LAW MANTRA THINK THINK BEY EYOND OND OTHER OTHERS (National Monthly Journal, I. I.S. S.S.N S.N 23211-64 6417)
Consumer Protection visa vis Insurance sector in India: An Overviews of Challenges and Needs
*Yashasvi Virendra (3 rd year) *Anshika Agarwal(2nd Year) Symbiosis Law School Noida
1. INTRODUCTION
Insurance is a risk management strategy with predominant objective of cushioning the contingent and uncertain loss. It is an equitable transfer of the risk of a loss, from one entity to another in exchange for payments. Legally it’s a contract between insurer and insured person where the insurance companies agrees to pay a assigned beneficiary a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as major health crisis or crucial illness1. In return, return, the policy owner agrees to pay certain sum sum of money as a premium premium at regular intervals or in lump sums. Insurance sector has been one of the major growing markets globally2. Indian Insurance industry has seen many diverse market controls from from times to time In the Present scenario, the insurance sector in India has come a full circle, from being as open competitive market to complete nationalization and then back to a liberalized market. The coming of private companies in the Indian insurance market has changed the nature of competition and the vigorous campaigns of these companies3. Such entry has resulted into several negative impacts for consumers. The profit generation habit of the insurance companies and to stand the tussle of growing market pressure often these 1
B.P. Singh “Chapter VI life insurance sector and consumer protection”, http://shodhganga.inflibnet.ac.in:8080/jspui/bitstream/ http://shodhganga.inflibnet.ac.in:808 0/jspui/bitstream/10603/ 10603/4464/15/15_ch 4464/15/15_chapter%206.pdf apter%206.pdf last last visited on 30.5.14 2 Boardman M.. Contra Proferentem: The Allure of Ambiguous Boilerplate. Boilerplate. Michigan Law Review . (2006) vol I Pg1 3 Sumninder Kaur Bawa; 'Life In surance Corporation Corporation of India', impact of Privatisation and Performance' (2007) Regal Publications, New Delhi, P. 2
insurance companies indulge into certain malpractice where leading two fold problems for the consumers. Firstly the by investment of the consumers money in form of secondary investment by insurance company has always being a concern for the government. In late 90s and early 2000 has witness 4 the fall of many such insurance companies due to their fraudulent investments . The State was interested in diverting insurance funds for developmental purpose or at least to stop insurance companies from investing the funds in other business enterprises, which might affect prospect of the insured people and property. However, effective the law might be, the control over the funds 5 used and their investment was difficult . Despite prescribing the goals, objectives and directives, it was not possible for the government to supervise the investment and control the funds of 6 insurance companies . Secondly the emergence of fraud practices by insurance companies has further added requirement of consumer protection in Indian market. It has been frequently observed that consumer face huge crisis to redeem their insurance policies which they have promptly taken due to some nuisance created insurance companies. According to industry data, complaints on unfair business practices in the life insurance space were pegged at 1,68,482 for 2012-13 which is a 7 10% increase a compare to last year. Indian insurance companies have collectively lost a whopping Rs.30,401 crore due to various frauds which have taken place in the life and general insurance segments during the year, according to a study. The losses work out to about nine per cent of the total estimated size of the insurance industry in 20118 2. THE GREY ZONE IN INDIAN INSURANCE SECTOR
The present scenario is very un-demanded and cast a threatening shadow on the relationship between the customers and the insurance companies. The relationship is mutual, symbiotic and interdependent. Therefore a better understanding of the risks, foreseeable impact, the needs and pain points of consumers are required to be understood 9. It has become a common practice by Insurance Companies of not making the consumer completely aware of all the demerits of their
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George Matthews, “Kuber group f irms heading for liquidation” Indian Express ,17 May 1998
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Abay Butle “ Deficiency in Insurance Services under Consumer Protection Protection Act 1986” Volume - II , Issue - II Ju ne 2012 ISSN : 2250 -1630 6 Ibdi 7 Aparna Ramalingam “Life insurers grapple with spike in frauds, Times of India , 18 January 2014 8 “Frauds blow a hole in insurance firm, http://indiatoday.intoda http://indiatoday.intoday.in/story/frauds y.in/story/frauds-blow-a-hole-in-insur -blow-a-hole-in-insuranceancefirms/1/176477.html last firms/1/176477.html last visited on 30.5.14 9 Mehr and Camack, “Principles ofInsurance”, 6th Edition, (1976), p.34-37.
