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LAW MANTRATHINK BEYOND OTHERS

(National Monthly Journal, I.S.S.N 2321-6417)







Consumer Protection visa vis Insurance sector in India: An Overviews of Challenges and
Needs
*Yashasvi Virendra (3
rd
year)
*Anshika Agarwal(2
nd
Year)
Symbiosis Law School Noida



1. 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 its 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
1
. 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
2
. Indian Insurance industry has seen many diverse market controls 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
3
.
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

1
B.P. Singh Chapter VI life insurance sector and consumer protection,
http://shodhganga.inflibnet.ac.in:8080/jspui/bitstream/10603/4464/15/15_chapter%206.pdf last visited on
30.5.14
2
Boardman M.. Contra Proferentem: The Allure of Ambiguous Boilerplate. Michigan Law Review. (2006) vol I Pg1
3
Sumninder Kaur Bawa; 'Life Insurance Corporation of India', impact of Privatisation and Performance' (2007)
Regal Publications, New Delhi, P. 2
insurance companies indulge into certain malpractice where leading two fold problems for the
consumers.
Firstly the by investment of the consumers money in form of secondary investment by insurance
company has always being a concern for the government. In late 90s and early 2000 has witness
the fall of many such insurance companies due to their fraudulent investments
4
. The State was
interested in diverting insurance funds for developmental purpose or at least to stop insurance
companies from investing the funds in other business enterprises, which might affect prospect of
the insured people and property. However, effective the law might be, the control over the funds
used and their investment was difficult
5
. Despite prescribing the goals, objectives and directives,
it was not possible for the government to supervise the investment and control the funds of
insurance companies
6
.
Secondly the emergence of fraud practices by insurance companies has further added
requirement of consumer protection in Indian market. It has been frequently observed that
consumer face huge crisis to redeem their insurance policies which they have promptly taken due
to some nuisance created 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 last year.
7

Indian insurance companies have collectively lost a whopping Rs.30,401 crore due to various
frauds which have taken place in the life and general insurance segments during the year,
according to a study. The losses work out to about nine per cent of the total estimated size of the
insurance industry in 2011
8

2. THE GREY ZONE IN INDIAN INSURANCE SECTOR
The present scenario is very un-demanded and cast a threatening shadow on the relationship
between the customers and the insurance companies. The relationship is mutual, symbiotic and
interdependent. Therefore a better understanding of the risks, foreseeable impact, the needs and
pain points of consumers are required to be understood
9
. It has become a common practice by
Insurance Companies of not making the consumer completely aware of all the demerits of their

4
George Matthews, Kuber group firms heading for liquidation Indian Express ,17 May 1998

5
Abay Butle Deficiency in Insurance Services under Consumer Protection Act 1986 Volume - II , Issue - II June -
2012 ISSN : 2250 -1630
6
Ibdi
7
Aparna Ramalingam Life insurers grapple with spike in frauds, Times of India , 18 January 2014
8
Frauds blow a hole in insurance firm, http://indiatoday.intoday.in/story/frauds-blow-a-hole-in-insurance-
firms/1/176477.html last visited on 30.5.14
9
Mehr and Camack, Principles ofInsurance, 6th Edition, (1976), p.34-37.
Insurance products/Schemes
10
. Polices are sold under wrong or misrepresentation of facts.
Therefore law needs to be made 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
11
.
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 companys responsibility owing
to a duty of care. So, the law needs to break its silence so as to safeguard the interest of
consumers
12
.
It is severally observed that companies use to 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 no charges
should be imposed
13
. Suitable amendments should be made to the legal rules so that companies
are not able to display a false picture before the customer in order to influence and misguide
14
.
Insurance companies use several unprofessional tricks techniques in order to encroach upon the
policy holders 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 and are not sent by them. Lot many cases have been filed in consumer
courts and many decisions has gone against the insurance companies
15
. There is quite an ample
scope for the consumers to make use of consumer forums to stop their exploitation by these
insurance companies.
Approach to justice machinery is another grey zone for consumers as lack of clarity under
Consumer Protection Act, 1986, and paradox established due to Indian Legal System confuses
the consumer for suitable redressal forum
16
. Sometime the presiding officers of the Consumer
Council may or may not have an expertise in the area of insurance as result it may leads to

10
Butle,Abhay. Deficiency in Insurance Services Under Cosumer Protection Act 1986- A Critical View &
Challenges Research Expo International Multidisciplinary Research Journal 2.2 (2012) :210 -212.
<www.researchjournals.in.>.

