The primary legislation regulating the Indian insurance sector is the Insurance Act, 1938 (the “Insurance Act”) and the Insurance Regulatory and Development Authority Act, 1999 (the “IRDA Act”).

Recently, the Ministry of Finance proposed significant amendments to the Insurance Act and the IRDA Act through the Insurance Laws (Amendment) Bill, 2022 which, if brought into force in its current form, will result in various significant changes to registration requirements and operational matters.

The Marine Insurance Act, 1963 has its basis in the UK Marine Insurance Act 1906. Though the Marine Insurance Act primarily regulates marine insurance, the Indian courts (in a manner akin to the courts in the UK) have extended some of the principles of the Marine Insurance Act to non-marine insurance contracts.

Indian courts are constitutionally mandated to follow the precedent system, which is based on the doctrine of stare decisis as far as questions of law are concerned. The lower courts are bound to follow the decisions of the courts above them in the hierarchy. Therefore, the decisions of the Supreme Court of India are binding on all lower courts. However, it is not uncommon to see conflicting decisions.

Insurance and reinsurance companies and insurance intermediaries in India are governed by the Insurance Regulatory and Development Authority of India (IRDAI). Insurance entities set up in the International Financial Services Centre (IFSC) in India are additionally governed by the International Financial Services Centres Authority (IFSCA).

Pursuant to the powers granted to the IRDAI under the IRDA Act, the IRDAI has issued various regulations governing the licensing and functioning of insurers, reinsurers and insurance intermediaries. The regulations issued by the IRDAI govern a wide range of aspects, including:

• registration of Indian insurers;
• registration of the IFSC Insurance Office (IIO);
• registration of the IFSC Insurance Intermediary Office;
• establishment and closure of liaison offices in India by an insurance company registered outside India;
• the assets and solvency margins required to be maintained by insurers;
• issuance of capital;
• manner of preparation of financial statements;
• commission/remuneration and reward structures;
• outsourcing arrangements; and
• registration requirements and corporate governance norms for companies operating in the insurance sector.

The regulations issued by the IRDAI govern all insurers, that is:

• life insurers;
• general insurers;
• standalone health insurers; and
• reinsurers.

In addition, the IRDAI regulations govern all insurance intermediaries, that is:

• insurance brokers;
• corporate agents;
• web aggregators;
• third-party administrators;
• surveyors and loss assessors; and
• insurance marketing firms.

Further, the Foreign Exchange Management (Insurance) Regulations 2015 (the “FEMA Insurance Regulations”) regulate the manner in which a person resident in India (that is, a person who has been residing in India for more than 182 days in the preceding financial year) can take or continue to hold a general insurance or a life insurance policy issued by an insurer outside India.

The Reserve Bank of India (RBI) has also issued Master Direction – Insurance of 1 January 2016 (as amended), which, read with the FEMA Insurance Regulations, provides guidance on various issues including issuing policies, collecting premiums and settling claims with respect to general, life and health insurance policies.

Under the Insurance Act, an Indian insurance company is permitted to carry on insurance business in India. An Indian insurance company is a public limited company formed under the Companies Act, 2013, which exclusively carries on life insurance business, general insurance business, health insurance business or reinsurance business.

An entity that seeks to carry on insurance business is required to apply for a certificate of registration from the IRDAI in accordance with a three-stage process set out under the IRDAI (Registration of Indian Insurance Companies) Regulations, 2022, as amended (the “Registration Regulations”). The Registration Regulations repeal the IRDA (Registration of Indian Insurance Companies) Regulations, 2000. Some notable changes brought about by the Registration Regulations include that the investment in the insurance company could be made in the capacity of a private equity fund, investor, or promoter, subject to certain specific conditions.

A certificate for registration is required for each category of insurance business (ie, life, general, standalone health and reinsurance). In addition, the Registration Regulations also set out the essential requirements that an applicant applying for registration is required to fulfil, including, but not limited to:

• permissible foreign investment limits;
• minimum capitalisation requirements;
• minimum qualifications of the directors and principal officers;
• planned infrastructure; and
• general track record of conduct and performance of each of the Indian promoters and foreign investors in the business or profession they are engaged in.

The applicant must also provide adequate documentation in support of their application as prescribed under the Registration Regulations.

Foreign Reinsurers

The Insurance Act also permits the establishment of foreign reinsurer branches as well as the setting up of service companies under the Lloyd’s India framework. Foreign insurers may apply for registration of a foreign reinsurer branch in accordance with the IRDAI (Registration and Operations of Branch Offices of Foreign Reinsurers Other than Lloyd’s) Regulations, 2015 (the “Branch Office Regulations”), and syndicates of Lloyd’s may participate under the Lloyd’s India framework (“Syndicates of Lloyd’s India”) through a service company set up in India in accordance with the IRDAI (Lloyd’s India) Regulations, 2016. 

The Branch Office Regulations specify the eligibility criteria of a foreign reinsurer, such as:

• credit rating;
• infusion of minimum assigned capital into the foreign reinsurer branch;
• in-principle clearance from home country regulator; and
• commitment to meeting all liabilities of the foreign reinsurer branch.

Further, foreign reinsurers can also be registered with the IRDAI as a cross-border reinsurer (CBR) in accordance with the IRDAI’s Guidelines on Cross-Border Reinsurers of 22 January 2021 (the “CBR Guidelines”). This is a single-stage application for allotment of a filing reference number made through cedants who wish to conduct business with that CBR. The CBR Guidelines specify eligibility criteria for CBRs, such as authorisation from the home country regulator, credit rating, solvency margin and claims settlement experience.

A foreign reinsurer may also apply to the IFSCA in order to set up a branch within the IFSC and obtain registration as an IIO for carrying on reinsurance business. For setting up an IIO, a foreign reinsurer is required to comply with the IFSCA (Registration of Insurance Business) Regulations, 2021 (the “IIO Regulations”) and the IFSCA (Operation of International Financial Services Centres Insurance Office) Guidelines, 2021 (the “IIO Guidelines”) which govern the registration requirements for an entity seeking to conduct the reinsurance business in the IFSC.

