The amended Policyholder Protection Rules promulgated under section 55(5) of the Short-term Insurance Act, 1998 and section 62(5) of the Long-term Insurance Act, 1998 published on 17 December 2010 come into operation on 1 January 2011. The rules which were initially scheduled to be implemented on 1 Janaury 2010 are a variation of the existing short-term Rule 7.4 (and the corresponding long-term Rule 16.1 and 16.2) regulating an insurer's decision to reject or accept claims as well as time limitation provisions for the institution of legal claims. The time periods provided for from date of publication to date of operation are limited and insurers need to immediately put in place systems in order to ensure compliance with the amended rules.

In terms of the new rules, the claims handling procedure from 1 January 2011, is:

  • Insurers must decide whether they accept, reject, or dispute the quantum of the claim "within a reasonable period". A reasonable period will depend on the facts and circumstances of the claim, for example, how soon the insurer receives the documents from the policyholder for purposes of conducting investigations in respect of the claim. Notably, the previous Rule 7.4 did not make provision for a period by which the insurer should accept, reject or dispute the quantum of a claim.
  • Insurers must in writing notify the policyholder of their decision within 10 days of taking that decision.
  • If the insurer rejects the claim, such notice of rejection must:
  • Give reasons for the rejection. Presumably, this does not or should not prevent the insurer from relying on other reasons which become known at a later stage. Where the notice of rejection is written by someone other than the insurer, the notice must include the details of the insurer and advice to the policyholder that further correspondence in respect of the notice must be sent directly to that insurer.
  • Give the policyholder not less than 90 days "after the date of receipt of the notice" to make representations regarding the insurer's decision to reject the claim or dispute the quantum of the claim. Insurers will have to put procedures in place so as to ensure delivery of the notice to the policyholder for purposes of calculating the 90 day period.
  • Inform the policyholder in " plain and understandable language" of their right to lodge a complaint under the Financial Services Ombud Schemes Act, 2004 with information regarding the relevant provisions of the Act in respect of lodging complaints. Plain and understandable language will also depend on a number of factors including the sophistication of the policyholder.
  • Inform the policyholder of any time limitation clause for the institution of legal action and the implications of such clause in an "easily understood manner".
  • If the policy does not contain any time limitation clause, inform the policyholder of the prescription period under the Prescription Act, 1969.
  • If the policyholder makes representations within the 90 day period, the insurer must within 45 days (the previous rule provided for 30 days) of receipt of the representation send a written notice to the policyholder of its final decision whether to accept, reject or dispute the quantum of the claim. This notice, which does not suspend the limitation period, must:
  • Inform the policyholder of the reason for the decision.
  • Include the facts that informed the insurer's decision.
  • Include the information on the policyholder's right to lodge a complaint with the appropriate ombud under the Financial Services Ombud Schemes Act, on the time limitation clauses in the policy for instituting action and if the policy is not applicable, the provisions of the Prescription Act mentioned above.

The new rule provides that any time limitation clause may not include the 90 day period afforded to the policyholder for purposes of making representations regarding a rejected or disputed claim. From 1 January 2011, all policies must allow a period of not less than six months after the 90 day period for the institution of legal action. Insurers need to amend any policies with restrictive limitations without delay so as to ensure compliance with the new rules.

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