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Insurance products/Schemes . Polices are sold under wrong or misrepresentation of facts. Therefore law needs to be made that makes it mandatory for these companies to disclose all the necessary details and information regarding the policies which are being bought by the 11 consumer . Consumers are entitled to a top notch customized service by the agents even after buying the policy. But the common trend observed now days is the adoption of callous, indifferent and negligent attitude by the insurance agents toward the policy holders once their policy is sold. They fail to provide customized service to their client which the company’s responsibility owing to a duty of care. So, the law needs to break its silence so as to safeguard the interest of consumers12. It is severally observed that companies use to set hidden charges and service taxes .All hidden charges must be disclosed at the time of sale of the policy and once the policy is sold no charges should be imposed 13. Suitable amendments should be made to the the legal rules so that companies 14 are not able to display a false picture before the customer in order to influence and misguide . Insurance companies use several unprofessional tricks techniques in order to encroach upon the policy holder’s rights. Delay of payment due to unnecessary, temporary and fictitious reasons, not sending notices for periodical premiums intentionally in order to let the policy lapse making them helpless to entertain the claim and the amount in the account is encroached upon by them and is not paid to the policy holder. Hence, law be passed to making it the liability of the company if the notices and are not sent by them. Lot many cases have been filed in consumer 15 courts and many decisions has gone against the insurance companies . There is quite an ample scope for the consumers to make use of consumer forums to stop their exploitation by these insurance companies. Approach to justice machinery is another grey zone for consumers as lack of clarity under Consumer Protection Act, 1986, and paradox established due to Indian Legal System confuses the consumer for suitable redressal forum16. Sometime the presiding officers of the Consumer Council may or may not have an expertise in the area of insurance as result it may leads to
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Butle,Abhay. “Deficiency in Insurance Services Under Cosumer Protection Act 1986- A Critical View & Challenges” Research Expo International Multidisciplinary Research Journal 2.2 (2012) :210 -212. .
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Surinder Kaur v. Oriental Insurance Co. Ltd . (1994) I CPJ 179 (Haryana CDRC). 12 13
Pulani Ravi - Manual of Insurance Laws, Bharat law House Pv t. Ltd., New Delhi, 2011
Dr. Sajid Sa jid Ali, Riyaz Mohammad and Masharique Ahmad; 'Insurance in India', (2007) Regal Publications New Delhi, P. 93-94, 14 Oriental Insurance Co. Ltd. V. Sony Cheriyan (1999) 6 SCC 451 15 Oriental Insurance Co. Ltd. V. S amayanallur Primary Agricultural Coop.Bank AIR 2000 SC 10 16 Supra10
failure to mitigate to have an access to immediate justice, suffering and the unconvincing awards17. The IRDA has established its own grievance cell at its headquarters for discontented insurance customers. The IRDA transfer the complaints it receives to the concerned insurance companies with proper directions. The IRDA as such has no appellate role to play in the grievance settlements made by the insurance companies. Dissatisfied policyholders could further knock the doors of justice by way of litigation, which complex, time-consuming and cumbersome; at the end of it even if the court of law gives favorable verdict, the consumer has little positive impact because of the delay. No doubt IRDA provides other remedies i.e. Insurance Ombudsman, Consumers Forums, and Civil Courts, LokAdalat, Motor Accident Claim Tribunals and Arbitration. However each system yet not play satisfactory role in resolving dispute between the parties18.