Premiums received on account of insurance and reinsurance business attract applicable taxes, including goods and services tax. Income tax laws provide deductions to the policyholder on life and health insurance premiums paid.

Overseas, non-admitted insurers cannot write direct insurance business in India. As a general rule, the purchasing of insurance from overseas insurers by Indian residents is prohibited in India, unless the purchase falls within the general or specific approval of the RBI.

Non-admitted insurers who have registered with the IRDAI as CBRs can write reinsurance of Indian risks from overseas in accordance with the IRDAI’s regulations on the reinsurance of life and general insurance business.

In addition to this, the IRDAI has issued Guidelines on the Establishment and Closure of Liaison Office in India by an Insurance Company registered outside India of 17 October 2022 which lay down the framework for overseas insurers to open liaison offices in India.

Indian residents are permitted to purchase health insurance policies from overseas insurers provided the aggregate remittance (including premium) does not exceed the limits prescribed by the RBI under the LRS. Indian residents are also permitted to purchase insurance policies in respect of any property in India or any ship, vessel or aircraft registered in India with an insurer whose principal place of business is outside India – though only with the IRDAI’s prior permission.

The overarching regulatory framework for the reinsurance of risks is laid down by the IRDAI (Re-insurance) Regulations, 2018 (the “Reinsurance Regulations”). The guiding principle is maximising retention within India, so each insurer must maintain the maximum possible retention commensurate with its financial strength and volume of business, and ensure that it is not merely “fronting” for a reinsurer or retrocessionaire.

In this regard, fronting is defined as a process of transferring risk in which an Indian insurer cedes or retrocedes most of or all of the assumed risk to a reinsurer or retrocessionaire.

Recently, the IRDAI circulated an exposure draft on the IRDAI (Re-insurance) (Amendment) Regulations, 2022 which proposes to modify the existing Reinsurance Regulations.

Acquiring Stakes

The insurance sector has, in recent years, been abuzz with the news of new players looking to acquire stakes in insurance companies and insurance intermediaries. While such restructuring is a complicated process in itself, the approval requirements stipulated by the IRDAI additionally extend the process. Sections 35, 36 and 37 of the Insurance Act prescribe the procedure for obtaining the approval of the IRDAI for amalgamation and transfer of insurance business of insurers. The IRDAI has also notified the scheme rules which prescribe the procedure required to be complied with by insurers for the purpose of amalgamations and transfer of business.

The parties are required to prepare a scheme which sets out the agreement under which the transfer or amalgamation is proposed to be effected, and containing such further provisions as may be necessary for giving effect to the scheme. Two months prior to making an application to the IRDAI for the approval of such scheme, a notice of intention to make such application is required to be sent to the IRDAI, along with a statement of the nature of the transaction and the reasons thereof, and four certified copies of the following documents:

• a draft of the agreement or deed under which it is proposed to effect the amalgamation or transfer;
• balance sheets in respect of the insurance business of each of the insurers concerned in such amalgamation or transfer;
• a report on the proposed amalgamation or transfer, prepared by an independent actuary who has never been professionally connected with any of the parties concerned in the amalgamation or transfer in the preceding five years;
• actuarial reports and abstracts in respect of the insurance business of each of the insurers; and
• any other reports on which the scheme of amalgamation or transfer was founded.

The statutory and regulatory framework lays down the manner in which approval of the IRDAI may be sought, the documents required, as well as the pre- and post-approval actions required to be complied with by the parties.

Amalgamations

In addition to the foregoing, pursuant to the powers conferred under Section 37A of the Insurance Act, the IRDAI also has the power to prepare a scheme of amalgamation of an insurer with another insurer, where the IRDAI is satisfied that such an amalgamation is necessary in the public interest, in the interest of policyholders, in order to secure the proper management of an insurer, or in the interest of the insurance business of the country as a whole.

Transferring amalgamation of business of an insurer without the approval of the IRDAI is also grounds for suspension of the insurer’s certificate as issued by the IRDAI. Through a circular titled Transfer of Shares of the Insurance Companies of 23 July 2020, the IRDAI clarified that provisions with respect to transfer of shares will apply mutatis mutandis to the creation of a pledge or any other kind of encumbrance over shares of an insurer by its promoters.

Recently, Exide Life Insurance Company Limited merged with HDFC Life Insurance Company Limited, and Bharti AXA General Insurance Company Limited was acquired by ICICI Lombard General Insurance Company Limited. Further, the IRDAI has given the final approval to GoDigit General Insurance Limited and in-principle approval to IndiaFirst Life Insurance Company Limited for listing on the stock exchange.

The IRDAI has issued regulations setting out the licensing or registration requirements and procedures for all recognised intermediaries, including insurance agents, corporate agents, brokers, surveyors, third-party administrators, web aggregators, insurance repositories and insurance marketing firms. 

The IRDAI has issued the IRDAI (Insurance Intermediaries) (Amendment) Regulations, 2022 which amend the maximum number of arrangements that a corporate agent is permitted to enter into with life, general and health insurers under the IRDAI (Registration of Corporate Agents) Regulations, 2015, as well as amend the maximum limit of tie-ups permitted to insurance marketing firms with life, general and health insurers and increase their area of operation under the IRDAI (Registration of Insurance Marketing Firm) Regulations, 2015.

Individual Insurance Agents

An application for a licence as an individual insurance agent is required to comply with the conditions provided under the Insurance Act and regulations issued by the IRDAI in this regard. Individual agents are required to have completed practical training and possess the requisite knowledge for soliciting insurance business before applying for a licence. Individual agents are expected to only engage in insurance distribution services and are permitted to solicit business for only one insurance company engaged in each class of insurance business.

