The Insurance Regulatory and Development Authority of India (IRDAI) has fined Reliance General Insurance Company Rs 500,000 for lack of transparency and arbitrary deductions in the payment of claims under motor insurance policies.
After receiving complaints that general insurers were settling claims with lesser amounts than the insured declared value (IDV) in the case of motor claims, the insurance regulator began its investigations.
In June 2016, the regulator communicated its findings to Reliance General and issued a show-cause notice in August 2017. Thereafter, in November 2017, Rakesh Jain, the chief executive officer, and other senior executives of the general insurer met with the regulator in a personal hearing to discuss the allegations.
In its submissions to the regulator, Reliance General said that they "adopted 'non-standard settlement' in the matter where there is non-observation/breach of any terms and conditions of the insurance policy by the customer".
Further, the regulator, in its order, noted that the company has followed standard industry practices while settling claims, and has followed the law as laid down by the Supreme Court of India and other judicial forms.
The company maintained that there were differences in the deduction of the IDV when paying claims "based on the gravity of the violation and the circumstances".
"A claim with full requirements and a claim with deficiency in requirements cannot be treated at par. The negligence on the part of claimant cannot be quantified. Hence, the company takes the overall view of the claim. The intent was only to go for settlement and extend support to the customer," the company said in its submissions to the IRDAI.
In the case of insurance policies, particularly property or motor, investigations are conducted on the vehicle and a determination is made as to whether the policyholder is liable (directly or indirectly) for the damage or theft.
This includes the loss of a key, door was not locked, delay in filing a first-information report (FIR), original documents lost, among other things.
P J Jospeh, IRDAI member (non-life), in his order, noted, "Just because there is a sum insured, it does not mean that under all circumstances, irrespective of policy holder's contribution to the loss through his negligence or breach of material conditions, the full sum insured must be paid."
According to the order, the company deducted the claim payment as a proportion of the IDV by 25 per cent and no reasons were cited for doing so.
When the policyholder could not produce a second key to the vehicle, the general insurer deducted the claim payment (as a per cent to the IDV) by 12.9 per cent.
However, despite the company maintaining that the policyholders have been found to violate compliance norms, "this, however, does not offer any ground for the insurer to deduct amounts from the claims based on purported negotiations with the [policyholders] and arriving at 'compromised amounts'," IRDAI's order stated.
Further, there was a lack of transparency by the company in how they determine "what can constitute a non-standard claim and the amounts deducted from the IDV in various cases seem to have been made arbitrarily".
IRDAI stated that there "has been lack of transparency in the transaction of these so called negotiations as the [policyholders] more often than not have not been given any details of deduction made".