3. OVERVIEW TO INSURANCE REGULATIONS IN INDIA
The insurance sector in India with reference to consumer could be seen in ambit of the following laws:3.1.Review of Insurance Act, 1938
The Insurance Act, 1938 was deficient to cope problems with the openness of the insurance industry. There was need for for a comprehensive review review of the regulatory and supervisory environment under which private and public insurers shall conduct the business. The law commission, therefore, at the request of Insurance Regulatory and Development Authority initiated the exercise of review of Insurance Act, 1938 and other related legislations to harmonies the insurance laws in tune with the liberalized economic environment prevailing in the economy 19 in general and particularly in the context of the insurance industry 3.2.Insurance Regulatory and Development Authority (IRDA)
Emerging challenges to Insurance problems were first till addressed by the IRDA Act, 1999 initiated the reforms in the insurance sector . This act extends to the whole of India. This act came into force on 19th April, 200020. The object of this act is to provide for the establishment of an authority to protect the interests of holders of insurance policies, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental
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http://www.actuary.org/pdf/life/interim_ http://www.actuary.org/pdf/life/interim_aug06.pdf aug06.pdf visted on 14/08/2010 14/08/2010 Supra 10 19 Supra1 20 Vide S.O. 397 (E), dat ed 19th April, 2000 published in the Gazette of India, Extra, Pt. II, Section 3 (ii), and dated 19th April, 2000. 18
there to and further to amend the Insurance Act, 1938, the life Insurance Corporation Act, 1956 and the general insurance business (nationalization) Act, 1972. The IRDA is is a statutory body corporate having perpetual succession and and a common seal with power to acquire, hold and dispose of movable and immovable property p roperty and to contract. c ontract. It can c an sue and be sued. It consists of a chairperson, five whole time members and four part time members appointed by the Central Government from amongst persons of ability, integrity and standing and who have knowledge or experience in life insurance, general insurance, actuarial science, finance, economics, law, accountancy, administration or any other discipline which 21 would be useful to the authority . The chairperson and whole time members are to hold office for five years. The chairperson cannot hold office after he attains the age of sixty five years and the whole time member cannot hold office after he attains the age of sixty years. A part time member shall hold office for five years. Any member can relinquish his office by giving in 22 writing notice of not less than three months . 3.3.Consumer Protection Redressal System One of the fore children of liberalist economy is the growth of Indian Insurance Sector with the entry of new players, awareness about their rights has steadily been increasing amongst the public at large. Insurers are also required to set up grievance cells and their performance is monitored by them on a regular basis. They were required to be consumer friendly therefore opening of such counters as Rahat Yojana Yojana and NidhiMelas are conducted to dispose of claims speedily was an evolved trend 23. The public sector companies have also not remained for behind and are fast gearing up to these changes It is submitted that speedy mechanism for redressal of the grievances of the policy holders has been provided under the Consumer Protection Act, 1986. This act provides three tier redressal systems24. These are as such; (i) At the District level, the redressal agency is known as Consumer Disputes Redressal Forum; (ii) At the State level, the redressal agency is known as Consumer Disputes Redressal Commission. (iii) At the National level, the redressal agency is known as National Consumer Disputes 25 Redressal Commission . The above noted redressal agencies have jurisdiction to entertain the complaints against insurers of life policies upto 20 lakhs, above 20 lakh and upto one crore, and above one crore respective 3.3.1. Meaning of Consumer as per act
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See section 4 of IRDA Act, 1999 Section 5, Ibid 23 Universal's Legal Manual, In surance Laws, 2008, P. 332 (Universal Law Publishing Co.) 24 Agrawal V. K. (Dr.) - Consumer Protection Law and Practice, Practice, 5th Ed ition 2003, B.L.H. Publishers Delhi Pvt. Ltd.,New Delhi, 2003 25 Section 9 , Consumer Protection Act, 1986 22
Under section 2(1) (d) of the Act, a consumer means any person who:i) Buys any goods for a consideration which has been paid or promised/partly paid and partly promised or under any system of deferred payment and include any user of such goods. ii) Hires or avails of any services for a consideration which has been paid or premised or partly paid and partly promised and includes beneficiary of services 3.3.2. Coverage of the Act
Consumer protection Act Covers all services/products/suppliers in the public/or private sector including banks, education, life and general insurance, health services , retailers with regard to any product/service given to the consumer for consideration26.