Corporate Agents

Entities eligible to operate as corporate agents include firms, banks, non-banking financial companies, co-operative societies, NGOs and companies. Corporate agents are permitted to engage in any business as their main business, other than insurance distribution. However, if a corporate agent has a main business other than insurance distribution, the corporate agent is not permitted to make the sale of its products contingent on the sale of an insurance product, or vice versa. Corporate agents are allowed to have arrangements with a maximum of nine insurers in each class of insurance business.

Insurance Brokers

Insurance brokers are required to exclusively carry out the distribution of insurance products. Any company, limited liability partnership or co-operative society may apply to the IRDAI for grant of an insurance broker certificate of registration. Applicants can register as direct brokers, reinsurance brokers, or composite brokers (involved in both direct and reinsurance broking). The minimum capital is INR7.5 million for direct brokers, INR40 million for reinsurance brokers and INR50 million for composite brokers. All insurance brokers are required to be part of the Insurance Brokers Association of India.

Insurance Marketing Firms

Entities that are licensed as insurance marketing firms are permitted to distribute insurance products along with mutual funds, pension products and certain other financial products, provided that permissions are in place to distribute those financial products from the respective regulator. IMFs are required to have a minimum net worth of INR1 million. They are also permitted to undertake survey functions through licensed surveyors on their rolls, policy servicing activities, and other activities which are permitted to be outsourced by insurers under the applicable regulatory framework. IMFs are allowed to have tie-ups with a maximum of six insurers in each class of insurance business.

Web Aggregators

An entity such as a company or a limited liability partnership that is registered as a web aggregator is permitted to display on its website information on insurance products of those insurers with whom the web aggregator has entered into an agreement. The web aggregator is also permitted to display product comparisons on its website, carry out activities for lead generation and share leads with insurers. A web aggregator is required to have a minimum capital of INR2.5 million.

POSP

The IRDAI has issued guidance for the appointment of a point-of-sales person (POSP) for solicitation and servicing of point-of-sale products on behalf of life, general and health insurers. A POSP may be appointed by either an insurer or an insurance intermediary. The entity engaging the POSP is required to train the POSP and conduct an in-house examination of such POSP, in accordance with the norms issued by the IRDAI.

MISP

The IRDAI has issued the Guidelines on Motor Insurance Service Providers (the “MISP Guidelines”) to regulate the role of automobile dealers in the distribution and servicing of motor insurance products. A duly registered MISP is permitted to solicit, procure and service motor insurance policies for insurers or insurance intermediaries, as the case may be, in accordance with the provisions of the MISP Guidelines.

All insurance policies in India contain insuring clauses, general conditions, exclusions and definition sections. The insuring clause, exclusion and definition wording depends on the type of policy being issued and cover requested, though the conditions are fairly standard in that they will include notification, co-operation, consent, changes in material risk and other insurance clauses. These clauses can be deleted or modified by way of endorsements.

Wording of insurance contracts is highly regulated in India. In relation to various forms of general insurance, it is noted that the erstwhile Tariff Advisory Committee (TAC) – a statutory body that was established under the Insurance Act – issued a standard form of policy terms and conditions relating to fire, marine (hull), motoring, engineering, industrial risks and workmen compensation, which cannot be deviated from by insurers and to date are still required to be followed for most businesses.

However, the tariff general regulations, terms, conditions, clauses, warranties, policy, add-ons, endorsement wording and proposal form applicable to specific coverage under fire and allied perils insurance business governed by the erstwhile All India Fire Tariff 2001 have been de-notified with effect from 1 April 2021. In this context, the IRDAI has also issued the Guidelines for Standard Products for Fire and Allied Perils for Dwellings, Small and Micro Businesses, in accordance with which insurers are now required to replace the policy wording of the identified categories with the standard terms and conditions issued thereunder.

In addition, the IRDAI’s circular on Filing of fire insurance products for Dwellings, Micro and Small Businesses of 12 May 2022 permits general insurers to design and file “alternative products” covering fire and allied perils for dwellings, micro and small businesses. Further, the IRDAI has issued an exposure draft on Long-Term Fire Insurance products of 7 December 2022 covering fire and allied perils in variation to the “standard products” and “alternative products”.

In addition, for health insurance policies, the IRDAI has specified a standard set of definitions, general conditions, exclusions, standard nomenclature for critical illness, and a standard list of generally excluded expenses. The IRDAI has also specified a number of regulatory requirements and conditions vis-à-vis coverage and presentation of health insurance policies, making these policies highly regulated.

Policy Terms

There are also extraneous rules that have an impact on policy terms. For example, the Insurance Act gives the policyholder a right to override contrary policy terms in favour of Indian law. The IRDAI (Protection of Policyholders’ Interests Regulations), 2017 (the “Policyholders Regulations”) prescribe certain matters to be mandatorily incorporated in life insurance, general insurance and health insurance policies. Some of the key requirements are as follows:

• the name and unique identification number (UIN) allotted by the IRDAI for the product, its terms and conditions, and details of the sales person;
• benefits payable and the contingencies upon which these are payable, and the other terms and conditions of the insurance contract, including any riders/endorsements;
• details of the nominee(s);
• the premiums payable, frequency of payment, grace period allowed, and implication of discontinuing the payment of an instalment of the premium;
• any special clauses, exclusions or conditions imposed on the policy;
• the address and email of the insurer to which all communications in respect of the policy must be sent;
• details of the insurer’s internal grievance redressal mechanism, along with the right of the insured to approach the insurance ombudsman with requisite territorial jurisdiction;
• the list of documents that are normally required to be submitted in the case of a claim.

Where exclusions are to be stipulated in the policy, the Policyholders Regulations require that, wherever possible, insurers must endeavour to classify the exclusions into the following:

• standard exclusions applicable in all policies;
• exclusions specific to the policy which cannot be waived; and
• exclusions specific to the policy which can be waived on payment of an additional premium.

