“GENERAL INSURERS ADVISED BY THE INSURANCE REGULATOR (IRDAI) FOR MANDATORY ARBITRATION CLAUSE IN ALL POLICIES UNDER THE COMMERCIAL LINES OF BUSINESS”
The Insurance Regulator (IRDAI) following a reference made by the Supreme Court of India in M/S National Insurance Company Vs. M/S Nippon Paper Foodpac Pvt. Ltd. [SLP (C) 225-226/2023, decided to amend the existing arbitration clause across various lines of business in the general insurance industry.
IRDAI came to the decision after comprehensive review of the extant Arbitration Clause and discussion with stakeholders.
Thus, under section 14 of the IRDA Act, 1999, it exercised its power to amend the arbitration clause.
However the insurance policies issued under the retail lines of business will not have any arbitration clause since alternative forums such as insurer’s grievances system, Insurance Ombudsman and Consumer Courts as well as Civil Courts are available for retail/individual policyholders for redressal of grievances/ disputes.
IRDAI in its circular to general insurers said that all policies issued under the commercial lines of business ought to have an arbitration clause stipulating:
“The parties to the contract may mutually agree and enter into a separate arbitration agreement to settle any and all disputes in relation to this policy. Arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996,”
IRDAI clarified that this clause will apply to all new policies issued on or after the date of its circular dated 27/10/2023, while existing arbitration clause will be deemed deleted from all retail policies.
For existing policies, the existing arbitration clause will remain valid till term of the policy or unless the policyholder specifically requests the insurer to replace it with the clause stipulated by the regulator.
Further IRDAI has advised insurers to take necessary steps to create awareness of the changes to policyholders and to amend relevant provisions of such policies.
Hence from now onward, there will be no arbitration clause available in the retail general insurance policies but only in the commercial policies.
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