Consumer Protection and Insurance Sector in India

Dharanishree K1, J Lalith Kumar2

ABSTRACT
It is time to put consumers at the heart of market reforms across all sectors of the economy.
Consumer protection, in the broader sense, refers to the laws and regulations that ensure fair
interaction between service providers and consumers. Government mediation and control in
the region of shopper insurance are supported on the premise of natural data asymmetries and
power awkward nature in business sectors, with makers or specialist co-ops having more data
about the item or administration than the buyers. A buyer security system in Insurance industry
for the most part incorporates the presentation of more prominent straightforwardness and
mindfulness about the arrangements, advancement of rivalry in the commercial center,
counteractive action of extortion, instruction of clients, end of uncalled for practices and
grievance changed. The matter of protection has been without a doubt creating at a quick pace.
Be that as it may, it is far fetched whether Insurance organizations have accomplished shopper
fulfillment. Improved purchaser security is likewise an imperative new course for open strategy
and the Insurance business. This paper inspects the hazy area in Indian protection division,
legitimate and administrative structure for purchaser security in Insurance, concentrating on
value-based and non-value-based direction, supervision and authorization, and makes
proposals for enhancements.

I. 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 illness. In return, the policy owner agrees to pay certain sum of money as a
premium at regular intervals or in lump sums. Insurance sector has been one of the major
growing markets globally Indian Insurance industry has seen many diverse market controls

1
III BBA LLB(Hons), Saveetha School of Law, Saveetha University, Chennai, Tamil Nadu, e-mail:
dharanishree111@gmail.com
2
Assistant Professor of Law, Saveetha School of Law, Saveetha University, Chennai, Tamil Nadu, e-mail:
jlalithkmr@gmail.com
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 companies. 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 insurance
companies indulge into certain malpractice where leading two fold problems for the
consumers. The investment of the consumers in the form of secondary investment by the
insurance company has always been a concern for the government. Late 90s and early 2000
has witnessed the fall of many such insurance companies due to their fraudulent investments.
However, effective the law might be, the control over the funds used and their control over
investment in fraudulent activities was difficult. Despite prescribing the goals, objectives and
directives, it was tough for the government to supervise the investment and control the funds
of insurance companies. The emergence of fraud and inappropriate practices by insurance
companies further added to the requirement of consumer protection in Indian insurance sector.
It has been usually observed that consumers face huge catastrophe to redeem their insurance
policies which they have promptly taken due to some annoyance created and irritant behaviour
of 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 10% increase a
compare to that previous year 2011. Indian insurance companies have collectively lost a
massive Rs.30,401 crore due to various frauds which have taken place in the life and general
insurance segments during the years 2011-2013.

II. OBJECTIVES
1. To analyse the grey zone in Indian Insurance sector
2. To examine the consumer protection framework in the insurance industry
3. To ascertain whether insurance companies have achieved consumer satisfaction or not