11
Surinder Kaur v. Oriental Insurance Co. Ltd. (1994) I CPJ 179 (Haryana
CDRC).
12
Pulani Ravi - Manual of Insurance Laws, Bharat law House Pvt. Ltd., New Delhi, 2011
13
Dr. Sajid Ali, Riyaz Mohammad and Masharique Ahmad; 'Insurance in India', (2007) Regal Publications New Delhi,
P. 93-94,
14
Oriental Insurance Co. Ltd. V. Sony Cheriyan (1999) 6 SCC 451
15
Oriental Insurance Co. Ltd. V. Samayanallur Primary Agricultural Coop.Bank AIR 2000 SC 10
16
Supra10
failure to mitigate to have an access to immediate justice, suffering and the unconvincing
awards
17
.
The 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. The IRDA as such has no appellate role to play in the grievance
settlements made by the insurance companies. Dissatisfied policyholders could further knock the
doors of justice by way of litigation, which complex, time-consuming and cumbersome; at the
end of it even if the court of law gives favorable verdict, the consumer has little positive impact
because of the delay. No doubt IRDA provides other remedies i.e. Insurance Ombudsman,
Consumers Forums, and Civil Courts, LokAdalat, Motor Accident Claim Tribunals and
Arbitration. However each system yet not play satisfactory role in resolving dispute between the
parties
18
.

3. OVERVIEW TO INSURANCE REGULATIONS IN INDIA
The insurance sector in India with reference to consumer could be seen in ambit of the following
laws:-
3.1.Review of Insurance Act, 1938
The Insurance Act, 1938 was deficient to cope problems with the openness of the insurance
industry. There was need for a comprehensive review of the regulatory and supervisory
environment under which private and public insurers shall conduct the business. The law
commission, therefore, at the request of Insurance Regulatory and Development Authority
initiated the exercise of review of Insurance Act, 1938 and other related legislations to harmonies
the insurance laws in tune with the liberalized economic environment prevailing in the economy
in general and particularly in the context of the insurance industry
19

3.2.Insurance Regulatory and Development Authority (IRDA)
Emerging challenges to Insurance problems were first till addressed by the IRDA Act, 1999
initiated the reforms in the insurance sector . This act extends to the whole of India. This act
came into force on 19th April, 2000
20
. The object of this act is to provide for the establishment of
an authority to protect the interests of holders of insurance policies, to regulate, promote and
ensure orderly growth of the insurance industry and for matters connected therewith or incidental

17
http://www.actuary.org/pdf/life/interim_aug06.pdf visted on 14/08/2010
18
Supra 10
19
Supra1
20
Vide S.O. 397 (E), dated 19th April, 2000 published in the Gazette of India, Extra, Pt. II, Section 3 (ii), and dated
19th April, 2000.
there to and further to amend the Insurance Act, 1938, the life Insurance Corporation Act, 1956
and the general insurance business (nationalization) Act, 1972.
The IRDA is a statutory body corporate having perpetual succession and a common seal with
power to acquire, hold and dispose of movable and immovable property and to contract. It can
sue and be sued. It consists of a chairperson, five whole time members and four part time
members appointed by the Central Government from amongst persons of ability, integrity and
standing and who have knowledge or experience in life insurance, general insurance, actuarial
science, finance, economics, law, accountancy, administration or any other discipline which
would be useful to the authority
21
. The chairperson and whole time members are 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. A part time
member shall hold office for five years. Any member can relinquish his office by giving in
writing notice of not less than three months
22
.
3.3.Consumer Protection Redressal System
One of the fore children of liberalist economy is the growth of Indian Insurance Sector with the
entry of new players, awareness about their rights has steadily been increasing amongst the
public at large. Insurers are also required to set up grievance cells and their performance is
monitored by them on a regular basis. They were required to be consumer friendly therefore
opening of such counters as Rahat Yojana and NidhiMelas are conducted to dispose of claims
speedily was an evolved trend
23
. The public sector companies have also not remained for behind
and are fast gearing up to these changes
It is submitted that speedy mechanism for redressal of the grievances of the policy holders has
been provided under the Consumer Protection Act, 1986. This act provides three tier redressal
systems
24
. These 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
25
.
The above noted redressal agencies have jurisdiction to entertain the complaints against insurers
of life policies upto 20 lakhs, above 20 lakh and upto one crore, and above one crore respective

