Report No. 190

Response to the Consultation Paper

4.2.1. The response to the above proposals of the Law Commission has been positive. While welcoming these proposals, the FICCI has suggested that the proposed machinery "would be creative and maintained by appropriate government agencies and that no costs on this account will be borne by the insurance industry". LIC too has welcomed the suggestion and observed that the burden on the consumer fora will be reduced considerably if the proposal is implemented. LIC has suggested that "a mechanism may be evolved whereby 50% expenses are shared by the Central/State Government and 25% by the IRDA".

Om Kotak Mahindra Life Insurance has suggested that the Insurance Ombudsmen should themselves be redesignated as the GRA and that it must be clearly spelt out as to which of the two decision.- that of the GRA or the consumer foru.- would prevail in event of conflict of opinions. This point may straight away be clarified by stating that the creation of the GRA would necessarily oust the jurisdiction of the consumer fora over the same subject matter.

4.2.2 The General Insurance Corporation of India has also welcomed the constitution of the GRA as well as an IAT. They have made very specific suggestions as to what kinds of disputes should go before the GRA and what should be the jurisdiction of the IAT. GIC has suggested that the jurisdiction of the GRA should extend to:

(i) Disputes between the insured and the insurer that pertains to personal lines of insurance on the grounds mentioned in the Rule 12 of the Redressal of Public Grievance Rules;

(ii) Disputes between Insurer and the Intermediaries; and

(iii) Disputes between Insurer and Insurer.

4.2.3 As regards the jurisdiction of the IAT, the suggestion of GIC is that it should hear:

(i) Appeals from the decisions/orders of the GRA;

(ii) Appeals against the orders passed by the Adjudicating and Investigating Officers appointed by the IRDA; and

(iii) Appeal against any order passed by the IRDA..

4.2.4 In addition to the above suggestions, GIC has suggested that the GRA must have its own machinery capable of executing its orders on the lines of Recovery Officers of the Debt Recovery Tribunal. However, GIC opposes the idea of investing the adjudicating officers with powers to levy penalties since criminal liability should be determined only by a judicial authority. United India Insurance has also welcomed the suggestion of having the GRA and IAT in place of the existing mechanisms. They suggest that a fee in the nature of 'adjudications fee' commensurate with the value of the claim may be levied to meet the expenditure and deter frivolous claims.

4.2.5 However, Birla Sunlife Insurance Co. Ltd., ICICI Prudential Life Insurance and HDFC Standard Life Insurance have expressed reservations about the setting up of the GRA. In their view, the present system of Ombudsman should be further strengthened and made accountable being placed under the overall supervision of the IRDA. They are of the view that the creation of one more tribunal for redressal of policyholders' grievances will add to their expenses and not provide an effective or efficacious remedy.

4.2.6 The Consumer Rights Educational and Awareness Trust, Bangalore has opposed the proposal of ousting the jurisdiction of the consumer fora since the remedy under the Consumer Protection Act is in addition to and not in derogation of the existing laws. They have also opposed the idea of an insurance appellate tribunal. The other consumer body, CERC Ahmedabad has preferred the continuation of the mechanism of Ombudsman by strengthening it with more powers. However, the General Insurers (Public Sector) Association of India has welcomed the suggestion and suggested that a retired High Court Judge should head the GRA. They also would like an adjudication fee to be levied.

4.2.7 At this juncture, reference has to be made to an important suggestion by the Law Department of the Government of West Bengal that there should be a specific provision to combat insurance fraud by describing it as a crime and providing for both civil and criminal liabilities for persons indulging in insurance fraud. The suggestion is that there should be a specialized insurance fraud bureau and that immunity must be provided for anyone who shares information about suspected fraud. In the Consultation Paper, the Law Commission had proposed that the power to levy penalties for violation of the provisions of the Act be vested with the GRA itself.

However, the criminal justice mechanism would have to be invoked for dealing with frauds since it is a specific offence under the penal law. It would be both confusing and burdensome for the GRA to also exercise criminal jurisdiction. The Law Commission is also not in favour of creating special offences in relation to insurance frauds. The experience with creation of special offences shows that it serves to increase the burden of the judiciary without there being any perceptible positive change either in conviction rates or in disposal of such cases. The Commission is of the view that the existing provisions of the IPC, if strictly enforced, are sufficient to deal with the malaise.

4.2.8 By far, the most detailed response that the Commission has received is from the National Insurance Academy, Pune. They have given detailed suggestions in relation to the setting up of the GRA. Principally, they agree with the proposal that the present system of Ombudsman should be replaced by a statutory mechanism provided for in the Act itself. They further point out that such mechanism should be "cost effective and should also serve the purpose of protecting the interest of policyholders." The modification that they have suggested to the proposal of the Law Commission is to statutorily mandate, in the first instance, that every insurer should have an "Apex Grievance Redressal Mechanism" within the organisation itself.

They suggest that the GRA should be presided over by a retired Judge of the High Court and that the procedure for selecting the two other technical members should be transparent. The screening for the appointments should be by a Committee appointed by the Insurance Council. The IAT should consist of a retired Supreme Court Judge and two other experts. A further appeal against the order of the IAT should lie to the Supreme Court. The idea is that every policyholder should first exhaust the internal mechanism before approaching the GRA. The Commission accepts this suggestion of the National Insurance Academy, Pune.

4.2.9 There is one development that has taken place in the recent past which requires to be noticed. It was reported in the January 2004 issue of the IRDA Journal that the Central Government had set up an Appellate Authority to review the rulings of the IRDA. According to the IRDA Journal, the notification issued by the Central Government has set up both a single and a division bench of the Appellate Authority and the Joint Secretary, Ministry of Finance, will constitute the single bench and while on the division bench he would be joined by another Joint Secretary of the Ministry of Law. The Law Commission is constrained to observe that whatever may be the compulsions of the Government to constitute such an Appellate Tribunal, the said arrangement is far from satisfactory in terms of having an independent and impartial adjudicatory appellate body.

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