In the next two months, the general insurance industry will implement new claims settlement guidelines which plan to make better use of alternative dispute settlement mechanisms such as Lok Adalats to clear the backlog, many of which are stuck in courts.
This is expected to benefit lakhs of accident victims in India as well as general insurance companies by settling claims and putting an end to miserably lengthy litigations.
The industry has about 1.5 million outstanding third party accident claims, with their value estimated at about Rs15,000 crore (about 60% the industry’s annual turnover), said K.N. Bhandari, secretary-general, General Insurance Council, the industry forum.
The industry’s potential liability on the backlog keeps increasing as court decisions on payouts come with accrued interest built into it.
Third party claims—claims on the insurers by unrelated people who were involved in an accident with a client—from commercial vehicles such as trucks are among the biggest financial blows the insurers’ absorb. Once a claim is taken to the courts, the final verdict takes three to five years on an average, said N. Murali, secretary general of the All India Motor Transport Congress, the lobby group of commercial vehicle operators.
The use of alternative channels such as Lok Adalats, negotiated settlements out of court and the streamlining of internal systems for speedy settlement, form the three-pronged approach of the new claims settlement mechanism, said Bhandari. “We are trying to see if initiative from our side can cut short the settlement time.”
Along with free pricing of premium for motor vehicle insurance, which was introduced in January this year, the Insurance Regulatory and Development Authority asked the industry to pool its third-party risks on commercial vehicles.
The claims settlement will be managed by the pool and the execution will be outsourced to the national re-insurer, General Insurance Corp.
Lok Adalats and other alternatives to courts as a way of settling disputes have long been used by the industry.
But, the emphasis now will be on increasing the number of cases going there.
Lok Adalats supplement the courts when both sides to a dispute are willing to settle the matter through compromise and conciliation. About 60% of the third party claims are on account of small injuries, which makes alternative channels a cost-effective and quick way of disposing these.
The intentions are good, but much hinges on how it is implemented, say analysts.
The new claims settlement mechanism being planned makes sense provided it has robust internal systems to manage claims and people who can make sound judgement calls on the kinds of settlement to be pursued, said Samir Bali, director, global financial services, Ernst & Young Partners.