Similarly, to provide clarity and understanding of the conditions to the policyholder, insurers are also required to try to broadly categorise policy conditions into the following:

• conditions precedent to the contract;
• conditions applicable during the contract;
• conditions when a claim arises; and
• conditions for the renewal of the contract.

While a broad product classification based on the target customer base exists under general insurance and health insurance policies in India, the above requirements apply uniformly to consumer contracts as well as commercial contracts.

In the year 2020–21, the IRDAI also standardised various general, health, and life insurance policy wordings for insurers across the board to adhere to.

Good Faith and Other Obligations

It is a fundamental principle of insurance law that utmost good faith (uberrimae fide) must be observed by the contracting parties. The duty of utmost good faith places an obligation on the insured to voluntarily disclose all material facts which are relevant to the risk being insured. If there has been a misrepresentation or non-disclosure of a material fact, an insurer can avoid the policy from the beginning. Even though a policy may not expressly say so, all insurance policies are based on this principle.

Further, the Indian Marine Insurance Act, 1963 and the Policyholders Regulations mandate that an insured is under an obligation to disclose all material information sought by the insurer in the proposal before the inception of the policy. An insurer is therefore entitled to receive full and fair disclosure of the material information that would influence the judgement of the insurer in determining whether to accept or reject the risk. The Supreme Court has stated this is to be done through the proposal form.

The Policyholders Regulations also impose an obligation on the insured to disclose all material information. This forbids the insured from concealing what they privately know, with a view to drawing the insurer into a bargain based on their ignorance of that fact. The insured’s duty to disclose is not confined to the facts which are within his knowledge, but extends to all material information which the insured ought to have known. The duty of good faith is of a continuing nature.

An insurer is entitled to receive fair presentation of the risk. If there is a misrepresentation or non-disclosure of a material fact, the insurer has the right to void the policy ab initio. Unless the misrepresentation or non-disclosure was fraudulent, the premium must be returned to the policyholder. In the case of life insurance policies, the policy cannot be called into question on any grounds (including fraud) after the completion of three years from the date of the issuance or the revival of the policy.

An insurance intermediary involved in the negotiation of contract is required to recommend insurance to a prospect taking into consideration the needs of the prospect. Intermediaries are expected to act in the interest of policyholders.

Insurance is a contract of indemnity. Though insurance is a contract, in order to be a valid insurance contract it should have something more than what in general is required under a normal contract as per the Indian Contract Act, 1872. It is not sufficient for an insurance contract that the contracting parties should have capacity to contract – a person entering into a contract of insurance must also have insurable interest in the subject matter of the contract. The element of insurable interest must be present in all types of insurance, failing which it would simply be a wagering contract that would be void.

An insurance contract is required to contain certain mandatory clauses as enumerated in 6.1 Obligations of the Insured and Insurer.

The present regulatory framework does not set out express norms on the payment of claims to unnamed insureds, so, typically, coverage of such parties largely depends on the terms and conditions of the underlying insurance policy.

The Reinsurance Regulations issued by the IRDAI define a contract of reinsurance as a legally binding document on all the parties that provides a complete, accurate and definitive record of all the terms and conditions and other provisions of the reinsurance contract. Reinsurance arrangements do not need to be pre-approved by the IRDAI, but they need to be documented and filed with the IRDAI within the stipulated time period.

ART was expressly recognised in India by way of the Reinsurance Regulations in 2018. The Reinsurance Regulations stipulate that an Indian insurer intending to adopt ART solutions must submit such proposals to the IRDAI. The IRDAI may, after necessary examination and on being satisfied with the type of ART solution, allow the ART proposal on a case-by-case basis. The Reinsurance Regulations do not expressly set out the benchmarks on which the IRDAI shall examine these proposals.

Per the directions of the IRDAI issued in 2004, any ART arrangement has to be accounted for based on the principle of “substance over form”. If the agreement is in the nature of reinsurance coupled with a financing arrangement, and the components are capable of separation, each element should be accounted for as per the Generally Accepted Accounting Principles (GAAP).

However, in cases where the aforementioned components are not separable, the entire arrangement should be treated as a financial transaction and should be accounted for accordingly. All non-life insurers are required to account for the ART arrangements by looking into the “substance over form”, and account for this as per the GAAP.

When interpreting insurance contracts, Indian courts have held that while construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not permitted for the court to add, delete or substitute any words. It has also been observed that, because upon issuance of an insurance policy the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed in order to determine the extent of the liability of the insurer.

The general rule is that, where the contract is expressed in writing, oral evidence is inadmissible to explain or vary the terms of a written contract. Although a contract must always be construed according to the intention of the parties, that intention can only be ascertained from the instrument itself. All other evidence of intention is excluded because, when an agreement is reduced to writing, the parties thereto are bound by the terms and conditions of that agreement.

In the event that any policy provision is ambiguous or there is uncertainty as to the meaning or intention of the provision, then this is to be construed contra proferentem – that is, against the maker of the document.

Warranties are the clauses which form the basis of the contract of insurance. Usually, clauses which are meant to operate as warranties are expressly stated to be as such in the insurance policies. All warranties under an insurance policy must be strictly complied with, whether material to the risk or not. If a warranty is breached, an insurer is discharged from all liability under the policy.

Usually, an insurance policy will expressly state the provisions which are conditions precedent to liability. If any condition precedent has been breached, the insurer has the right to repudiate the claim. However, where it is not expressly stated, the Indian courts will make efforts to decide whether a particular clause is merely a condition or a condition precedent to the insurer’s liability.

Insurance policies are structured to incorporate comprehensive mechanisms for dispute resolution both in respect of coverage and quantum disputes. Insurance policies typically include details of the insurance ombudsman, who is appointed to address complaints by the insured, inter alia in relation to the settlement of claims.

