Exploring IRDAI’s New Regulations and Their Impact on the Insurance Industry
The Insurance Regulatory and Development Authority of India (IRDAI) issued a Master Circular on the Protection of Policyholders’ Interests on September 5, 2024. A key provision in this circular is that insurers can only request the payment of the premium or premium deposit after they have accepted the proposal. The circular mandates that insurers must process proposals swiftly and efficiently, with a strict deadline of 7 days from the submission of the proposal.
Earlier this year, IRDAI had published the Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations, 2024 in the official Gazette of the Government of India which extended the Free Look period to 30 days.
This article will explore the past regulations compared to the new ones to highlight the changes and discuss their implications for the insurance industry in India.
Superseded Regulations
The Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests, Operations and Allied Matters of Insurers) Regulations, 2024, published on March 20, 2024, supersede the following regulations:
- The Insurance Regulatory and Development Authority (Manner of Receipt of Premium) Regulations, 2002
- The Insurance Regulatory and Development Authority of India (Places of Business) Regulations, 2015
- The Insurance Regulatory and Development Authority of India (Fee for Registering Cancellation or Change of Nomination) Regulations, 2015
- The Insurance Regulatory and Development Authority of India (Fee for Granting Written Acknowledgment of Receipt of Notice of Assignment or Transfer) Regulations, 2015
- The Insurance Regulatory and Development Authority of India (Issuance of eInsurance Policies) Regulations, 2016
- Insurance Regulatory and Development Authority of India (Outsourcing of Activities by Indian Insurers) Regulations, 2017
- The Insurance Regulatory and Development Authority of India (Protection of Policyholders’ Interests) Regulations, 2017
- The Insurance Regulatory and Development Authority of India (Insurance Advertisements and Disclosure) Regulations, 2021
Changes to the Free Look Period
In 2017, IRDAI regulations provided a Free Look period of 15 days for policyholders to review the terms and conditions of their policy, or 30 days in the case of electronic policies or those obtained through distance modes. Policyholders could request the cancellation of the policy within this period and were entitled to a refund of the premium, subject to deductions for a proportionate risk premium, medical examination expenses, and stamp duty charges. Refunds had to be processed within 15 days.
Under the new regulations of March 20, 2024, every policyholder of life insurance and new individual health insurance policies, except for those with tenures of less than one year, is entitled to a Free Look period of 30 days, regardless of whether the policy document was received electronically or in physical form. Requests for cancellation during the Free Look period must now be processed, and the premium refunded, within 7 days.
While a longer Free Look period benefits consumers by giving them more time to review their policies, it could also lead to increased competition among insurers. Consumers may use this period to seek quotations from multiple companies, potentially leading to aggressive sales tactics from insurers attempting to persuade policyholders to switch policies. However, this extension may reduce hesitation among consumers when purchasing policies, benefiting the industry as a whole.
Premium Payment and Risk Commencement
According to the Insurance Regulatory and Development Authority (Manner of Receipt of Premium) Regulations, 2002, an insurer’s liability begins only after receiving the premium. While the IRDAI did not explicitly mandate that the first premium must be paid along with the proposal form, this became a common industry practice to initiate the underwriting process. In the event that something happens to the proposer before the process is completed, the policy is not yet active, and the customer or their beneficiary is entitled only to a refund of the first premium paid. No sum assured is payable.
However, Under the Master Circular on Protection of Policyholders’ Interests, 2024 (published on September 5, 2024), premium payments are now required only after the insurer has communicated acceptance of the proposal. The risk cover begins only after the premium is received, except in the case of policies issued based on a declaration of good health, where the risk commences immediately upon premium payment. Insurers must ensure that explicit consent is obtained from the policyholder for any premium deductions, and no premium deposit or proposal deposit is required alongside the proposal form. Additionally, insurers must provide prospects the option to choose between electronic and physical policy documents.
| Old Regulation | New Regulation | |
|---|---|---|
Free Look Period |
15 days for policyholders to review their policy, or 30 days for electronic policies. |
30 days, regardless of whether the policy document was received electronically or in physical form. |
Refund Processing Time (Cancellation During Free Look Period) |
15 days |
7 days |
Premium Payment |
First premium payment along with the proposal |
Premium payments required only after the insurer has communicated acceptance of the proposal. |
Underwriting process |
30 days to process and the decision is communicated within 15 days. |
insurers must process proposals within 7 days and communicate them within this 7-day timeframe. |
Proposal Processing and Policy Issuance
Previously, insurers were required to process proposals free of charge within 30 days. They were also mandated to communicate their decision to the proposer within 15 days of receiving the proposal or any additional requirements.
Now, under the 2024 regulations, insurers must process proposals within 7 days. If additional details or clarifications are required, insurers must request them in a single instance, not on a piecemeal basis. The proposal decision must be taken within the 7-day window.
Insurers are required to furnish the following documents to the prospect within 15 days of accepting the proposal:
- Policy document
- Copy of the proposal form submitted by the prospect
- Customer Information Sheet
- Medical Reports, if applicable
For online sales, a customer pre-paying the initial premium would previously validate the policy and reduce underwriting risks for the insurer. However, under the new regulations, insurers must complete the due diligence and underwriting at their own cost, which could include medical tests (often involving home visits, blood tests, and ECGs) that cost approximately ₹1000 per person. While eKYC via Aadhaar costs less than ₹1 per person, the administrative burden of preparing policy proposals and documentation of test reports will be a significant challenge for insurance companies.
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Copyright © 2023 Annuity Risk India Pvt. Ltd.