The Insurance Development and Regulatory Authority (IDRA) has barred life insurance companies from making the purchase of new policies a condition for settling existing claims, aiming to protect policyholders and nominees from unfair practices.

In a circular issued on October 15, the regulator said some life insurers had been requiring customers to purchase new policies to receive maturity claims, death benefits and survival benefits.

In some cases, companies deducted premiums for new policies from the proceeds of existing claims and paid the remaining amounts to policyholders or nominees.

IDRA said the practices violated the law, undermined policyholders’ interests and damaged public confidence in the insurance industry.

Under the existing legal framework, insurers must settle claims in full within 90 days. The regulator directed all life insurers to transfer the entire payable amount to the bank account of the policyholder or nominee in a single transaction.

No deductions from claim proceeds will be permitted, except for applicable government revenue, the circular said.

IDRA has also introduced restrictions on issuing new policies to customers whose maturity claims are settled after the stipulated deadline.

If a maturity claim is paid more than 90 days after it becomes due but within the following 30 days, the insurer will be barred from issuing a new policy to the same customer for 30 days from the date of final payment.

If payment is delayed until 120 days or more after the claim becomes due, the restriction will extend to 180 days from the date of final payment.

Insurers will face no such restrictions if they settle maturity claims in full within the prescribed 90-day period.

IDRA said linking claim settlements to the purchase of new policies had fuelled dissatisfaction among policyholders, harmed their interests and tarnished the image of the insurance industry.

The directive has been circulated to the top officials of all life insurance companies.