3.3.3. Meaning of Complaint under Section 2 (1) (c) of the Act
If the allegation in writing is made about; a bout; i) An unfair /restrictive trade practice adopted by any trader. ii) The goods bought by him or agreed to be bought suffer from any defect. iii) There is any deficiency in the service hired/product supplied. iv) If the trader has charged any excess price as per existing rate or that written on the packet/ p acket/package. package. v) When goods hazardous to life rarely are being offered for sale to the public in contravention of the provisions of any law. It is submitted that life insurance policy holder is ‘consumer’ under the Consumer Protection Act, 1986 and is entitled to get help in consumer courts established under the Consumer Protection Act. It is often seen that Insurance Companies does not disclose the demerits of the 27 policies while selling their Insurance products/Schemes . The agents also do not provide customized service once their policy is sold rather they adopt callous attitude towards the policy holders and they become totally indifferent. Further it is well seen that consumer is often troubled by hidden charges addition service taxes28. Further it is noted that when the case of repayment comes ,the policy holders are denied on trivial issues and unacceptable conditions 26
Yashwant Bhave, “consumer rights”- Yojna February 2009. p-13. Sheetal Kapoor, “Legal and Ethical aspects of Advertising”. P-27-28 28 Baldeep Singh and Dr. Rajeev Kansal, “Emerging need for protection underconsumer protection act to the insurance customer: An overview ( An empirical empirical study of Patiala and sangrur d istt.)”, istt.)”, M.D.U. Law Jou rnal, Vol XV., Part-II(A),2010. 27
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and irrelevant term. Beside this consumers are penalized customers of trivial defaults . They display false picture before the customer to woo him by making the picture very rosy. Many agents have been found to be charging excess from illiterate or less informed people. When the 30 policy matures, they put temporary or fictitious obstacles to delay the payment . Many times notices for periodical premiums are not sent by them with the intention that let the policy lapse & then they would be helpless he lpless to entertain the claim and the amount in the account is encroached upon by them & is not paid to the policy holder 31. Lot many cases have been filed in consumer courts and many decisions have gone against the insurance companies. There is quite an ample scope for the consumers to make use of consumer forums to stop their exploitation by these insurance companies32 4. ROLE OF JUDICIARY FOR CONSUMER IN INSURANCE SECTOR
Judiciary is the fourth pillar of democracy under the obligation if safeguarding rights of the citizen. Hence by its judgments it has made several attempts to settle the unsaid needs. Following are few instances where judiciary significantly played a constructive role in consumer protection development :33
4.1.Life Insurance Corporation of India v. Smt. G.M. Channabasamma .
The apex court has held that there exist a contract be the insurance company and policy holder. Since the insurer has taken the obligation to compensate the the loss suffered suffered by the insured insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly 34 construed to determine the extent of liability of the insurer . The insured cannot claim anything more than what is covered by the insurance policy35. If the contract is vague, the benefit should be given to the insured 36. In a contract of insurance, there is a requirement of uberrima fides, i.e., good faith on the part of the assured and the contract is likely to be construed contra proferentem, i.e., against the company in case of ambiguity or 37 doubt .Thus, it is the high time for the insurance companies to have terms clearly defined in the insurance policy with a reasonable clarity and not to continue with the old forms which at times are vague. 29
Article written in “yojna” in February 2009 on consumer rights.pg- 25 nd Barowalia J. N. – Commentary on the Con sumer Protection Protection Act, A ct, 1986, Universal Law Publishing Pvt. Ltd., 2 Edition, 2000, 3rd Edition, 2008, 4 th Edition 2010 31 Mishra M.N. (Dr.) – Law of Insurance, Central Law Agency, 5th Edition 2004 32 Riegel and Miller, "Insurance Principles and Practice", Practice", P.10 33 AIR 1991 SC 392 34 Oriental Insurance Co. Ltd. V. V . Samayanallur Primary Agricultural Coop. Bank AIR 2000 SC 10 35 United India Insurance Co. Ltd. V. Harchand RaiChandan lal (2004) IV CPJ 15 (SC). 36 Murli Agro Products Ltd. V. Oriental Insurance Co. Ltd . (2005) I CPJ 1 (NCDRC). 37 General Assurance Society Ltd. V. Chandumull Jain and Anor . (1966) 3SCR 500 30
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4.2.New India Assurance Company Limited v Abhilash Jewellery
The complainant/respondent, who had taken a jeweller's block policy, lodged a claim with the opposite party insurer for loss of gold ornaments. The insurer repudiated the claim on the ground that the loss occurred when the gold was in the custody of an apprentice, who was not an employee (because the policy stipulated that for indemnification of the loss, the property insured had to be "in the custody of the insured, his partner or his employee"). The National Commission allowed the complaint holding that an apprentice was an 'employee' since section 2(6) of the Kerala Shops and Commercial Establishments Act (as well as some other statutes) defined an 'employee' to include an 'apprentice'. The Supreme Court, however, held that the word 'employee' in the contract of insurance mentioned had to be given the meaning in common parlance. The definition d efinition in the local Act, including an a n 'apprentice' 'app rentice' in the category of 'employee', 'emp loyee', was only a 'legal fiction', which is a concept in law and could not be applied to an insurance contract. The Court, therefore, allowed the appeal 39
