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Banking and Insurance - Laws and Practice · Functions in Insurance and Compliance related thereto (Part II)

Claims Settlement and Policyholder Protection in General Insurance

Updated 11 October 2026 · Fact-checked

Claims settlement is the insurer's process of receiving a claim, getting a loss report from an approved surveyor where required, and paying or rejecting it. The Insurance Act, 1938 protects policyholders through claim records (Section 14), surveyor rules (Section 64UM), IRDAI directions and the Executive Committee's duties (Section 64L).

Understand Claims Settlement and Policyholder Protection

A claim is the policyholder's demand that the insurer pay for a loss covered by the policy. Claims settlement is everything the insurer does between receiving that demand and discharging or rejecting it. It is the point where the insurance promise is tested, so the law builds in several protections.

The Insurance Act, 1938 requires every insurer to keep a record of claims (Section 14). Each entry shows the claim, its date, the claimant's name and address, and the date the claim was discharged. If the claim was rejected, the entry shows the date of rejection and the grounds. The record may be kept in any form, including electronic mode, as the regulations specify. The Act also requires insurers to endeavour to issue policies above a specified threshold in electronic form.

For loss assessment, Section 64UM applies. A claim at or above the amount specified in the regulations cannot be admitted for payment or settled unless the insurer has a loss report from an approved surveyor or loss assessor. The insurer is still free to pay or settle at an amount different from the surveyor's figure. The Authority (IRDAI) can call for an independent report from another approved surveyor, at the insurer's cost, and can then direct how the claim is settled. The insurer must comply.

Smaller claims have a lighter rule. If using an approved surveyor would cost disproportionately, the insurer may employ another person who is not disqualified. IRDAI can still direct that such a claim be reported on by an approved surveyor. It can also exempt a class of claims where custom or impracticability justifies it.

The Executive Committee of the General Insurance Council works on the sector side (Section 64L). It advises insurers on standards of conduct, sound practice and efficient service to policyholders. It advises IRDAI on controlling commission and other expenses. It also brings to IRDAI's notice any insurer acting prejudicially to the interests of general insurance policyholders. The Committee advises and reports. The directions come from IRDAI.

Key rules to remember

Record of claims (Section 14)
Claim + date + claimant's name and address + date discharged (or date of rejection + grounds)
Every insurer must keep this for all business it transacts. Electronic form is allowed as specified by the regulations.
Approved surveyor requirement (Section 64UM(4))
Claim ≥ amount specified in regulations → loss report from approved surveyor or loss assessor needed before admission or settlement
Unless IRDAI directs otherwise. The insurer may still settle at a different amount from the surveyor's assessment.
Qualification of a surveyor (Section 64UM(1))
Academic qualifications specified by regulations + membership of the Indian Institute of Insurance Surveyors and Loss Assessors
For a firm or company, every partner or director who may survey or assess a loss must meet both conditions.
IRDAI independent report (Section 64UM(5)-(6))
IRDAI calls for report → cost borne by insurer → IRDAI may direct settlement higher or lower → insurer bound
If a lower figure is directed after payment, the insurer complies by taking all reasonable steps with due dispatch. No lesser sum is directed if recovery would cause undue hardship to the insured.
Small claims (Section 64UM(8)-(9))
Claim < specified amount → insurer may use another non-disqualified person if an approved surveyor is disproportionately costly
IRDAI may still direct that the claim be reported on by an approved surveyor.
Executive Committee functions (Section 64L(1))
(a) advise on conduct and service; (b) advise IRDAI on expenses; (c) report prejudicial insurers; (d) incidental matters
Clause (d) matters need IRDAI approval and a Gazette notification by the General Insurance Council.

How to solve Claims Settlement and Policyholder Protection questions

Use this order for any case or theory question on claims and policyholder protection. It follows the provision, facts, conclusion pattern.

  1. 1Identify the stage of the claim: record-keeping, loss assessment, settlement, rejection or complaint to the regulator.
  2. 2Name the provision that governs that stage: Section 14 for records, Section 64UM for surveyors, Section 64L for the Executive Committee.
  3. 3Check the condition in the facts. For surveyors, ask whether the claim is at or above the specified amount, and whether the surveyor is approved.
  4. 4Apply the rule to the facts, noting who holds the power. The insurer settles, IRDAI directs, and the Executive Committee only advises and reports.
  5. 5Check for exceptions: IRDAI directions, exemption of a class of claims, small claims, and the hardship proviso.
  6. 6State the conclusion in one clear line, then add the compliance point, such as what the insurer must record or report.

Quickest way: Who does what in a claim

When to use it: Use this when time is short and the question asks who is responsible or what the insurer must do.

  1. Write three labels: Insurer, IRDAI, Executive Committee.
  2. Insurer: keeps records, obtains the surveyor report, pays or rejects.
  3. IRDAI: calls for independent reports and issues binding directions.
  4. Executive Committee: advises insurers, advises IRDAI, and reports prejudicial conduct.
  5. Match each fact in the question to one label, then cite the section.