The IRDAI requires insurers to formulate a grievance redressal policy and file it with the IRDAI. An insurer is also required to provide the details of the grievance redressal mechanism within the policy. Policyholders who have complaints against insurers are first required to approach the grievance or customer complaints department of the insurer.

Insurers are required to form a part of the Integrated Grievance Management System (IGMS) put in place by the IRDAI to facilitate the registering/tracking of complaints online by the policyholders. In cases of delay or no response relating to policies and claims, the IRDAI can take up matters with the insurers to ensure speedy resolution. While policyholders, claimants or the insured can approach the IRDAI for assistance, advocates, agents and other third parties are not allowed to approach the IRDAI.

Insureds

Insureds have no exclusive judicial venues available to them for resolution of insurance or reinsurance disputes. Insureds are however treated in law as consumers of insurance services and can therefore approach the consumer courts for relief. Insureds can also approach commercial courts or civil courts, depending upon the value of the claim, or invoke arbitration for recovering monies under an insurance policy, provided the insurance policy does not contain an arbitration clause. However, the right to approach a consumer forum exists even where there is an arbitration clause. 

The consumer courts follow a three-tier hierarchy which, in ascending order, is as follows:

• the District Consumer Disputes Redressal Commission (the “District Commission”);
• the State Consumer Disputes Redressal Commission (the “State Commission”); and
• the National Consumer Dispute Redressal Commission (the “National Commission”).

District Commissions have the jurisdiction to deal with complaints arising out of a contract, for services or goods involving allegations of “deficiency in service”, where the consideration does not exceed INR5 million. For the State Commission, the threshold is above INR5 million up to INR20 million, whereas the National Commission can take up original complaints where the consideration is above INR20 million. The District Commission and the State Commission must also possess the necessary territorial jurisdiction. Appeals against the decisions of the State Commission are heard by the National Commission. An appeal from the decision of the National Commission lies before the Supreme Court of India. The consumer courts follow a summary procedure to ensure quick adjudication of disputes.

Insureds can also approach the insurance ombudsman for disputes relating to or deficiency of performance arising out of the policy, or any other violation of the Insurance Act against the insurer, its agents and intermediaries, provided their claim value is under INR3 million. 

Insureds can also file a commercial suit against an insurer for enforcing their claims. The Commercial Courts Act, 2015 recognises insurance disputes as commercial disputes over a value of approximately INR300,000 and provides for a fast-track procedure for adjudicating disputes.

Coverage, Limitation Periods and Beneficiaries

Disputes pertaining to coverage are rarely arbitrated. Insurance policies generally provide for arbitration in the case of quantum disputes only and coverage disputes are usually excluded. The exception to such exclusions may, in certain cases, be liability policies.

The limitation period for making an insurance claim before a consumer court is two years. For commercial suits and arbitration, the limitation period is three years from the date of rejection of the claim by an insurer or from the date on which the claim arose, as may be applicable.

Unnamed beneficiaries or third parties cannot enforce rights under a general insurance contract. Typically, general insurance contracts have clauses which prohibit assignment of rights under an insurance contract to a third party without the consent of the insurer.

Indian courts are increasingly enforcing the choice of law and jurisdiction made by parties in a contract. Party autonomy is respected save where public interest/policy issues are involved. Where an express choice of law and jurisdiction has not been specified in a contract, Indian courts will usually apply conflict-of-law principles to determine the forum and law which is closest to the dispute. Even in the case of arbitration, a similar approach has been followed. India is a signatory to the New York Convention and the Geneva Convention for enforcement of foreign awards.

An insured may, depending on the facts of the case, approach a civil/commercial court, or a consumer court. Proceedings before the consumer courts are summary in nature. This means that typically no cross-examination of witnesses takes place and the dispute is adjudicated based on the documents filed and arguments led by the parties.

The broad ascending hierarchy of the civil courts is similar to the consumer courts. It comprises approximately 600 District Courts, 25 High Courts and the Supreme Court (the highest court in India). Among the 25 High Courts, five High Courts of Calcutta, Madras, Bombay, Delhi and Himachal Pradesh have original jurisdiction, which means that matters above particular pecuniary thresholds will be heard by the High Court in the first instance. For some of these five High Courts, there are territorial limits within which the cause of action must arise for it to be heard by the High Court at the first instance. 

Trials before the civil courts follow the usual process of pleadings, evidence and arguments as in other common law jurisdictions and can take an unusually long time to conclude.

Special Benches

The Commercial Courts Act, 2015 carves out special benches in all existing civil courts which adjudicate commercial matters exclusively. Since the Commercial Courts Act, 2015 recognises insurance disputes as commercial disputes, all insurance disputes valued above INR300,000 are now required to be filed before a commercial court with appropriate territorial jurisdiction at the district level, and are no longer filed before civil courts. There are fixed timelines that all commercial courts need to follow, and the legislation is meant to speed up the adjudication process. The statute also provides for compulsory mediation for parties before filing of a commercial suit, except where a party seeks urgent interim relief.

Appeals against the orders of the commercial courts of first instance lie before the Commercial Appellate Court or the Commercial Appellate Division of the concerned High Court (as the case may be), and the Commercial Courts Act, 2015 does not allow for any further appeals from the orders of either the Commercial Appellate Court or the Commercial Appellate Division of a High Court.

Indian litigation can often be time-consuming and potentially expensive. The number of reported pending cases is close to 49 million. Attempts to clear the backlog have not yielded the desired results, even though the inception of commercial courts has somewhat expedited the trial process. Overall, no consistent improvement has been noticed and the process is still slow and, as mentioned, potentially expensive.

The pendency statistics may however not provide an accurate picture, since some of these matters may not even be in a position to be heard on account of various non-compliance by the parties.

