IRDAI Proposes New Law to Fast-Track Insurance Claim Settlements and Protect Policyholders' Rights

In a major relief for insurance policyholders, the Insurance Regulatory and Development Authority of India (IRDAI) is set to introduce a new law aimed at ensuring faster and fairer claim settlements. The proposed law will curb arbitrary practices by insurance companies and empower customers with a stronger complaint resolution mechanism.

On July 24, 2025, IRDAI released the Exposure Draft of the Internal Insurance Ombudsman Guidelines, 2025, outlining mandatory provisions for insurance companies to enhance accountability and streamline grievance redressal systems. One of the key highlights of the draft is the requirement for all eligible insurers to appoint at least one Internal Ombudsman to handle disputes involving claims of up to ₹50 lakh.

Internal Ombudsman Now Mandatory

Under the draft regulations, all insurance companies—excluding reinsurance firms—that have been operational for more than three years will be required to appoint an Internal Ombudsman. This initiative is expected to reduce dependency on external redressal forums and accelerate complaint resolution at the company level itself.

Insurance companies may also appoint multiple ombudsmen with regional responsibilities to ensure prompt resolution of customer grievances. These ombudsmen will report administratively to the company’s Managing Director (MD) or Chief Executive Officer (CEO). However, in terms of their functional responsibilities, they will be accountable to the Board of Directors or the Policyholder Protection and Grievance Committee.

This dual-reporting system is designed to uphold the independence of the ombudsman while maintaining robust oversight from top management.

Enhancing Speed and Fairness in Grievance Handling

The draft guidelines are part of IRDAI’s broader mission to build a more transparent and customer-centric insurance ecosystem. By establishing an internal and impartial mechanism within each company, the regulator aims to cut down on delayed or unresolved complaints that often escalate to courts or external ombudsman offices.

According to IRDAI, the new framework will significantly boost consumer confidence in the insurance system by making companies more accountable, transparent, and efficient in claim settlements.

Key Features of the New Guidelines

The Internal Ombudsman Guidelines, 2025, comprehensively define:

• Eligibility criteria for ombudsman appointments

• Tenure and remuneration of ombudsmen

• Roles and responsibilities

• Reporting structure and accountability mechanisms

These parameters aim to ensure that the appointed ombudsmen operate independently and effectively within the companies they serve.

Stakeholders Invited to Share Feedback

IRDAI has invited feedback and suggestions from stakeholders, including the general public, until 5 PM on August 17, 2025. The draft is publicly accessible on the official IRDAI website.

This step highlights IRDAI’s commitment to involving all stakeholders in shaping a fair and responsive insurance regulatory framework. Public participation is expected to strengthen the final law and ensure it reflects the needs of policyholders across India.

A Strategic Move Toward Policyholder Protection

This move is part of IRDAI’s larger strategy to prioritize policyholder protection, reduce dispute resolution timelines, and ensure timely payouts of claims. It also aligns with efforts to make insurance companies more transparent and responsible in their dealings with customers.

Once finalized and enforced, the Internal Ombudsman Guidelines are expected to revolutionize how complaints are handled in the Indian insurance industry—offering policyholders a quicker, more reliable, and less cumbersome way to resolve disputes.