Common mistakes in Claims Settlement and Policyholder Protection

  • Saying the Executive Committee can direct an insurer to pay a claim.

    Students read 'policyholder protection' and assume the Committee has enforcement power.

    Fix: Section 64L gives it advisory and reporting functions. Only IRDAI issues binding directions under Section 64UM(6).

  • Saying an insurer must pay exactly the surveyor's assessed amount.

    The word 'report' is confused with 'binding award'.

    Fix: The proviso to Section 64UM(4) lets the insurer pay or settle at a different amount. IRDAI's direction is what binds.

  • Applying the surveyor requirement to every claim.

    Students forget the monetary threshold set by regulations.

    Fix: The requirement applies to claims at or above the specified amount. Smaller claims fall under sub-sections (8) and (9).

  • Omitting the grounds when describing the record of a rejected claim.

    Students remember dates and names but skip the last limb of Section 14(1)(b).

    Fix: Write: date of rejection and the grounds of rejection.

  • Stating that IRDAI's lower-figure direction always forces recovery from the insured.

    The provisos to Section 64UM(6) are skipped.

    Fix: State both provisos: the insurer complies by taking reasonable steps with due dispatch, and no lesser sum is directed where recovery would cause undue hardship.

Worked examples

Example 1

A general insurer receives a fire claim of a value above the amount specified in the regulations. It settles the claim without any surveyor's report. Advise on the legal position.

Show the solution
  1. Provision: Section 64UM(4) bars admission for payment or settlement of a claim at or above the specified amount without a report from an approved surveyor or loss assessor.
  2. Facts: the claim is above the specified amount and no report was obtained.
  3. Exception check: nothing says IRDAI directed otherwise, and no exemption of this class of claims is mentioned.
  4. Further point: under Section 64UM(7), an insurer cannot pay a fee for surveying or reporting on a claim unless the person is an approved surveyor or loss assessor.
  5. Compliance: IRDAI can call for an independent report from an approved surveyor at the insurer's cost and direct a settlement figure under sub-sections (5) and (6).

Answer: The settlement is non-compliant with Section 64UM(4). The insurer should have obtained an approved surveyor's report first, and it remains exposed to IRDAI's independent report and directions, which bind it.

Example 2

Explain the role of the Executive Committee of the General Insurance Council in protecting policyholders, and state what it can do if an insurer repeatedly delays claims.

Show the solution
  1. Provision: Section 64L(1) lists the Committee's functions.
  2. Under clause (a), it aids and advises general insurers on standards of conduct, sound practice and efficient service to policyholders.
  3. Under clause (b), it advises IRDAI on controlling insurers' commission and other expenses.
  4. Under clause (c), it brings to IRDAI's notice any insurer acting in a manner prejudicial to policyholders' interests.
  5. Application: an insurer that repeatedly delays claims can be reported to IRDAI under clause (c). The Committee itself does not penalise or direct the insurer.
  6. Conclusion: IRDAI then uses its own powers, including directions on claim settlement.

Answer: The Committee advises insurers, advises IRDAI on expenses, and reports prejudicial conduct. For repeated delay, it can report the insurer to IRDAI under Section 64L(1)(c). It cannot direct payment itself.

Exam tips

  • Quote the section number with each point. Section 14, 64UM and 64L are the three anchors here.
  • In case questions, state the provision first, then apply the facts, then conclude. Do not start with the conclusion.
  • Separate advisory bodies from regulators in every answer. Marks are often lost on this.
  • List the Section 14 record items fully: policy details and claim details, including rejection grounds.
  • For surveyor questions, always mention the specified-amount threshold and IRDAI's power to direct.

Practice questions from Functions in Insurance and Compliance related thereto (Part II)

Claims Settlement and Policyholder Protection in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Claims Settlement and Policyholder Protection: frequently asked questions

What must an insurer record about a claim?

Under Section 14, the insurer must record each claim, the date of the claim, the claimant's name and address, and the date it was discharged. For a rejected claim, it records the date of rejection and the grounds. The record can be electronic.

Is a surveyor's report compulsory for every claim?

No. Section 64UM(4) makes it compulsory for claims at or above the amount specified in the regulations, unless IRDAI directs otherwise. For smaller claims, the insurer may use another non-disqualified person if an approved surveyor would be disproportionately costly.

Can the insurer settle for a different amount than the surveyor assessed?

Yes. The proviso to Section 64UM(4) preserves the insurer's right to pay or settle at a different amount. IRDAI can still direct a different figure after calling for an independent report.

Who protects policyholders if an insurer acts unfairly?

IRDAI is the authority that issues binding directions. The Executive Committee of the General Insurance Council can bring such an insurer's conduct to IRDAI's notice under Section 64L(1)(c).