IDRA bars forced policy purchases

The Insurance Development and Regulatory Authority (IDRA) has barred life insurance companies from forcing policyholders or nominees to purchase new policies as a condition for receiving insurance claims.

The regulator has also prohibited insurers from deducting premiums for new policies from the proceeds of existing claims, saying such practices violate the law and undermine policyholders’ interests.

In a circular issued on October 15, IDRA said it had observed that some life insurers were making the purchase of new policies a condition for settling maturity claims, death claims and survival benefits.

In some cases, insurers were deducting premiums for new policies from the amounts payable under existing policies and handing over the remainder to policyholders or nominees.

Under the existing legal framework, insurers are required to settle the full amount of insurance claims within 90 days, the circular said.

The regulator said insurers must transfer the entire amount payable against a claim to the bank account of the policyholder or nominee in a single transaction. No amount may be deducted from the claim proceeds, except applicable government revenue, it added.

The circular also introduced restrictions on issuing new policies to customers whose maturity claims are settled late.

If an insurer settles a maturity claim after the stipulated 90-day period but within the following 30 days, it will not be allowed to issue a new policy to the same policyholder for 30 days from the date of the final payment.

If the claim is paid 120 days or more after it becomes due, the insurer will be barred from issuing a new policy to that policyholder for 180 days from the date of the final payment.

However, insurers will face no such restriction on issuing a new policy to a customer if the maturity claim is settled in full within the stipulated 90 days, according to the circular.

IDRA said the practice of making new policy purchases a condition for claim settlement was creating dissatisfaction among policyholders, harming their interests and damaging the insurance industry.

The directive was circulated to top officials of all life insurance companies.