4.3.Life Insurance Corporation of India v Gowramm
The petitioner insurer repudiated the life insurance policy in the name of the respondent's late husband (insured) on the ground of deliberate misstatements and withholding of correct facts regarding the health of the insured. The lower Fora rejected the various contentions of the insurer and allowed the complaint. Before the National Commission, the insurer relied upon the 40 Commission's decision in L.I.C. of India and Another v ParveenDhingra and contended that revival of the policy constituted a new contract between the parties and the limitation period of two years under section 45 of the Life Insurance Act, 1938 had to be counted from the date of revival. Therefore, the misstatements and concealment of facts could be made a ground for repudiation even though same were not made a ground at the time of initial policy. The Commission referred to the Supreme Court decision in MithoolalNayak v Life Insurance Corporation of India41 where the Court had rejected a similar similar contention that that the revival of the policy constituted con stituted a new contract between the parties and held that section 45 was clear that the period of two years was to be reckoned from the date on which the policy was originally effected. The Commission observed that the decision of Supreme Court had to be preferred and followed. 5. CONCLUSION
Insurance is a modern need of every citizen. It is not only a precautionary measure against uncertain havoc but also huge emerging industry for the economy therefore its players are under
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(2009) CPJ CPJ III (SC) 2] [III (2009) CPJ 25 (NC)] 40 [II (2003) CPJ 70 (NC)] 41 [AIR 1962 SC 814] 39
an obligation of proper services. Insurance is a service service in consumer laws therefore strong and 42 effective application of it should be done . It is a contract where default from either party makes them liable for damages. The most essential part of this contract is good faith. This means that either party cannot conceal any material facts which are essential to accept the consent for this contract. The party which defaults should not get any benefit raised out of the the policy. However, the apex court held that liability to prove that the insured has conce aled some vital facts lies on the insurer u pheld the principal that when the contract is bad on the ground of fraud, the party who has been guilty of fraud cannot ask for for the refund refund of the money paid under the contract. Thus, the complainant is not entitled of the refund of the premium paid under the policy. Thus there exist some strong challenges of denial and default and hence consumer protection and security security requires essential development In UmedilalAgarwal v. United India Assurance Co. Ltd .43, where the complainant complainant purchased a afire insurance for his good and whose claim was rejected by the insurance company on ground that electrical socket were cause of the fire which was installed by the consumer hence he defaulted. The National Commission observed that the insured was a consumer under the provision of section 2(1) (d) (ii) of the Consumer Protection Act, 1986 and held the insurance company liable for paying the compensation compensation to the insured as the bona-fied bona-fied purchaser shall not be denied what they deserved dese rved due to malpractices of these these insurance companies compa nies 6. RECOMMENDATIONS There is a growing need to settle certain paradoxes in Consumer Protection Act, 1986 for the protection of insurance policy holders. Also, at the same time there is a need to bring reforms for existing insurance law to assure the incessant independence to the IRDA to move in the directions for which it is established. The IRDA should be strengthened further to assure hassle free and fair opportunities for administration of insurance business44. There is a need to develop certain laws so as mandate the insurance companies to create public awareness in respect so that there exist no scope of ambiguity in the contract between the consumer and the company. co mpany. Strong criminal penalty shall be imposed on the action of agents and companies if they fail to inform at the first hand to the customer regarding the amount receivable . Agents
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should in no circumstance take advantage of the illiteracy or unawareness of a customer and at that case principle shall be held liable for the act and penalized. A better redresal forum forum shall be established so that quick disposal of case could be done Jago Grahak Jago’ should be launched through electronic media and print media to bring awareness among the people. Government should make laws fixing time schedules for
http://www.essaytown.net/db/searc http://www.essaytown.net/db/search?KEYW=Life h?KEYW=Life Insurance. Visited on15/11/2010 on15/11/2010 Citation (1989)3 Comp LJ 143 (NCDRC) 44 Citation (1989)3 Comp LJ 143 (NCDRC) 43
payment of o f the policy amount in the event of o f death / disability and even in general cases of maturity of the policy.