The Indian Code of Civil Procedure, 1908 (CPC) lays down the procedure for enforcement of Indian and foreign judgments. The basic principle which is followed while enforcing a foreign judgment or decree in India is to examine whether the foreign judgment or decree is a conclusive one, based on the merits of the case and by a superior court having competent jurisdiction. Furthermore, a foreign judgment can be enforced in India by filing an execution petition under Section 44-A of the CPC, if the judgment is passed by a court in a reciprocating territory.

In the case of a judgment passed by a court in a non-reciprocating territory, a suit may be filed upon the foreign judgment or decree. In such situations, the foreign judgment is considered of evidentiary value only. The process of enforcement of judgments can also prove to be slow in such cases.

Domestic Arbitration

Typically, Indian courts strictly enforce arbitration clauses. This position holds true for insurance and reinsurance contracts as well.

The courts generally refer a dispute to arbitration after checking for the existence of an arbitration agreement and the arbitrability of the dispute (ergo omens effects), and let the arbitral tribunal decide jurisdictional issues such as novation, settlement and limitation. However, in extremely rare cases where the dispute is ex facie time-barred or there are no subsisting disputes, the court has the discretion to refuse a reference.

The courts have recognised a few additional, but not exhaustive, categories of subject matter, such as those involving disputes relating to criminal offences, matrimonial disputes, guardianship disputes, insolvency, disputes under the Trusts Act, 1882 and winding-up and testamentary disputes, which ought not to be arbitrated. Additionally, the courts have also held that a party who has approached a consumer commission cannot be forced to arbitrate the dispute (where such an agreement exists) since the Consumer Protection Act is a beneficial legislation and provides an independent right of action to a consumer.

An arbitration agreement, as per the Arbitration and Conciliation Act, 1996 (the “Arbitration Act”), must be in writing and signed by the parties. The agreement should reflect the intention of the parties to submit their dispute(s) to arbitration. The arbitral tribunal to be constituted should be empowered to adjudicate the dispute(s) in an impartial manner. The parties should have also agreed that the decisions of the arbitral tribunal shall be binding on them. 

However, there is no prescribed form required for the purpose of an arbitration agreement. While it is advisable to have an arbitration clause in the contract itself, it may not be mandatory. An arbitration agreement may also come into existence if it is contained in a subsequent exchange of letters, telex, telegrams or other means of telecommunications (including by electronic means) which provide a record of the intent to arbitrate.

The reference in a contract to another document which contains an arbitration clause would have the effect of incorporation if the contract is in writing and the reference is such that it captures the intention of incorporating the arbitration clause as part of the contract.

Foreign Arbitration

Even for foreign-seated arbitrations, the position remains broadly the same. Courts are typically inclined to refer disputes with an arbitration clause to arbitration.

Section 45 of the Arbitration Act requires an Indian court seized of any dispute to refer the parties to arbitration at the request of any one of the parties “unless it prima facie finds that said agreement is null and void, inoperative and incapable of being performed”. 

The enforcement of domestic awards is governed by Part I of the ACA, while enforcement of foreign arbitration awards rendered in a recognised jurisdiction is governed by Part II of the ACA. Both domestic and foreign awards are enforced as a decree of the civil court.

A domestic award may be enforced only after the expiry of three months from the date on which the arbitral award was received. Three months is significant here as this is the time period within which a party has a right to challenge the award. After three months, the decree holder can initiate proceedings to enforce the award, and such proceedings are to continue unless the court deciding the challenge to the award has stayed the enforcement of the award in question on such terms as reasoned by the court. The condition for staying the enforcement of an award is generally the deposit of 100% of the awarded sums with the court.

The ACA was amended in 2020, whereby a court can grant an unconditional stay on enforcement if it prima facie finds that the award was obtained by fraud or corruption.

Conventions

India is a party to the New York Convention and the Geneva Convention, and therefore if the seat of arbitration is a country which is signatory to the New York Convention or the Geneva Convention dealing with recognition and enforcement of foreign awards, Indian courts would be in a position to enforce convention awards.

The party applying for enforcement of a foreign award is required to produce the following, as evidence:

• the original award or a duly authenticated copy of the award;
• the original arbitration agreement or a duly certified copy thereof; and
• such other evidence necessary to prove that it is a foreign award.

The grounds for refusing enforcement of a foreign award in India are the same as those laid down in the New York Convention. These include:

• incapacity of parties or invalidity of the arbitration agreement;
• violation of principles of natural justice;
• the award being beyond the scope of the arbitration agreement;
• the composition of the tribunal not being in accordance with the agreement between the parties or the law of the country where the arbitration took place;
• the award having not yet become binding between the parties or having been set aside or suspended at the seat of the arbitration;
• the subject matter of the arbitration not being arbitrable; and
• the award being contrary to public policy.

In the context of a foreign arbitration, the scope of public policy has been watered down to reduce the scope of court intervention.

Where a court is of the view that there are elements of settlement that may be acceptable to parties before it, it may formulate the possible terms of settlement, take the view of the parties and refer the parties to:

• arbitration;
• conciliation;
• judicial settlement, including settlement through Lok Adalat; or
• mediation.

This power is derived from Section 89 of the CPC. 

Such reference will require the consent/agreement of the parties where such consent/agreement is otherwise required under law, for instance in the case of arbitration. 

Mediation proceedings and settlement discussions are typically confidential, though in certain circumstances the mediator may be required to file a report before the court if so directed.

The Consumer Protection Act, 2019 gives the discretion to the Commission to refer the dispute to mediation with the consent of the parties if there exist elements of settlement which may be acceptable to the parties (except in matters relating to criminal and non-compoundable offences, fraud, medical negligence, et al). Following this, the government has also issued the Consumer Protection Mediation Rules, 2020.

In practice, courts in India are now progressively encouraging parties to explore the possibilities of an out-of-court settlement with a view to end litigation between them. The courts usually have in-house mediation centres where experienced senior lawyers are appointed to act as mediators to try and resolve long-pending disputes.

