Monday, November 16, 2009

Protecting the sufferers from being fleeced

insurance ombudsman

Track record of Insurance Ombudsman across the country augurs well for the protection of consumers' and policy holders' interest. Need is greater awareness among the policy-holders -CK Sardana

Following her husband's untimely death while in service in a colliery, Parvati Devi, a young illiterate woman having two daughters and a son - all below 10 years - became a widow. The death benefit for her amounted to nearly Rs nine lakh, besides a paltry monthly pension of Rs. 1800.

She deposited the entire amount in a leading Public Sector bank. Word spread fast in the insurance circles. A smart agent of a Private Sector insurance company met her, showed lot of sympathy for the loss of her husband and used all marketing and selling techniques. He succeeded in persuading her to withdraw the amount and use that for insurance in his company. The agent assured her that the amount, to be deposited for three years under single premium, will get doubled within three years. Wonderful.

She fell into the trap and complied with all that the agent had told her. No sooner one year was over, she got a notice from the insurance company asking her to pay the premium, every year, for full ten years.

She was shattered and approached the insurance company to cancel the policy and refund the amount. Incidentally that insurance agent was not to be seen anywhere. The company flatly refused to refund the amount. She was in a trap.

Parvati Devi approached Insurance Ombudsman for help. After hearing both the parties at length, Insurance Ombudsman, in charge of MP & Chhatisgarh, directed the company to cancel the policy and refund full amount of premium ie Rs. 8.5 lakhs with 9% interest pa within 15 days.

Like this, there are umpteen number of cases where smart and well-dressed persons, posing to be the only well-wishers of the victims of some tragedies, lure the poor and illiterate persons to fall into their trap by either concealing vital information or misrepresenting the facts.

The Insurance Sector

The Insurance Sector in India, covering both life and general, is the largest sector in the world. It is vulnerable because of very high financial stakes involved. Number of persons taking life and general insurance policies runs into thousands of crores. So is the amount involved.

The insurance business was and is still being controlled and carried out under the provisions of Insurance Act 1938. Life Insurance business was nationalized in the year 1956 followed by General Insurance business which was nationalized in the year 1972.

Nationalization of insurance business was done with the objective of serving the needs of the economy better by securing the development of insurance business in the best interest of the community and to ensure that the operation of the economic system does not result in concentration of wealth to the detriment of the common man.

With the start of the era of globalization and the launch of New Economic Policy in 1990-1991, providing for greater share and participation of the Private Sector in national development, large number of private players, initially from within the country and lately from abroad, entered the insurance, banking and other sectors. Since they had to compete with the well-entrenched Life Insurance Corporation of India and General Insurance Corporation of India, they had perforce to indulge in lot many practices. As times passed, it was found that the consumers, in this case, those taking insurance policies were, in quite a few cases, being fleeced through unscrupulous practices and through misrepresentation and misinformation of vital information to the prospective buyers of insurance policies.

A need was, therefore, felt to have such a mechanism through which the lowest of the low person in the country could be protected from unethical and unscrupulous practices. I have given the example of just one poor illiterate woman, Parvati Devi in detail. Like this, there would be thousands of similar cases of exploitation by the insurance companies who, in their objective of business expansion through any means, exploit the situation in utter disregard of consumers' interest.

Encouraged by the success achieved through the institution of Banking Ombudsman, created by the Government in the year 1995, the Government decided to take concrete steps for the protection of those taking life and general insurance policies.

The Insurance Ombudsman

Following the successful functioning of Insurance Ombudsman in Sweden, the institution of Insurance Ombudsman was created by a Government Notification dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured customers and to mitigate problems involved in the redressal of those grievances. There are twelve Insurance Ombudsmen at Bhopal, Bhubaneswar, Cochin, Guwahati, Chandigarh, New Delhi, Chennai, Kolkata, Ahmedabad, Lucknow, Mumbai and Hyderabad.

This institution is of great importance and relevance for the protection of interests of policy holders and also in building their confidence in the system. The institution has helped generate and sustain the faith and confidence amongst the consumers and insurers. The above example of the protection of Parvati Devi speaks of the positive role of Insurance Ombudsmen.

Powers of the Ombudsman

Insurance Ombudsman has two types of functions to perform (1) Conciliation (2) Award making. He is empowered to receive and consider complaints in respect of personal lives of insurance from any person who has any grievance against an insurer. The complaint may relate to any grievance against the insurer i.e. (a) any partial or total repudiation of claims by the insurance companies, (b) dispute with regard to premium paid or payable in terms of the policy, (c) dispute on the legal construction of the policy wordings in case such dispute relates to claims; (d) delay in settlement of claims and (e) non-issuance of any insurance document to customers after receipt of premium.

Ombudsman's powers are restricted to insurance contracts of value not exceeding Rs. 20 lakhs. He has been empowered to resolve all complaints relating to insurance policy documents, settlement of insurance claims and disputes regarding premium payable/paid, refunds and interpretation of terms and conditions of the policy. The insurance companies are required to honour the awards passed by an Insurance Ombudsman within three months.

The procedure for approaching the Insurance Ombudsman has been deliberately kept simple. Any aggrieved person can complain to him with details of documents and the specific grievance for redressal. The awards are binding upon the insurance companies. If the policy holder is not satisfied with the award of the Ombudsman, he can approach other venues like consumer forums and courts of law for redressal of his/her grievances.

Steady increase in the number of complaints received by Insurance Ombudsmen and their redressal shows that the policy-holders are reposing their confidence in the institution of Insurance Ombudsman. NA Khan, a retired District & Sessions Judge of MP and presently Insurance Ombudsman in charge of Madhya Pradesh & Chhatisgarh said in an informal chat, the track record of Insurance Ombudsman across the country augurs well for the protection of consumers' and policy holders' interest. Need is greater awareness among the policy-holders and recognition of its role by the insurance companies and others involved in this business, he added.