Bridging the Trust Gap: Why Insurers Need an Internal Ombudsman

The Reserve Bank of India (RBI) has already introduced an Internal Ombudsman Scheme for banks, requiring all banks to designate an independent officer to address escalated consumer complaints. If appropriate, insurance regulators may implement a similar model for the sector.

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Abstract:

The article justifies establishing an Internal Insurance Ombudsman (IIO) at the insurer level to assist with unresolved or escalated agent or consumer concerns prior to external enforcement action. Given the current grievance redressal landscape regarding timeliness, jurisdictional limitation, and poor feedback loops, the paper articulates how an IIO could assist in securing faster, fairer, and more accessible resolutions to concerns. In addition to handling concerns, an IIO can build consumers' trust, issue early warnings regarding risk, reduce regulatory interventions, and inform product innovation. Possible challenges to implementation, such as independence, clarity on the future role, cost to implement, and how to integrate the IIO into governance, are discussed, including policy recommendations. The IIO is seen as a strategic administrative leveraging point for building transparency, accountability, and, over time, consumer loyalty in the ongoing evolution of the insurance sector.

1. Introduction

On July 23, 2025, the Insurance Regulatory and Development Authority of India (IRDAI) issued its Exposure Draft of the Internal Insurance Ombudsman Guidelines, 2025 for public comments. The proposal requires all insurers (except reinsurers) who have been in business for three years or more to establish an independent, unbiased ombudsman within the insurer in order to resolve complaints that were not resolved internally, or that were escalated by the customer, for all complaints related to claims of Rs. 50 lakh or less. Insurers can appoint more than one ombudsman with clearly defined areas of responsibility to ensure faster and more effective coverage.

By embedding the independent process in insurers, the IRDAI aims to streamline grievance resolution and build trust for the policyholder, thereby enhancing policyholder safety and confidence in the insurance mechanism.