3.3.1. Meaning of Consumer as per act

21
See section 4 of IRDA Act, 1999
22
Section 5, Ibid
23
Universal's Legal Manual, Insurance Laws, 2008, P. 332 (Universal Law Publishing Co.)
24
Agrawal V. K. (Dr.) - Consumer Protection Law and Practice, 5th Edition 2003, B.L.H. Publishers Delhi Pvt.
Ltd.,New Delhi, 2003
25
Section 9, Consumer Protection Act, 1986
Under section 2(1) (d) of the Act, a consumer means any person who:-
i) Buys any goods for a consideration which has been paid or promised/partly paid and partly
promised or under any system of deferred payment and include any user of such goods.
ii) Hires or avails of any services for a consideration which has been paid or premised or partly
paid and partly promised and includes beneficiary of services
3.3.2. Coverage of the Act
Consumer protection Act Covers all services/products/suppliers in the public/or private sector
including banks, education, life and general insurance, health services , retailers with regard to
any product/service given to the consumer for consideration
26
.

3.3.3. Meaning of Complaint under Section 2 (1) (c) of the Act
If the allegation in writing is made about;
i) An unfair /restrictive trade practice adopted by any trader.
ii) The goods bought by him or agreed to be bought suffer from any defect.
iii) There is any deficiency in the service hired/product supplied.
iv) If the trader has charged any excess price as per existing rate or that written
on the packet/package.
v) When goods hazardous to life rarely are being offered for sale to the public in contravention
of the provisions of any law.
It is submitted that life insurance policy holder is consumer under the Consumer Protection
Act, 1986 and is entitled to get help in consumer courts established under the Consumer
Protection Act. It is often seen that Insurance Companies does not disclose the demerits of the
policies while selling their Insurance products/Schemes
27
. The agents also do not provide
customized service once their policy is sold rather they adopt callous attitude towards the policy
holders and they become totally indifferent. Further it is well seen that consumer is often
troubled by hidden charges addition service taxes
28
. Further it is noted that when the case of
repayment comes ,the policy holders are denied on trivial issues and unacceptable conditions

26
Yashwant Bhave, consumer rights- Yojna February 2009. p-13.
27
Sheetal Kapoor, Legal and Ethical aspects of Advertising. P-27-28
28
Baldeep Singh and Dr. Rajeev Kansal, Emerging need for protection underconsumer protection act to the
insurance customer: An overview ( An empirical study of Patiala and sangrur distt.), M.D.U. Law Journal, Vol
XV., Part-II(A),2010.
and irrelevant term. Beside this consumers are penalized customers of trivial defaults
29
. They
display false picture before the customer to woo him by making the picture very rosy. Many
agents have been found to be charging excess from illiterate or less informed people. When the
policy matures, they put temporary or fictitious obstacles to delay the payment
30
.
Many times notices for periodical premiums are not sent by them with the intention that let the
policy lapse & then they would be helpless to entertain the claim and the amount in the account
is encroached upon by them & is not paid to the policy holder
31
. Lot many cases have been filed
in consumer courts and many decisions have gone against the insurance companies. There is
quite an ample scope for the consumers to make use of consumer forums to stop their
exploitation by these insurance companies
32

