Rs 5,000 a Day: IRDAI's Penalty on Insurers Who Ignore an Ombudsman Award, and the CRC Repudiation Rule

When the Insurance Ombudsman rules in your favour, the award is supposed to be binding on the insurer. For years the weak link was enforcement: an insurer could accept the award on paper and then delay paying it, with little immediate cost. IRDAI's Master Circular on Health Insurance Business, dated 29 May 2024 (Ref IRDAI/HLT/CIR/PRO/84/5/2024), rewired that incentive. It attaches a penalty of Rs 5,000 for every single day an insurer fails to comply with an Ombudsman award, payable directly to the complainant, and it separately bars insurers from repudiating any health claim without a documented committee sign-off. This explainer walks through both mechanisms, works the arithmetic on a real example, and flags where policyholders can still lose ground.

The Rule / Product

The governing document is the consolidated Master Circular on Health Insurance Business issued by the Insurance Regulatory and Development Authority of India on 29 May 2024, carrying reference IRDAI/HLT/CIR/PRO/84/5/2024. It brings the operational rules for health cover — claims handling, cancellations, policyholder protection — into a single instrument for insurers to follow.

Two provisions of that circular concern us here. The first sits in Para 17, headed Settlement of Claims. It states that no health claim shall be repudiated without the approval of the insurer's Product Management Committee (PMC) or a three-member sub-group of the PMC called the Claims Review Committee (CRC). In plain terms, a single claims clerk can no longer reject your hospital bill; a rejection now has to clear a named committee that owns the decision on record.

The second provision addresses what happens after you win at the Ombudsman. Where an insurer does not comply with an Insurance Ombudsman award, a penalty of Rs 5,000 per day is payable to the complainant, and this is in addition to the penal interest the insurer already owes under the Insurance Ombudsman Rules, 2017. The 2017 Rules themselves require the insurer to honour an award within 30 days of receiving it (Rule 17(6)) and make it liable for penal interest at 2 per cent above the bank rate for the period of delay (Rule 17(8)). The Rs 5,000-a-day charge from the 2024 circular stacks on top of that interest, so the cost of stalling now compounds on two separate clocks.

A third, quieter protection in the same circular is the cancellation and refund right. A policyholder may cancel the policy at any time during the term by giving 7 days' notice in writing. Where the policy term is up to one year and no claim has been made, the insurer must refund a proportionate premium for the unexpired policy period. This is distinct from the initial free-look window and applies through the life of the contract.

You can model a health premium before you buy using Oquilia's health insurance premium calculator, and compare a term plan on the term insurance premium calculator. For the vocabulary that follows, the free-look period and sub-limit glossary entries are worth a quick read.

Why It Matters

The Rs 5,000-a-day figure matters because it converts a vague obligation into a running meter the complainant can count. Before the 29 May 2024 circular, an insurer that dragged its feet on a binding award faced penal interest alone — a cost that on a modest claim can be smaller than the working-capital benefit of holding the money. A fixed Rs 5,000 for each day of non-compliance changes that calculus for claims of every size, because on a 30-day delay it is Rs 1,50,000 regardless of whether the underlying claim was Rs 50,000 or Rs 5 lakh.

The CRC requirement in Para 17 matters for a different reason. Rejection rates in health insurance have long been a sore point, and the most damaging rejections are the ones made quickly and impersonally. Forcing every repudiation through the Product Management Committee or its three-member Claims Review Committee builds an audit trail: there is now a named body whose approval the Ombudsman, and later a court, can examine. A claim rejected without that documented approval is procedurally defective under the 2024 circular, which strengthens the policyholder's hand at the very first appeal.

Both rules also feed the Ombudsman route itself. The Insurance Ombudsman scheme is free for the complainant, and a complaint can be filed within one year of the insurer's rejection or final reply. Knowing that a favourable award now carries a Rs 5,000-a-day enforcement penalty raises the practical value of using that free forum instead of heading straight to a consumer court, where the same dispute can take far longer than the Ombudsman's target of resolving matters within three months of receiving the full documentation.

Worked Numbers

Take a health policyholder, Meera, who is hospitalised in January 2026 and files a cashless claim of Rs 4,00,000. The insurer repudiates it, Meera complains to the Insurance Ombudsman, and on 1 March 2026 the Ombudsman passes an award directing the insurer to pay the full Rs 4,00,000. Under Rule 17(6) of the Insurance Ombudsman Rules, 2017, the insurer must comply within 30 days — that is, by 31 March 2026. Assume it pays only on 30 May 2026, a delay of 60 days beyond the deadline.

Table 1 — What a 60-day delay costs the insurer

The single largest line after the claim itself is the Rs 3,00,000 daily penalty, not the interest. The penal interest here uses the RBI bank rate of 5.50% in force after the Monetary Policy Committee's 5 August 2026 decision; the exact figure moves with the bank rate and the delay period, but the Rs 5,000-a-day penalty is fixed and independent of both. On a 90-day delay the penalty alone would be Rs 4,50,000, and on 120 days it would be Rs 6,00,000 — larger than the original claim.

Now the cancellation refund. Suppose Meera's colleague Anil holds a one-year individual health policy with an annual premium of Rs 24,000, bought on 1 January 2026. He cancels it with the required 7 days' written notice on 10 February 2026, having made no claim. Counting the 40 days from 1 January to 9 February as used, 325 days of the 365-day term are unexpired.

