Based onthe reply to Notice to Show Cause dated 5^th May, 2017 issued toM/s. United India Insurance Co. Ltd. and their submissions made during personalhearing chaired by Mr. P.J. Joseph, Member (Non-Life), Insurance Regulatory andDevelopment Authority of India (IRDAI) on 5^th July, 2017 at theoffice of Insurance Regulatory and Development Authority of India, 3^rd Floor,Parishrama Bhavanam, Basheerbagh, Hyderabad, the following are being stated:

(I)       Background

On receipt of a fewcomplaints relating to General Insurers settling lesser amounts than theInsured Declared Value (hereinafter referred to as IDV) in case of motorvehicle total loss / theft claims, the Authority had called for motor claimsdata from General Insurers.

Upon analysisof the data received from United India Insurance Co. Ltd. (hereinafterreferred to as the Insurer/ the Company), the Authority had conducted focusedonsite inspection of the Insurer from 8^th to 9^thNovember, 2012 and on 11^th January, 2013 on settlement of Motor (OwnDamage) Total Loss/Theft Claims cases. The inspection covered the settlement ofmotor claims by the Insurer during the financial years 2009-10 and 2010-11.

The Authoritycommunicated the findings of the Inspection to the Insurer vide letter dated 28^th June, 2016.Upon examiningthe submissions made by the Insurer vide their letter dated 12^thSeptember, 2016, the Authority issued a ‘Notice to Show Cause’ dated 5^thMay,2017 which was responded to by the Insurer vide their letterdated 25^thMay, 2017.  As requested therein, apersonal hearing was given to the Insurer on 5^th July, 2017.Mr. Bharat Dash, General Manager and C.F.O., Ms. Gauri Venkatesan, DGM andChief Compliance Officer were present in the hearing on behalf of theInsurer. On behalf of the Authority, Mr. P.J. Joseph, Member(Non-Life), Ms. Yegnapriya Bharath, Chief General Manager (NL), Mr. K. MahipalReddy, Deputy General Manager (NL) and Mr. P. Narasimha Reddy, Officer onSpecial Duty, were present in the personal hearing. 

(II)         TheCharges

Charge No.1:

The Company hasviolated the Provisionsof General Regulation 8 of India Motor Tariff, 2002 while settling motorclaims, which states as follows:

``For the purpose of TL/CTLclaim settlement, this IDV will not change during the currency of the policyperiod in question. ``

“The IDV shall be treatedas the ‘Market Value’ throughout the policy period without any furtherdepreciation for the purpose of Total Loss (TL) / Constructive Total Loss (CTL)claims.”

Charge No.2

TheInsurer has violated File & Use Guidelines / Circulars issued by theAuthority from time to time advising General Insurers that they shall continueto use the coverage, terms & conditions, wordings, warranties, clauses andendorsements of the erstwhile tariff of classes of insurance covers untilfurther orders.

a)   Circularref. no.021/IRDA/F&U/Sep-06 dated 28-09-2006

b)   Circularref. no.048/IRDA/De-tariff/Dec-07 dated 18-12-2007

c)   Circularref. no.066/IRDA/F&U/Mar-08 dated 26-03-2008

d)   Circularref. no.19/IRDA/NL/F&U/Oct-08 dated 6^th Nov, 2008

e)   Circularref. no. IRDA/NL/CIR/F&U/073/11/2009, dated 16-11-2009

f)    Circularref. no. IRDA/NL/CIR /F&U/003/01/2011 dated 06-01-2011

(III)        Submissions by the Insurer

The gistof submissions made by the Insurer in (a) reply to the findings of Inspection,(b) reply to Notice to Show Cause and (c) Personal hearing is as under.

(a)           (1).The reduction in IDV while settling total loss claims was not arbitrary. Thereductions were made on rational grounds and as per the norms in vogue in theIndustry.

(2). These reductions weremostly due to violation of Policy conditions such as not taking care of thesafety of vehicles as if an uninsured person, delay in intimating the claims toPolice authorities and also to the company, non- submission of one set of keysetc.

