Use Of Deterrence In Insurance
- IJLLR Journal
- Jan 9
- 2 min read
Saloni Sharma, BBA LLB, Symbiosis Law School, Nagpur
The insurability of fines and penalties is a topic that is often seen as vague and has very less precedents in India. Insurance companies may pay for penalties and fines, but only if the crime that caused them is not unlawful or if the punishment is insurable. Because insurability is seldom dealt with head-on in statutes or regulations, there is room for interpretation in this area. The question of whether fines are indemnifiable remains unclear.
2. Analysis
2.1 Importance of Deterrence in Insurance
For a variety of reasons, deterrence is important in insurance. It reduces fraud, protecting insurance companies and policyholders financially. Insurance costs for genuine clients rise, and consumer trust in the industry drops when fraud goes unpunished. Deterrence helps stabilize the insurance business by ensuring transparency and paying valid claims.
Insurance fraud can take the form of overstated claims, willful mistakes, or policyholder-third- party collusion. In India, life and non-life insurance fraud are common. Medical, vehicle, and property insurance are especially susceptible to fraud. Forged medical bills and paperwork are widespread in health insurance. Vehicle insurance typically has exaggerated repair bills and staged incidents.
IRDAI regulations, such as the 2013 Insurance Fraud Monitoring Framework, demonstrate deterrence. This framework comprehensively covers insurance fraud detection and prevention. The 1938 Insurance Act's Section 45 addresses insurance contract fraud and sets deterrents.
2.2 Legal Framework for Deterrence in Indian Insurance Law
Section 45 of the Insurance Act covers insurance contracts that contain incorrect or misleading information. It's illegal to contest insurance coverage after three years unless fraud is involved. Allowing insurance firms to challenge claims within a short timeframe deters fraudulent claims.
