Arbitration Clause No Longer Exists In Retail Insurance: IRDAI

The Insurance Regulatory and Development Authority of India (IRDAI) has eliminated the arbitration clause for retail customers of general insurance.
Regulatory and Development Authority of India
Regulatory and Development Authority of India

The Insurance Regulatory and Development Authority of India (IRDAI) has removed the arbitration clause for individual policyholders of general insurance, except for commercial policies. According to IRDAI's October 27 circular, the decision was taken after a comprehensive study of the existing arbitration clause in general insurance for retail and commercial policies in consultation with various stakeholders.

The study found the clause to be of limited scope, paving the way for its amendment.

Irdai noted that retail policies should be kept out of the purview of the arbitration clause as there are other forums like the insurer's grievance system, insurance ombudsperson, and consumer and civil courts to look into their complaints and insurance-related disputes. Thus, under section 14 of the IRDA Act, 1999, it exercised its power to amend the arbitration clause.

The amendment is as follows:

As per the circular, no policy in the retail lines of business will have an arbitration clause from now on, except for commercial lines of business. The clause for a commercial line of business is as follows: "The parties to the contract may mutually agree and enter into a separate arbitration agreement to settle all disputes concerning this policy. Arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996."

As the circular is enforced immediately, we need to know the effect on the policies to be issued on or after the date of the circular and on the existing policies.

For New Policies:

The arbitration clause will be deleted for all the new retail policies. The clause will apply only to commercial policies.

For Existing Policies:

Though the clause is removed from the new retail policies, it will still be valid till the policy term of the existing policies unless 'a policyholder specifically requests the insurer to replace it with the clause'.

Besides, in the case of commercial policies, the arbitration clause (mentioned above) will be considered replaced from the date of renewal whenever it falls on or after the date of this circular.

So, from now onward, there will be no arbitration clause available in the retail general insurance policies but only in the commercial policies.

What Is Arbitration And Arbitration Clause?

Arbitration is a setup for dispute settlement. In the case of general insurance, this is to settle disputes between the insurers and the policyholders. The arbitrator examines the dispute and related facts to the grievance and decides how to resolve it.

The arbitration clause is a clause in a contract that requires the parties to resolve the dispute following what is mentioned in the arbitration clause. It binds the parties to resolve their issue outside the courts.

The clause may differ for different contracts, so the parties should remain cautious and check that the clause covers all the issues and the claim, as well as the required quantum. The circular has become effective from the date of its issuance.

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