4. ROLE OF JUDICIARY FOR CONSUMER IN INSURANCE SECTOR
J udiciary is the fourth pillar of democracy under the obligation if safeguarding rights of the
citizen. Hence by its 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 :-
4.1.Life Insurance Corporation of India v. Smt. G.M. Channabasamma
33
.
The apex court has held that there exist a contract be 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
34
.
The insured cannot claim anything more than what is covered by the insurance policy
35
. If the
contract is vague, the benefit should be given to the insured
36
. 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
37
.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.

29
Article written in yojna in February 2009 on consumer rights.pg- 25
30
Barowalia J. N. Commentary on the Consumer Protection Act, 1986, Universal Law Publishing Pvt. Ltd., 2
nd

Edition, 2000, 3rd Edition, 2008, 4th Edition 2010
31
Mishra M.N. (Dr.) Law of Insurance, Central Law Agency, 5th Edition 2004
32
Riegel and Miller, "Insurance Principles and Practice", P.10
33
AIR 1991 SC 392
34
Oriental Insurance Co. Ltd. V. Samayanallur Primary Agricultural Coop.
Bank AIR 2000 SC 10
35
United India Insurance Co. Ltd. V. Harchand RaiChandan lal (2004) IV CPJ 15 (SC).
36
Murli Agro Products Ltd. V. Oriental Insurance Co. Ltd. (2005) I CPJ 1 (NCDRC).
37
General Assurance Society Ltd. V. Chandumull Jain and Anor. (1966) 3SCR 500
4.2.New India Assurance Company Limited v Abhilash Jewellery
38

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 (as well as some other statutes) 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 definition in the local Act, including an 'apprentice' in the category of 'employee',
was only a 'legal fiction', which is a concept in law and could not be applied to an insurance
contract. The Court, therefore, allowed the appeal
4.3.Life Insurance Corporation of India v Gowramm
39

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 Fora rejected the various contentions of the insurer
and allowed the complaint. Before the National Commission, the insurer relied upon the
Commission's decision in L.I.C. of India and Another v ParveenDhingra
40
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 MithoolalNayak v Life Insurance
Corporation of India
41
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.
5. 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

38
(2009) CPJ III (SC) 2]
39
[III (2009) CPJ 25 (NC)]
40
[II (2003) CPJ 70 (NC)]
41
[AIR 1962 SC 814]
an obligation of proper services. Insurance is a service in consumer laws therefore strong and
effective application of it should be done
42
.
It is a contract where default from either party makes them liable for damages. The most
essential part of this contract is good faith. This means that either party cannot conceal any
material facts which are essential to accept the consent for this contract. The party which defaults
should not get any benefit raised out of the policy. However, the apex court held that liability to
prove that the insured has concealed some vital facts lies on the insurer upheld the principal that
when the contract is bad on the ground of fraud, the party who has been guilty of fraud cannot
ask for the refund of the money paid under the contract. Thus, the complainant is not entitled of
the refund of the premium paid under the policy. Thus there exist some strong challenges of
denial and default and hence consumer protection and security requires essential development
In UmedilalAgarwal v. United India Assurance Co. Ltd.
43
, where the complainant purchased a
afire 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 bona-fied purchaser shall not
be denied what they deserved due to malpractices of these insurance companies
6. RECOMMENDATIONS
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
44
.
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.
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.
A better redresal forum shall be established so that quick disposal of case could be done
J ago Grahak J ago should be launched through electronic media and print media to bring
awareness among the people. Government should make laws fixing time schedules for

42
http://www.essaytown.net/db/search?KEYW=Life Insurance. Visited on15/11/2010
43
Citation (1989)3 Comp LJ 143 (NCDRC)
44
Citation (1989)3 Comp LJ 143 (NCDRC)
payment of the policy amount in the event of death / disability and even in general cases
of maturity of the policy.

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