An insurance contract is a contract wherein the insurer accepts insurance risk from the policyholder, by agreeing to compensate him/her on payment of a specified amount called premium, if a specified uncertain future event that adversely affects the policyholder takes place.
In India, the insurance industry, a State monopoly, post 1990 reverted to private enterprise with higher percentage of foreign direct investment permitted . Amendments in 2015, to the Insurance Act and the Insurance Regulatory and Development Authority Act brought in major reforms in the business of insurance. This paved a way for greater innovation, transparency, increased competitiveness to better serve the needs of insured public, resulting in greater insurance penetration.
However the exuberance shown at the time of selling a policy is seldom practised at the time when a claim is made. An insurance agent who canvasses for a policy may do so without apprising all or any of the exclusions covered under the contract. Often, the insured buys a policy without reading the fine print about material facts. The medical examination of the insured by the panel doctor, invariably found inadequate when a claim is made. Liability is denied for breach of uberima fides. As a result, trust is lost. Insured does not get what he needs and the company loses goodwill. National Institute of Public Finance and Policy research shows an average of 12,721 health insurance cases are filed annually in all district consumer forums in India.
In India, Insurance Regulatory and Development Authority of India regulates insurance industry. IRDAI makes rules and regulations for insurance companies to protect the interests of the policyholders. To curb mis-selling and unfair claim denials, the authority plays the part of an overseer to ensure compliance by the insurers. As per IRDAI guidelines every insurance company is required to develop its own procedure to redress consumer grievances. To have a responsive grievance redressal officer to handle policy related disputes. In case of rejection of a claim, the insured can approach the grievance redressal officer. If the insurer fails to respond, within 15 days the insured can register the complaint online with Integrated Grievance Management System for quick response.
Policyholders can approach Ombudsman if their complaint is not redressed within 30 days. The ombudsman tries to resolve the issue with mutual consent and recommends resolution, for cases up-to value of 30 lakhs including expenses. If a settlement by recommendation does not work, the Ombudsman will pass an award within 3 months of receiving the complainant. The award is binding on the insurance company. Insured may approach the civil courts, consumer courts, or commercial courts for adjudication, if he/she does not accept the award or in cases of high value beyond 30 lakhs.
In spite of these checks and balances, the rise in insurance disputes is prodigious, due to several reasons including the burgeoning population, complexity of life, way of doing business and customers’ dissatisfaction. The approach of the Grievance Officer of the company may not work as the insured do not trust them as neutral. The grievance officer may treat the claim in a routine manner without applying his mind to the needs of the parties. Nearly 80 per cent of disputes in the consumer fora pertains to insurance claims, affecting the insurance business, and its credibility .
What is the Alternative?
The UK Financial Conduct Authority mandates financial service providers (including insurance companies) to investigate and assess complaints diligently, impartially and fairly. Explain to the consumer its assessment, decision and proposed redress and comply with the proposed redress accepted by the complainant. In the field of finances, solving the problem of consumer involves a two-phased approach: prevention and cure. Prevention entitles the consumer protection framework to facilitate resolution of complaints at the grievance stage itself. The organisation should strive to resolve any difference of opinion between the insurer and insured before it graduates to a full blown litigation, through an independent in-house Grievance Redressal Machinery, which can expeditiously hear such difference of opinion and address the issues through negotiations. This can be addressed by providing mediation facility through a third party neutral at the stage of grievance itself.
Relevance of Mediation in Disputed Insurance Claims
Mediation is a dynamic, structured, interactive process where a neutral third party assists the disputing parties in resolving the conflict basing on their needs and interests. The settlement is reached by the disputing parties themselves. The process is about finding cost effective solutions that will work for all, within a short time.
Boon to the insured: There is a need to resolve the insurance claims at the earliest. Compensation amount is desperately needed by the claimants and delays through litigation bring ineffable suffering to the insured. At the grievance stage, if mediation through a third-party neutral is put in place, then:
- it instills confidence in insured that his grievance will be settled at the earliest;
- the parties can leave the incident in the past and move forward which is the essence of the insurance contract;
- confidentiality in mediation ensures a freer flow of information, as parties do not fear that their words and the documents used in mediation will be turned against them in litigation;
- a successful mediation allows a policyholder to avoid publicly re-living events that may represent dark moments in their lives or business; and
- Ensures that relationships are back to normal as relationships matter in an industry like insurance.
Boon to insurer: Insurers with active underwriting businesses have no desire to alienate their policyholders. In a healthcare dispute, more often, the factor is concern than monetary compensation. In medical negligence cases, patients are often looking for an explanation, an apology and an assurance that this event will not be happen again. Doctors involved would prefer to avoid public exposure to avoid loss of reputation and revenue. Would be more willing to discuss with the claimant in private mediation process which could result in lower risks as opposed to those associated with the litigation system. Mediation at the grievance stage, through a third-party neutral, will:
- Help both the parties to collaborate and arrive at a successful resolution. Has the potential to preserve important business relationships and more private.
- Offers a more compassionate and less adversarial resolution and cost-effective. Studies from the USA shows using mediation results in a 50% reduction in litigation costs as well as 40 - 60% saving in pay-outs.
- Settlements at the early stages create a more acceptable image of insurance companies being more humane resulting in increased business. It protects brand image and reputation and increases customer base.
- Settlement being brought out by mutual consent there is low chance of further litigation.
- Mediation helps the insurance companies to read the mind of the policyholders and their needs. Helps them to make better policies which are based on the needs of the customer.
- The neutral third-party objectively evaluate the case through reality checks, that helps each party to better understand the strengths and weaknesses of their cases. Even if there is no settlement, this improved understanding lead the parties to streamline future negotiations or litigation.
- Mediation reduces the burden of backlog on the court.
Cases for Insurance claims are filed in civil and commercial courts, Consumer Courts and before the MACT in case of motor accidents. If the scenario of bursting of courts’ dockets have to be controlled, the first genre of litigation that must go off grid are insurance claims. The reasons being :
(i) More often the claims being fraudulent;
(ii) The breach of contractual terms by the insurer;
(iii) Inability to assess the quantum correctly:
(iv) Inability to assess the appropriate mechanism of dispute resolution.
In a MACT case in M.R. Krishnamurthi v New India Assurance (2019), the S.C. recognizes the key role of mediation as a conflict resolution tool in motor accident claims. The judgment seeks to establish a Mediation Council attached to every District Services Legal Authority.
Way to go for the Insurance Industry
The Insurance companies can include a clause in insurance contracts to try mediation at the grievance stage before arbitration / before going to Ombudsman.
The mediation can be through a panel of mediators associated with a service provider, or a panel set up by the Association of Insurance companies, or Association of brokers, or the Insurance council, or even by an Insurance company. The parties can then assert their right to appoint one or more mediators.
This can be done at two levels:
Where the claim is 30 lakhs and below: the Mediation through the third party neutral can be tried after the complaint to Grievance officer, results in rejection. The complainant can have the choice of opting either for mediation or for ombudsman or for mediation before resorting to ombudsman.
In case of claims over 30 lakhs, after the complaint is rejected by the Grievance officer, pre-litigation Mediation shall be tried before initiating litigation or arbitration.
Here then is a great opportunity for the insurance industry to adopt a new paradigm of concluding a case without contest. That will leave the courts with just a manageable load that craves for attention requiring the forensic skills of active legal brains of argumentative lawyers and a skillful judge.