Insurance Ombudsman Can Now Award up to ₹20 Lakh Compensation to Policyholders

The finance ministry has issued a public consultation paper stating that the insurance ombudsman may impose penalties on insurers or insurance brokers when their actions are unjust, arbitrary, or amount to the harassment of policyholders. 

The Finance Ministry has proposed changes that empower the Insurance Ombudsman to award compensation of up to ₹20 lakh for consequential losses and an additional ₹1 lakh for mental harassment caused due to unjust or arbitrary actions by insurers or insurance brokers.  

Ombudsman’s New Compensation Limit 

As per the draft shared by the Finance Ministry, the Insurance Ombudsman can now award compensation for financial losses suffered by the complainant, in line with the policy terms and limits.  

Alongside this, in cases of undue hardship due to arbitrary or malafide conduct of the insurer or broker, a penalty of up to 100% of the award amount can be imposed, capped at ₹20 lakh for consequential loss. An additional ₹1 lakh may also be provided for mental harassment. 

Eligibility and Direct Payment Clause 

The ruling highlights that pay-outs must be made directly to the complainant. Losses should relate to the policy’s scope, including elements like bonuses and interest.  

Cases involving procedural mishandling or delay in claim settlement may fall within these provisions, offering policyholders a stronger redressal platform for complaints. 

Penalty Route via IRDAI if Non-Compliant 

If insurers or brokers fail to adhere to the awards given by the Ombudsman, the new draft rules empower the Ombudsman to recommend the Insurance Regulatory and Development Authority of India (IRDAI) to take further penal action. This provision aims to ensure compliance with Ombudsman decisions. 

Read More: LIC Launches Protection Plus and Bima Kavach: Key Features Explained! 

Introduction of an Appellate Authority 

The draft policy plans to introduce an Appellate Authority to entertain appeals against Ombudsman rulings. This regulatory mechanism provides scope for review, aiming to balance insurer rights with consumer protection. 

Conclusion 

The new framework aims to strengthen the authority of the Insurance Ombudsman in ensuring policyholders receive fair compensation. With a cap of ₹20 lakh for consequential loss and ₹1 lakh for mental harassment, the measures aim to enhance transparency, accountability and consumer confidence in insurance services. 

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