III. THE GREY ZONE IN INDIAN INSURANCE SECTOR

The present scenario is quite unpleasant and cast a threatening shadow on the relationship
between the customers and the insurance companies. Their association is mutual, symbiotic
and interdependent. Therefore, there need to be better understanding of the risks, foreseeable
impact, the needs and pain points of consumers. It has become a general practice by Insurance
Companies of not making the consumer completely aware of all the demerits and flaws of their
insurance schemes. Polices are forcibly sold under wrong or misrepresentation of facts.
Therefore law needs to be stringent that makes it mandatory for these companies to disclose all
the necessary details and information regarding the policies which are being bought by the
consumer, which is their right that must be ensured at any cost. 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 consumers. It is observed that
companies 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, the charges should not be imposed.
Suitable amendments should be made to the legal provisions so that companies are not able to
display a false picture before the customer in order to influence and misguide, so that there
comes a end to their fowl play tricks. Insurance companies use several unprofessional
techniques and unethical practices 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 are not being sent by them. Innumerable cases have been filed in consumer courts and
many decisions have gone against the insurance companies. There is enough scope available
for the consumers to make use of consumer forums to stop their exploitation by these insurance
companies. Approach to justice machinery is another major grey zone for consumers due to
lack of clarity under Consumer Protection Act, 1986 and paradox established in Indian legal
system that confuses the consumer for suitable redressal forum. The Insurance Regulatory and
Development Authority (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. Further dissatisfied policyholders could
knock the doors of justice by way of litigation, which is complex, time-consuming and
cumbersome though. IRDA provides other remedies as well, i.e. Insurance Ombudsman,
Consumers Forums, and Civil Courts, Lok Adalat, Motor Accident Claim Tribunals and
Arbitration. However each system yet not play satisfactory role in resolving dispute between
the parties.
IV. OVERVIEW TO INSURANCE REGULATIONS IN INDIA
Insurance sector in India in reference to consumer could be viewed by the following laws:
1. Analysis of Insurance Act, 1938
The Insurance Act, 1938 was inefficient enough to cope problems with the open nature of the
insurance industry. Comprehensive review of the regulatory and supervisory environment was
needed under which public and private insurers shall continue the business. Therefore, the law
commission, at the request of Insurance Regulatory and Development Authority (IRDA)
initiated the practice of analysis of the Act and other legislations to concord the insurance laws
in rhythm with the free economic environment existing in the society and in the context of the
insurance institutions.
2. Insurance Regulatory and Development Authority (IRDA)
Sprouting challenges to Insurance problems were first addressed by the IRDA Act, 1999
initiated the changes in the insurance sector. This act came into force on 19th April. The aim
of this act is to furnish for the establishment of authorities to protect the welfare interests of
holders of insurance policies, promote, to regulate and ensure developments of the insurance
industry and for matters connected with or incidental to and to further amend this Act, the life
Insurance Corporation Act, 1956 and other related Acts.
The IRDA is a regulation body corporate that has perpetual succession and the power to
acquire, possess and dispose of movable & immovable property and to get into a contract, and
a common seal. Can sue and be sued. It consists of one chairperson, five whole-time members
and four part-time members appointed by the Central Government amongst persons of ability,
standing and who have knowledge and experience in life insurance, general insurance,
accounting, finance, law, actuarial science, economics, administration. The chairperson and
whole time members are able 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. Part time members shall hold office for five years. Any
member can resign his office by giving in written notice, before not less than three months.
3. Consumer Protection Redressal System
One of the factor of liberalist economy is the development of Indian Insurance Sector with the
entry of new members, knowledge about their rights has rapidly been increasing amongst the
public at a wide range. Insurers are also required to seek out grievance cells and their
performance is also monitored by them on a constant basis. Public companies have also not
remained for behind and are fast gearing up to these changes.
It is given that speedy mechanism for redressal of the problems of the holders has been provided
under the Consumer Protection Act, 1986. This act provides three fold redressal systems. They
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
Redressal Commission.
The above noted redressal agencies have jurisdiction to hear the complaints against insurers
upto 20 lakhs, above 20 lakh and upto 1 crore, and above 1 crore respectively.

a) Meaning of ‘Consumer’ as per Act

Section 2(1)(d) of this Act, a consumer means any person who:
Buys or hires any goods or services for a consideration which has been given or partly paid and
partly promised or under any system of delayed payment and include any consumer of such
goods or services.
b) Coverage of the Act
Consumer protection Act covers all services or products in the private or public sector
including education, life and general insurance, banks, retailers, health services in connection
to any product or service given to the consumer for a consideration amount.
c) Meaning of Complaint under Section 2 (1)(c) of the Act
If the allegation in written form is made about if:
i) A restrictive or unfair trade practice adopted by any trader.
ii) The goods bought by a person or agreed to be bought suffering from any defect.
iii) There is any deficiency in the product supplied or services hired.
iv) The trader has charged any excess fees as per current rate or that mentioned on the
packet/package.
v) When goods that are hazardous to life are being offered to the public for sale in against to
the provisions of any law.

