Irdai fines Royal Sundaram, Iffco Tokio for lower motor claims payout

Penalty follows charges of violation of motor tariff rules, lack of transparency regarding deductions made under the claims

The Insurance Regulatory and Development Authority of India (Irdai) has imposed a penalty of Rs 500,000 on Royal Sundaram General Insurance and Iffco Tokio General Insurance for settling lower amounts than the Insured Declared Value (IDV) in motor vehicle claims.

The regulatory authority, in its inspection of the matter, found that these two general insurance companies violated the relevant provisions of the General Regulation 8 of All India Motor Tariff, 2002. Moreover, the insurers have been non-transparent regarding deductions made under the motor claims.

The authority had also fined Reliance General insurance under similar charges in August. In all, three general insurers have been slapped with a penalty for not being in compliance with the regulator's circular on motor claims. 

Irdai had asked for motor claims data from general insurers on receiving complaints relating to general insurers settling lesser amounts than IDV in case of motor vehicle loss or theft claims.

They had also issued show cause notices to Royal Sundaram general insurance and IFFCO TOKIO general insurance on 26 April,2017 and 1 August, 2017 respectively. 

"The reason for arriving at a settlement value which might be lower than the IDV is shared with the claimant before getting the consent letter and both the IDV and the settlement value were indicated in the consent letter. It was further clarified that these claims were treated as non-standard settlement", the insurers said in their response to the authority's show cause notice.

Moreover, they said, "The market is not having a uniform IDV and every insurer adopted their own IDV. The challenges are still continuing. In all the roll over policies, the company has to go by the IDV taken by the previous insurer. The information on IDV and the variations therein comes at the time of claim. The market value has case to case impact due to variations in the vehicle models".

The authority was of the view that, although the insurers had stated the reasons for arriving at a settlement value which might be lower than the IDV with the claimant before getting the consent letter , however,  there is no record of explanation, in writing, to the policyholders, in certain cases.

P J Jospeh, Irdai  member (non-life), in his order, noted  that," I do not agree that merely obtaining a consent letter from the claimants would indicate that the IDV was mutually negotiated and discussed, leaving aside the legality of such negotiation and discussion to reduce the IDV on grounds not on record".

Irdai has observed that, there is no transparency about what can constitute a non-standard claim and the amounts deducted from the IDV in various cases seem to have been made arbitrarily. 

“The cases, however, do reflect instances of claimants found wanting in some respect, of the procedures laid down for the claims”, Irdai further added.