Protect the policyholder

04 January 2004

An insurer is in position to know as much or even more about a policyholder. Why should the insurer need such a high degree of protection

The Insurance Regulatory and Development Authority's (IRDA) regulations for protection of policyholders — IRDA (Protection of Policyholders' Interests) Regulations 2002 — prescribe the duties and obligations of insurers and intermediaries, pre- and post-sales. And this requires some fine-tuning to secure the insured's interests effectively and also to align with the industry practices.

The two deadly weapons
Non-disclosure of material facts in the proposal form and breach of good faith are the two most deadly weapons and reasons used by insurers to shoot down a claim. And it is the most important area that requires the IRDA's immediate attention.

India has adopted the British legal and insurance system whereby a filled-in proposal form is deemed to be on the basis of the insurance contract — also referred to as 'basis clause' in the policy. And insurance is a contract of Uberrimae fidei — utmost good faith.

This actually renders the policyholder completely at the insurer's mercy. In practice, it goes beyond the bounds of the principle of Uberrimae fidei. A policyholder even after completing the proposal form to the best of his knowledge and got a policy on payment of premium might end up with a shock when the insurer rejects his claim on the grounds that he had omitted to mention some details.

The principle of non-disclosure as propounded in English Law was apt for the conditions in eighteenth century when the predominant development in insurance was in marine or transit cover, and insurance as a whole was still in its infancy.