(3.) These claims wouldnormally fall under “Voidable” category. However, keeping in mind that thecustomer should not be put to undue hardship, such cases were considered onnon-standard basis after explaining these aspects to the insured throughnegotiations. Further such claims were settled after taking the consent inwriting by a separate declaration and / or full and final discharge voucher.

(4). It is pertinent tonote that in all these cases, claimants have accepted the settlement in full satisfactionand have not made any further complaint whatsoever in nature, confirming thatthey were convinced of our decision.

(5). It is submitted thatonly in a few cases, the Company had reduced the settlement amount due to grossovervaluation of IDV at the time of underwriting. These were a few instances ofdeviations and not the general practice followed by the Company. Even in suchcases, we had taken consent from the claimants and treated the claims asnegotiated settlement.

(6). These deviations werehappening to a great extent due to the discretion available to fix the IDV inour previous IT system. With the roll out of Core Insurance solutions andnecessary corrective measures, systems and controls are in place to obviatesuch wrong fixation of IDV.

(b) (1). The maindifficulty in fixing correct IDV at the time of insurance renewal, is the lackof updated and reliable data on ex-showroom prices of various vehicle makes andmodels on a pan India basis.

(2).The Company had actively taken up for incorporation of the common IDV master inour centralized software system whereby the problems of incorrect fixing of IDVat the time of underwriting would be effectively addressed.

(c)(1). Theprovisions of General Regulations 8 of IMT 2002 are very well appreciated andtaken as sacrosanct. Thishas been reflected in our circulars issued periodically to our operatingoffices. We have reinforced GR 8 provisions on IDV as the sum insured at thetime of underwriting and at the time of claim settlement for TL/CTL and Theftclaims through our OD Claims handling guidelines also.

(2). Inmajority of the cases, IDV has been taken as the basis. However, reduction ofIDV happens in some cases due non-standard settlement of the claim due to delayin claim intimation and delay in filing FIR and non-submission of keys. TheCompany has issued documented guidelines for settlement of claims onnon-standard basis with a reduction limit up to 25% or minor deductions whereinthere is deficiency or breach of policy conditions, which are determinedaccording to the merits of the claim and the particular deficiency or shortfallin requirements.

(3) However, ina few cases, there have been aberrations and the tendency for higher valuationof IDV was found, depreciation was applied at the time of claim by reducing theIDV or there was reduction of IDV without recording the reasons for the same.But in such instances also, the customer’s consent was taken before settlingthe claim at a value less than the IDV.

(4) The basiccause of the problem in over-valuation is that there are practical difficultiesin ascertaining the IDV. Thebasis of IDV is the manufacturer`s listed selling price of the brand and modelof vehicle less depreciation as per schedule provided in tariff. The Ex-showroom prices vary from city to city. Discounts such as seasonal / festivaldiscounts are given. All these are not reflected in the selling price. Hence,the discretion was exercised by the underwriters in fixing the IDV at the timeof underwriting. In such cases, there was negotiation with the customers. Onlyafter getting consent from the customers, the claim was settled.

(5) The Companyaddressed the above lapses and aberrations in 2011 by taking steps such ascontracting with an external agency for providing IDV chart. However, thedatabase was not complete. The Company had also tried to get the database fromlocal dealers. The Company had participated in the project to have a common IDVdatabase for the industry.

(IV)       Examinationof the issues

(a)  The provisions of the erstwhile tariff do not entitle the Insurerto arbitrarily deduct any amount from the IDV in respect of TL/CTL claims. Thoughthe insurerhas attributed the reduction in claim amount to the alleged violation of policyconditions and such cases were considered on non-standard basis afterexplaining to the insured through negotiations, there is no record ofexplanation, in writing, to policyholders incertain cases. I do not agree that merely obtaining a consent letterfrom the claimants would indicate that the IDV was mutually negotiated anddiscussed, leaving aside the legality of such negotiation and discussion toreduce the IDV on grounds not on record.