Pre-institution Mediation

Section 12A of the Commercial Courts Act, 2015 requires a plaintiff (to a suit) to mandatorily exhaust the remedy of “pre-institution mediation” before it can institute the suit. This otherwise mandatory requirement need not be exhausted in the event urgent interim measures are sought by the plaintiff.

The Policyholders Regulations prescribe the claims procedure that is required to be followed by insurers to ensure expeditious processing of claims. These regulations work towards ensuring that insurers settle claims on time. Insurers are required to pay interest at the rate of 2% above the prevalent bank rate in cases where there is delayed payment of the claim amount.

There is statutory and judicial recognition to the right of subrogation. For statutes, the Marine Insurance Act, 1963, specifically Section 79, provides for the insurer’s right to subrogation.

Equally, Indian courts have recognised subrogation as an equitable corollary of the principle of indemnity, under which the rights and remedies of the insured against the wrongdoer are transferred to and vested in the insurer.

No separate contractual clause is required to trigger this; however, in practice, policies do also contain subrogation clauses and insurers will frequently obtain “subrogation letters” and an “assignment” of the third-party claim from the insured. The Policyholders Regulations also obligate an insured to assist its insurer in recovery proceedings, if the insurer so requires.

Applications, artificial intelligence, telematics and the internet of things (IoT) are examples of insurtech which are being utilised by insurers in India for transforming the way insurers do business in India. Some examples of the use of insurtech are detailed below.

Websites and Apps

Indian insurers and intermediaries are partnering with tech companies to develop websites and mobile applications to facilitate the sale and servicing of insurance policies online. Insurers are also collaborating with various tech companies to digitise customer verification, underwriting, premium payment and claims-processing functions, and to automate the policy-issuance and claims-settlement processes.

Health Insurance

Health insurers are collaborating with fitness technology firms to track users’ behaviours and offer insurance discounts to those who have a healthier lifestyle. General insurers are collaborating with tech companies to explore IoT solutions to track, inter alia, cargo, theft, hijack attempts and wastage.

The IRDAI has issued various norms to address technological advancements and to regulate insurtech developments. The key regulatory changes are summarised as follows.

• With the significant increase in e-commerce transactions over recent years, the IRDAI has recognised the sale and servicing of insurance products online as well as the issuance of e-insurance policies. The Guidelines on Insurance e-commerce of 9 March 2017 lay down provisions for setting up insurance self-network platforms by insurers and insurance intermediaries, for undertaking the sale and servicing of insurance activities in India.
• To counteract issues of data privacy and data breach, the IRDAI issued the Guidelines on Information and Cyber Security for Insurers of 7 April 2017 (the “Cybersecurity Guidelines”) to stipulate the norms on, inter alia, information asset management, data security, application security, endpoint security, cloud security and incident management, which are required to be complied with by insurers and reinsurers. Further, through its circular Re: Guidelines on Information and Cyber Security of 2 September 2022, the IRDAI extended the applicability of the Cybersecurity Guidelines to insurance intermediaries.
• The Master Guidelines on Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) 2022 provides for a “Video-Based Identification Process” (VBIP) as one of the methods for insurers to perform mandatory KYC processes of their customers.
• The IRDAI has also issued its circular Product Structure for Insurance of Remotely Piloted Aircraft System (RAPS)/Drones of 11 February 2021, which provides model policy wordings. General insurers have the flexibility to design and develop their own product, keeping in view the minimum coverage specified in the guidelines.
• The IRDAI has recently issued an exposure draft on Issuance of e-Policies Regulations 2022 of 29 September 2022, wherein the IRDAI proposed a mandatory electronic insurance account which would consist of all the policies of the policyholder and that, subject to prescribed exemptions, every insurer is required to issue policies in electronic form.
• The IRDAI issued its circular Participation in Account Aggregator Framework of 14 November 2022 to provide guidance on the participation of Indian insurance companies and insurance repositories (ie, NSDL, CDSL, Karvy and CAMS) in the RBI’s account aggregator framework.

There has been a growing number of cyber-insurance covers being issued, and claims being made under them. This has also led to an increased requirement for forensic expert analysis for the purposes of assessment of coverage under such policies. This trend is likely to continue in view of the growing cyber-risks. However, since cybercovers are comparatively recent in this jurisdiction, there is yet to be any litigation involving cyberpolicies.

Recently, the Indian insurance industry has seen a wave of new insurance products, partly due to regulatory and/or statutory changes and partly to new risks emerging through innovations in other industries. While the industry has been typically slow to adapt and embrace new trends in terms of product offerings, new products have been filed in terms of:

• long-term insurance covers;
• health insurance covers for mental illness;
• standard life insurance products;
• standard COVID-19 health insurance products;
• telematics-based riders;
• specific endorsements for data protection and impersonation frauds (which even cover the resultant fund transfers) in both cyber and crime insurance; and
• a new range of fitness and wellness-focused products in the health sector.

Products

The IRDAI (Unit-Linked Insurance Products) Regulations, 2019 and the IRDAI (Non-Linked Insurance Products) Regulations, 2019 define revised norms vis-à-vis the design and issuance of linked and non-linked life insurance policies by life insurers in India. Further, administration of group life insurance products is now governed by the Circular on Group Life Insurance Products and other operational matters of 26 September 2019. For health insurance business, the IRDAI has issued an exposure draft on Group Insurance Products under Health Insurance Business and other operational matters of 28 April 2022.

Product Filing Procedures       

Recently, the IRDAI introduced many changes in the procedure for product filing for all lines of insurance products, as follows.