It is given that life insurance policy holder is ‘consumer’ under the Consumer Protection Act,
1986 and has rights to get help in consumer courts established under this Act. It is seen that
Insurance Companies do not disclose the disadvantages of the policies while delivering their
Insurance schemes. They also do not provide customized service once their policy is sold rather
they adopt insensitive attitude towards the holders and they become totally callous. The
consumers is often troubled with hidden charges taxes. Also when the case of repayment
comes, the holders are denied on irrelevant issues and unacceptable conditions and trivial term.
Beside this, they are also penalised for trivial defaults. Many agents have been found to be
charging a ton from illiterate or unaware people. When the policy matures, they put fictitious
obstacles to delay the payment. Many times notices for premiums are not sent by them with
the intention that let the policy lapse & then they would be helpless to get the claim and the
amount is not paid to the policy holder. Many cases have been filed in courts and many
decisions have gone for the policy holders. There is quite a scope for the consumers to use the
consumer forums to stop the exploitation by these insurance firms.

V. ROLE OF JUDICIARY FOR CONSUMERS IN INSURANCE SECTOR

Judiciary, being the fourth pillar of democracy, is under the obligation of safeguarding the
rights of citizens. By its various 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:

1. Life Insurance Corporation of India v. Smt. G.M. Channabasemma

The Supreme Court held that there exist a contract between the insurance company and policy
holder. Since the insurer has taken the obligation to compensate the loss suffered by the insured
on account of risks covered by the insurance policy, the terms of the agreement have to be
strictly construed to determine the extent of liability of the insurer. The insured cannot claim
anything more than what is covered by the insurance policy. If the contract is vague, the benefit
should be given to the insured. 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 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.

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 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 Court, therefore,
allowed the appeal.

3. Life Insurance Corporation of India v Gowramma

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 forum rejected the various contentions of the
insurer and allowed the complaint. Before the National Commission, the insurer relied upon
the Commission's decision in LIC of India and Another v. Parveen Dhingra 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 Mithoolal Nayak v Life Insurance
Corporation of India where the Court had rejected a similar contention that the revival of the
policy constituted 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.

VI. RECOMMENDATIONS
1. 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 business.
2. 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.
 3. 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
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.
4. A better redressal forum shall be established so that quick disposal of case could be
done.
5. ‘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 payment of the policy amount in the event of death / disability and even
in general cases of maturity of the policy.

VII. 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 an obligation of proper services. Insurance is a service in consumer laws therefore strong
and effective application of it should be done. It is where default from either party makes them
at risk for harms. The most fundamental piece of this agreement is great confidence. This
implies either party can't disguise any material realities which are fundamental to acknowledge
the assent for this agreement. The gathering which defaults ought not get any advantage raised
out of the approach. In any case, the pinnacle court held that risk to demonstrate that the
safeguarded has disguised some imperative realities lies on the safety net provider maintained
the central that when the agreement is awful on the ground of extortion, the gathering who has
been liable of misrepresentation can't request the discount of the cash paid under the agreement.
In this manner, the complainant isn't entitled of the discount of the premium paid under the
strategy. Therefore there exist some solid difficulties of foreswearing and default and
consequently shopper assurance and security requires fundamental advancement.
In Shri Umedilal Agarwal v. United India Assurance Co. Ltd., where the complainant
purchased a fire 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 to the insured as the bonafide purchaser
shall not be denied what they deserved due to malpractices of these insurance companies.
RECOMMENDATIONS
1. Abichandani R, Policyholder's Interest Protection: Review of the Insurance
Ombudsman Scheme, ICFAI Journal of Insurance Law (2007)
2. Law Commission of India (June, 2004), The Revision of the Insurance Act, 1938 and
The Insurance Regulatory And Development Authority Act, 1999 (190th report)
3. Meyer, J. A. (1993), Let the Buyer Beware: Economic Modernization, Insurance
Reform, and Consumer Protection in China. Fordham L. Rev.
4. Motihar, M. (2010), Principles and Practice of Insurance, Allahabad: Sharda Pustak
Bhawan
5. Ranade, A. & Ahuja R. (2000), Issues in regulation of insurance, Economic and
Political Weekly
6. Tennyson S. (2008), State Regulation and Consumer Protection in the Insurance
Industry