(b)  It isnot disputed that in case the policyholder has breached a material condition oris guilty of contributory negligence, he may not be entitled to the full claim,depending upon the gravity of each such breach or contributory negligence.Reduction per se may not be incorrect if it is for valid reasons dulycommunicated to the policyholder at the time of issuing the policy. Ifreduction is made for valid reasons as mentioned above, such reductions cannotbe deemed to be reduction of IDV (which is the Sum Insured). Just because thereis a Sum Insured, it does not mean that under all circumstances irrespective ofpolicyholder’s contributory negligence or breach of material conditions leadingto the loss, the full Sum Insured must be paid. However, the principle ofnatural justice would warrant communication of the rationale and reasons fordeductions made, to the claimant. In the cases cited in the inspection records,I proceed to examine whether the above principle has been complied with or not.

(c)   Sample cases are taken forexamination (details as per claims records).

As indicated in the tableabove, certain cases do not contain any reasons for deduction. The insurer hasattributed the reduction in claim amount to the alleged violation of policyconditions such as not taking care of the safety of vehicles, delay inintimating the claims to Police Authorities and also to the insurer,non-submission of one set of keys, aberrations in estimating IDV at the time ofunderwriting, etc. Even assuming that there is merit in the claim settlementfor a value lower than IDV, reasons for reduction should have been clearlyshown to the policyholder as per Regulation 9(5), of IRDA (Protection ofPolicyholders’ Interests Regulations), 2002.

(d)   The Insurer admitted thatdespite their initiating corrective measures, lapses occurred in complying withthe relevant regulations.

(V)      Conclusion

GR8 of IMT 2002 (as described in Charge 1) deals with regard to treatment of IDVduring the currency of the policy period. Circulars referred to in Charge 2reiterate various provisions (including GR 8) of erstwhile Tariff.

An analysisof the above facts shows that the relevant provisions, (General Regulation 8 of All IndiaMotor Tariff, 2002) andthose of relevant circulars indicated under charge no.2 above, have beenviolated to the extent of having been non-transparent regarding deductions madefrom the claims. The insurer has maintained that the claims would normally fallunder ‘voidable’ category but were considered on non-standard basis, not to putthe customer into undue hardship. Further, the Insurer has stated that regardingclaims settled on non-standard basis, some deduction was made for violation ofPolicy conditions. This however, does not offer any ground for the Insurer todeduct amounts from the claims with the claimants and arriving at ‘negotiatedamounts’. There is no transparency about what can constitute a non-standardclaim and the amounts deducted from the IDV in various cases seem to have beenmade arbitrarily. The cases, however, do reflect instances of claimants foundwanting in some respect, of the procedures laid down for the claims.

(VI)       Decision

After considering all theabove factors, I am of the opinion that Charges 1 and 2 relating to TotalLoss/Constructive Total Loss claims stand confirmed and the samples given abovestand testimony to this. Simultaneously, certain lacunae in compliances by the claimantshave also been observed. Keeping these in mind and in exercise of powers vestedin the Authority as per the provisions of Sec. 102(b) of Insurance Act, 1938(as amended from time to time), I hereby conclude that a penalty of an amountof Rs.5 Lakh be imposed on the Insurer.

The penalty of Rs. 5,00,000(Rs. Five Lakh only) shall be remitted by the Insurer through NEFT / RTGS(details of which will be communicated separately) by debiting shareholders’account within a period of 15 days from the date of receipt of this order. Anintimation of remittance by the Insurer may be sent to Ms. Yegnapriya Bharath,Chief General Manager (NL), IRDAI, Sy. No. 115/1, Financial District,Nanakramguda, Hyderabad, 500032.

If the Insurerfeels aggrieved by the above decision in this order, an appeal may be preferredto the Securities Appellate Tribunal as per Section 110 of the Insurance Act,1938.

Place: Hyderabad (P.J. JOSEPH)

Date:03.01.2019 Member(Non-Life)