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Penalty on late settlement of insurance claims nixed

Sidhartha

The law ministry has turned down Insurance Regulatory and Development Authority's proposal to levy penal interest on late settlement of claims as part of the policyholder protection norms that are to be notified this week.

Sources said following law ministry's advise, Irda will now treat late claim settlement as part of the stipulations under section 102 of the Insurance Act, 1938. This means while the insurance regulator can impose a fine on the insurer, the policy-holder does not get much benefit.

The insurance regulator had earlier proposed to impose a penal interest of 10 per cent on claim amount if a general insurer failed to settle a claim within a week of receipt of the surveyor's report.

In the draft regulations IRDA had also said that all claims should be settled within 45 days of receipt of the necessary documents and information.

In case of life insurance companies, the insurance regulator had proposed to stipulate that all claims had to be settled within 30 days of receipt of the documents.

In case claims due are not settled within the stipulated time, the life insurer would have to hold the amount and would earn the prevailing interest rate on savings bank accounts in commercial banks.

Further, if there is a delay on art of the insurer in settling any claim, interest at 10 per cent per annum would be levied from the date of submission of all information and papers, the draft rules had said.

The regulator, however, intends to continue with the claim redressal mechanism that it had proposed in the draft regulations along with a review mechanism to be adhered to by each insurance company.

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