRDAI. This change will enable insurers to set up a physical presence in various locations, in order to increase their presence and visibility, with more flexibility.

Additionally, an Indian insurer may open a foreign branch office or an office at the International Financial Services Centre (“IFSC”), with the prior approval from the competent authority. For the opening of an International Financial Service Centre Insurance Office by an Indian insurer, as a branch office under the International Financial Services Centres Authority (Registration of Insurance Business) Regulations, 2021, a no-objection certificate is required from the IRDAI. This process of securing clearance from the IRDAI has been formalized as a separate approval process under the PPI Regulations, and an eligibility criteria has been laid down for such approval. 

• Grievance Redressal System: All insurers should have a board approved grievance redressal policy and a procedure for receiving, registering and disposing of grievances in each of its offices.

Insurers have now been mandated to establish a technology-based grievance redressal infrastructure, in the form of a grievance portal/ app, which must be integrated with the Bima Bharosa portal to facilitate the registering/ tracking of grievance online by the policyholders. Implementing such changes will result in timely redressal of grievances which will help build customer confidence.

Usage of Trade Logo of Promoting Partners or Related Parties: All insurers must endeavour to create their trade logo. Where an insurer uses the trade logo of any person, including its promoters, there should be a written agreement setting out the underlying terms and conditions and the parties should also specify the consideration towards usage of trade logo in the agreement in unambiguous terms.

The PPI Regulations provide that an insurer using a trade logo must comply with guidelines issued in the context. Accordingly, insurers will need to comply with the ‘Guidelines on usage of Trade Logo of Promoting Partners of Insurance Companies’ issued by the IRDAI in 2014 (which have not been repealed pursuant to the Master Circulars) which require trade logo agreements to set out their time period, mention in unambiguous terms if there is no monetary consideration involved, etc.

• Issuance of Insurance Policies: Insurers are required to mandatorily include in the policy document all applicable exclusions for a particular product and no further deductions can be made from the claim amount in the name of any other exclusions. Every insurer is also required to have in place a Customer Information Sheet, including in regional languages (if the policyholder desires), that explains the basic features and terms and conditions of the policy in the prescribed format.

Life, health and retail general insurance policies must now be issued in electronic form  and if requested by the policyholder, all policies issued in electronic form should also be issued in physical form. Previously under the IRDAI (Issuance of e-Insurance Policies) Regulations, 2016, it was mandatory for insurers to issue all insurance policies in physical form even if the insurer issued such insurance policies in electronic form, unless specifically exempted by the IRDAI. This change will reduce the compliance burden for insurers and reduce expenses.

To avoid mis-selling of insurance policies, a mechanism needs to be put in place now to, inter alia: (a) require financial underwriting requirements to be clearly spelt out to assess the continued financial capacity of the prospects to pay the premium; and (b) take punitive action for breach of market conduct including blacklisting the salesperson who indulges in unhealthy solicitation practices of market misconduct.

Insurers are now also required to enable their IT systems to interact with Digilocker to enable the policyholders to use Digilocker, which was previously only an advisory under the IRDAI circular dated February 9, 2021 (now repealed by the Master Circulars). The above norms will provide for a faster and seamless customer experience and enhance service standards

• Unclaimed amounts of policyholders: Policyholders can access information in relation to unclaimed amounts (i.e., amounts held by insurers and payable to consumers, which are unpaid beyond 12 (twelve) months from the due date of the payment due to insurers being unable to contact the consumers) on the Bima Bharosa portal.

Pursuant to the Master Circulars, every insurer needs to now make ‘searchable databases’ available on their websites, in relation to information about unclaimed amounts of INR 1,000 or more. Such display of information must continue even after completion of ten years. Customers will significantly benefit from this information sharing.

• Advertisement: Every advertisement must be approved by the insurer prior to its issue, if the advertisement is issued by a distribution channel representing the insurer or an insurance intermediary representing the customer (if it relates to any insurance product). All insurers must have an advertisement committee and there should not be any advertisement on services not related to insurance, any advertisement exaggerating the benefits of the product or highlighting the potential benefits of an insurance product, without a fair indication of associated risks.

Insurers are now restricted from advertising unit linked and/or index linked products as ‘investment products’. Advertisements pertaining to linked insurance products and annuity products with variable annuity pay-out options must now disclose the risk factors involved in relation to the products and certain prescribed warning statements. This will bring greater clarity in the promotion of the aforementioned products and reduce mis-selling of such products. Under the erstwhile IRDAI (Insurance Advertisements and Disclosure) Regulations, 2021, insurers and insurance intermediaries needed to file a copy of each advertisement with the IRDAI, which requirement has now been done away with.

• Turnaround Period: Insurers are required to process and settle claim intimations within the prescribed periods.

The turnaround period for settlement of claims prescribed under the erstwhile 2017 PPI Regulations has been reduced in the manner given below, and this is aligned with the IRDAI’s objective of ensuring expeditious settlement of claims.

Contributed by: Shailaja Lall, Partner; Shivangi Sharma Talwar, Partner; Akshay Sachthey, Partner.

Read Less-