Nikhil W, who was trying to buy a last-minute overseas insurance policy for his father, discovered that the online system was not accepting a payment from his account. His parents who were travelling on their own had not activated any electronic payment services. Earlier, he had paid for his parents when he was part of the group that was travelling.
Insurers are invoking the principle of 'insurable interest' for rejecting payment through third-party accounts. Insurance interest means that the person buying insurance needs to have a financial interest in the subject of insurance.
This restriction is a challenge for those who have not bridged the digital divide considering that online payments are becoming the norm for many categories of policies such as auto, health and overseas travel. Also, in cases of policies where the commission is low, the insurance agent is reluctant to make the effort to collect the cheque.
"Any person paying the premium needs to have insurable interest. The insurance policy is a contract between the insurer and the policyholder and third-party cheques are not accepted," said K K Mishra, MD, Tata AIG General Insurance. He added that in the case of people who do not have net banking or credit cards, the company sends across a representative to collect the cheque.
According to Sanjay Datta, head of underwriting and claims at ICICI Lombard, the company accepts cheques of family members in family floater policies, but unrelated parties cannot may payments in respect of individual policies. He, too, cites the principle of insurance interest for rejecting third-party payments. In the case of life insurance too, almost all companies - including LIC - require that the online premium be paid from the policyholder's account.
However, there appears to be a mixed view in regulatory circles.
According to regulatory sources, the main reason behind the ban on third-party cheques is to avoid disputes in future. In the case of cheque payment, the insurance company is on risk from the time it receives the cheque. In case the cheque is not honoured, the company can commence recovery proceedings under Section 138 of the Negotiable Instruments Act. But if the cheque is paid by a third party, recovery becomes difficult.
However, a retired regulatory official said, insurers are mixing up the person who is facilitating payment with the person who is buying insurance.
"How does it matter if the payment is made by a third-party. The insurance company does not have any problem accepting a demand draft which could have been paid by a third-party or if a third-party has deposited funds in the buyer's account".
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