• General insurance products – the IRDAI, through a series of circulars issued in June, July and October 2022, extended the applicability of the “use and file” procedure for product filing to all general insurance products.
• Health insurance products – the IRDAI’s Circular on Use and file procedure for all categories of products under health insurance business – reg of 1 June 2022 provides that all categories of health insurance products and add-ons or riders offered (introduced or modified/revised) by general and health insurers are now permitted to be launched through the “use and file” procedure for product filing.
• Life insurance products – the IRDAI’s Circular on filing of Products/Riders for Life Insurance Business of 4 October 2022 consolidates and updates all the earlier circulars/guidelines pertaining to filing of products/riders for life insurance business, including the Circular on Use and file procedure for life insurance products and riders of 10 June 2022. It specifies that the “use and file” procedure for product filing is applicable to certain life insurance products/riders such as individual and group non-linked term products, group non-linked savings products and unit-linked insurance products offered with existing approved funds.

Recent years have been significant for the insurance sector as they have seen the issuance of several regulations and guidelines issued by the IRDAI, including the following.

• The IRDAI (Appointed Actuary) Regulations, 2022 have been issued, which repeal the earlier IRDAI (Appointed Actuary) Regulations, 2017. The new regulations revise norms on the appointment of actuaries.
• The IRDAI (Regulatory Sandbox) (Amendment) Regulations, 2022 have been issued to amend various provisions of the IRDAI (Regulatory Sandbox) Regulations, 2019, including removal of the limited validity period of the Sandbox Regulations.
• The IRDAI (Assets, Liabilities and Solvency Margin of General Insurance Business) (Amendment) Regulations, 2022 have been issued to amend the IRDAI (Assets, Liabilities and Solvency Margin of General Insurance Business) Regulations, 2016.
• The IRDAI (Actuarial Report and Abstract for Life Insurance Business) (Amendment) Regulations, 2022 have been issued to amend the IRDAI (Actuarial Report and Abstract for Life Insurance Business) Regulations, 2016.
• The IRDAI has issued the Master Guidelines on Anti Money Laundering/Counter-Financing of Terrorism (AML/CFT) of 1 August 2022 which consolidate and update the Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) – Guidelines for General Insurers of 7 February 2013 and the Master Circular on Anti-Money Laundering/Counter-Financing of Terrorism for (AML/CFT) – Guidelines for Life Insurers of 28 September 2015.
• The IRDAI (Other Forms of Capital) Regulations, 2022 have been issued to repeal the IRDAI (Other Forms of Capital) Regulations, 2015. The guidelines would be applicable to all classes of life, general and health insurance but do not apply to reinsurance business.
• Pursuant to comments from stakeholders on the exposure draft on the IRDAI (Surety Insurance Contracts) Guidelines 2021 of 8 September 2021, the IRDAI issued the IRDAI (Surety Insurance Contracts) Guidelines 2022 on 3 January 2022, which came into effect on 1 April 2022.
• The IRDAI has issued the Guidelines in respect of Conflict of Interest and Common Directorship among Intermediary or Insurance intermediary of 10 October 2022 to specify the norms related to appointment of common directors per the Companies Act, 2013.
• By way of its circular on Appointment or Continuation of Common Director(s) u/s 48A of the Insurance Act 1938 of 2 September 2022, the IRDAI superseded its earlier circular on Appointment of Common/Nominee Director(s) on the Board of Insurance Company of 30 August 2018. The circular provides the framework for appointment or continuation of common director(s) representing insurance agents, intermediaries and insurance intermediaries on the board of insurance companies per the second proviso of Section 48A of the Insurance Act.
• The IRDAI issued a circular on Revision of Health Insurance Regulatory Returns of 13 September 2022, which reduces the health insurance returns required to be filed by insurers with the IRDAI. The circular also specifies the timelines for filing health insurance returns.
• By way of its circular on Immediate Annuity Products of 13 September 2022, the IRDAI specified that the exit forms submitted by NPS retirees to the Pension Fund Regulatory and Development Authority (PFRDA) shall be treated as proposal forms for offering immediate annuity products by life insurers.
• The IRDAI has issued the Motor Vehicles (Third Party Insurance Base Premium and Liability) Rules, 2022 to revise the base premium and liability for third-party insurance for the various classes of vehicles.
• The IRDAI has recently clarified, through a circular, that the accounting of premiums, claims and related expenses of the General Insurance Corporation of India (GIC) and FRBs will be on an estimation basis.
• The IRDAI has also issued several exposure drafts, including:
1. IRDAI (Expenses of Management of Insurers Transacting General or Health Insurance Business) Regulations, 2022;
2. IRDAI (Expenses of Management of Insurers Transacting Life Insurance Business) Regulations, 2022;
3. IRDAI (Payment of Commission) Regulations, 2022;
4. Long-Term Motor Products covering both Motor Third Party Insurance and Own Damage Insurance;
5. Guidelines on Group Insurance Products under Health Insurance Business and other operational matters;
6. IRDAI (Third Party Administrators – Health Services) Regulations, 2016;
7. Guidelines on Remuneration of Non-Executive Directors and Managing Director/Chief Executive Officer/Whole-time Directors of Insurance companies;
8. IRDAI (Obligations of an Insurer in respect of Motor Third Party Insurance Business) Regulations, 2022; and
9. IRDAI (Health Insurance) (Amendment) Regulations, 2022.

While the foregoing exposure drafts are at the deliberation stage and stakeholder comments have been invited, it is anticipated that new regulations and guidelines will be issued on these and other matters in 2023.

As regards claims, while the focus used to be on more traditional lines of insurance (such as catastrophe, life, health and motor insurance), over the past decade or so the Indian insurance market has evolved and liability products such as PI, D&O, cyber policies and EPL have come to the forefront. There is familiarity and demand for these products and consequently significant claims activity. Among liability products, the past five years show there has been a steady upward trend in claims made under PI policies, and this remains the busiest claims area, followed closely by D&O.

As well as an upsurge in the frequency of claims, there has also been a sharp increase in the quantum being claimed by the insured, which means that claims severity is also on the rise. Additionally, a growing number of cyber-insurance covers are being issued, with claims being made under them. This has led to an increased requirement for forensic expert analysis for the purposes of assessment of coverage under such policies.