Table 2 — Proportionate refund on mid-term cancellation (no claim, term up to one year)

Anil recovers Rs 21,370 of his Rs 24,000. The proportionate method rewards early cancellation: cancel on day 40 and roughly 89 per cent comes back; cancel at the nine-month mark, with only 91 days unexpired, and the refund falls to about Rs 5,984. The condition is strict — the proportionate refund on this basis applies where the term is up to one year and no claim has been made; once a claim is paid, the insurer is not obliged to refund the balance premium.

Pitfalls

The CRC protects the process, not the outcome. Para 17 requires committee approval before a claim is repudiated, but a properly constituted Claims Review Committee can still reject a claim that genuinely falls outside cover. If your policy carries a room-rent capping of, say, 1 per cent of sum insured per day and you occupy a room above that limit, the CRC can lawfully apply a proportionate deduction across the whole bill. The committee rule improves the paper trail; it does not delete a sub-limit you agreed to.

Pre-existing disease and waiting periods survive the new circular. A claim declined because a pre-existing disease is still inside its waiting period is not a procedural defect — it is the contract operating as written. The stronger, separate protection here is the 60-month moratorium: after five continuous years of cover an insurer can no longer reject a claim for non-disclosure except for proven fraud, as covered in our explainer on the 60-month moratorium. Until you cross that five-year line, disclosure at the proposal stage remains your best defence.

Co-payment quietly shrinks every settlement. A 20 per cent co-payment means that even on a fully approved Rs 4,00,000 claim you personally bear Rs 80,000. Neither the CRC rule nor the Rs 5,000-a-day penalty touches a co-pay clause — those mechanisms govern how and when the insurer decides and pays, not the share you contracted to keep. Check the co-pay before you assume an award of "the claim" means the whole bill.

The Rs 5,000 penalty runs only after non-compliance with an award. It does not apply while a claim is merely under assessment, nor while the Ombudsman is still hearing the matter. The clock starts once there is a binding award the insurer has failed to honour within its 30-day window under Rule 17(6). If your grievance never reaches an award — because you settled, withdrew, or the complaint was outside the Ombudsman's jurisdiction — there is no Rs 5,000-a-day meter to invoke.

Cancellation timing cuts both ways. The proportionate refund is generous early and thin late: on a one-year policy cancelled with 91 days left, the refund on a Rs 24,000 premium is about Rs 5,984, not half. And the refund evaporates entirely if a claim has been made, because the "no claim made" condition attaches to the whole policy year, not to the specific months you are cancelling.

FAQ

Does the Rs 5,000-a-day penalty apply to life and motor insurance too, or only health?

The Rs 5,000-a-day non-compliance penalty is set out in IRDAI's Master Circular on Health Insurance Business dated 29 May 2024, so it is anchored in the health framework. The underlying enforcement backbone — the binding nature of the award, the 30-day compliance window under Rule 17(6) and penal interest under Rule 17(8) — comes from the Insurance Ombudsman Rules, 2017, which cover life, general and health insurance grievances alike. For the fixed daily penalty specifically, rely on the health circular and read your own policy's grievance clause.

Who exactly sits on the Claims Review Committee?

Under Para 17 of the 29 May 2024 circular, the Claims Review Committee is a three-member sub-group of the insurer's Product Management Committee (PMC). Its composition is fixed by the insurer within that structure. The point the regulation fixes is accountability: a health claim cannot be repudiated at all without either the full PMC or this named three-member CRC approving the rejection, which creates a documented decision the Ombudsman can later scrutinise.

How long do I have to complain to the Insurance Ombudsman?

Under the Insurance Ombudsman Rules, 2017, you can approach the Ombudsman within one year of the insurer's rejection of your representation or its final reply. The forum is free of cost to the complainant, and the Ombudsman aims to pass an award within three months of receiving all the required documents. File your written representation with the insurer first, because the one-year clock is measured from its response.

If I cancel my health policy mid-term, how much premium comes back?

For a policy with a term of up to one year on which no claim has been made, the insurer refunds a proportionate premium for the unexpired period after you give 7 days' written notice. On a Rs 24,000 annual premium cancelled with 325 of 365 days unexpired, that is Rs 21,370. The refund shrinks as the year runs on and disappears once a claim has been paid in that policy year.

Can a claim still be rejected after the CRC rule if all my papers are in order?

Yes. The CRC requirement in Para 17 governs how a rejection is made — through a named committee, on record — not whether a genuinely uncovered claim can be declined. Exclusions, waiting periods, sub-limits and co-payments in your policy remain enforceable. What the rule removes is the summary, undocumented rejection; a claim within cover that is rejected without CRC or PMC approval is procedurally defective under the 29 May 2024 circular.

Does the daily penalty stop the insurer from appealing an Ombudsman award?

The Insurance Ombudsman award is binding on the insurer, and Rule 17(6) of the 2017 Rules requires compliance within 30 days. The Rs 5,000-a-day penalty and penal interest bite precisely because the insurer is expected to comply rather than stall. A complainant who is dissatisfied retains the right to pursue other legal remedies, but for the insurer the practical message of the 29 May 2024 circular is that ignoring an award is expensive from day one.

Where can I verify these rules myself?

Read Para 17 and the penalty provision directly in IRDAI's Master Circular on Health Insurance Business (Ref IRDAI/HLT/CIR/PRO/84/5/2024, 29 May 2024) at irdai.gov.in, and the compliance and penal-interest provisions in the Insurance Ombudsman Rules, 2017, which are framed under the parent statute, the Insurance Act, 1938, available on indiacode.nic.in. Both are primary sources; treat any third-party summary, including this one, as a pointer back to them.