Authored By: Prisha Batra
Symbiosis Law School, Noida
Introduction
In today’s market, insurance is rarely sold only by insurance companies. Consumers often purchase insurance while booking flights, applying for loans, buying electronics, shipping goods, or availing relocation services. In many such transactions, the consumer does not directly interact with the insurer. Instead, the insurance is arranged through a third-party service provider acting as an intermediary between the customer and the insurance company. While such arrangements may provide convenience, they also raise important concerns regarding transparency, disclosure, and consumer protection.
A recurring issue in these arrangements is whether the consumer is fully informed about the nature of the insurance product, the actual premium charged by the insurer, the scope of coverage, and the role of the intermediary facilitating the policy. In several cases, disputes arise only after a claim is rejected and the consumer discovers limitations, exclusions, or pricing structures that were not clearly understood at the time of purchase.
This article argues that while third-party insurance facilitation is not inherently unlawful, the absence of proper disclosure and transparency can create serious consumer protection concerns. It is submitted that Indian consumer protection law and insurance regulations must place greater emphasis on informed consent, disclosure obligations, and accountability of intermediaries involved in arranging insurance products.
Third-Party Insurance Arrangements and Consumer Concerns
Insurance products are increasingly bundled with commercial services. A customer relocating internationally may obtain transit insurance through a relocation company. A borrower may be offered insurance by a bank while taking a loan. Similarly, e-commerce platforms frequently provide optional insurance for products or deliveries. In such situations, consumers often rely on the service provider’s representation regarding the suitability and adequacy of the insurance cover.
The primary concern in these arrangements is informational imbalance. The consumer is usually unfamiliar with insurance terminology, policy exclusions, and claim procedures. On the other hand, the service provider facilitating the policy is in a stronger bargaining and informational position. Consequently, consumers may agree to insurance arrangements without fully understanding what risks are actually covered.
A common issue relates to disclosure of charges. Consumers are sometimes informed only of the total amount payable without clarity regarding the insurer’s actual premium and the intermediary’s service charges or facilitation fees. While charging a facilitation fee may not by itself be unlawful, the absence of transparency can lead to allegations of overcharging or misrepresentation, particularly when disputes later arise.
Another important issue concerns policy exclusions. Many insurance policies contain technical exclusions relating to used goods, improper packaging, delayed reporting, or address discrepancies. Consumers frequently become aware of these exclusions only after filing a claim. This creates dissatisfaction and raises questions regarding whether adequate disclosure was made at the time the policy was arranged.
Consumer Protection Framework in India
The Consumer Protection Act, 2019 seeks to protect consumers against unfair trade practices and deficiency in service. Under the Act, consumers can approach consumer commissions where services are deficient or where misleading representations are made. Insurance services fall within the scope of the Act, and Indian courts have repeatedly recognised the duty of fairness and transparency in consumer transactions.
In addition to the Consumer Protection Act, the insurance sector in India is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). The regulatory framework emphasises transparency, fair disclosure, and protection of policyholders’ interests. IRDAI regulations governing insurance intermediaries and policy issuance are aimed at ensuring that consumers receive accurate information regarding policy terms, exclusions, and applicable charges.
The Supreme Court and consumer forums have consistently observed that insurance contracts must be interpreted carefully because consumers often occupy a weaker bargaining position. However, courts have also held that policyholders are expected to read policy documents once supplied to them. Therefore, disputes often involve balancing two competing considerations: the duty of disclosure on the part of the insurer or intermediary, and the responsibility of the consumer to review the policy documents provided.
The increasing involvement of third-party facilitators complicates this balance further. Unlike licensed insurers, many service providers primarily operate in unrelated commercial sectors such as logistics, travel, banking, or retail services. Yet consumers may rely on these entities while selecting or purchasing insurance products. This creates ambiguity regarding accountability when claims are rejected or when disputes regarding pricing arise.
Mis-Selling, Transparency, and the Need for Reform
The issue of insurance mis-selling has gained increasing attention in India. Mis-selling does not necessarily require outright fraud. In many cases, the problem lies in incomplete disclosure, lack of clarity, or failure to adequately explain policy limitations. Consumers may technically consent to a policy while still lacking meaningful understanding of the transaction.
A major challenge is that insurance documentation is often highly technical and difficult for ordinary consumers to understand. Even where policy documents are supplied, consumers may not fully appreciate exclusions or conditions buried within lengthy contractual language. Merely providing documents may therefore not always satisfy the broader objective of informed consumer consent.
Greater transparency in third-party insurance arrangements is necessary. Consumers should be clearly informed regarding:
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the insurer’s actual premium;
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any separate facilitation or administrative charges;
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the role of the intermediary;
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important policy exclusions; and
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claim reporting requirements.
Clear disclosures would reduce disputes and strengthen consumer confidence in insurance products.
At the same time, consumers must also exercise reasonable diligence. Once policy documents are provided, consumers should review the terms and raise discrepancies promptly. Consumer protection cannot entirely eliminate the responsibility of policyholders to examine contractual documents supplied to them.
A balanced approach is therefore required. Third-party facilitators should ensure transparency and fair disclosure, while consumers should carefully review policy terms before relying on the existence of insurance coverage. Strengthening disclosure standards and simplifying insurance documentation would significantly reduce future disputes.
Conclusion
Third-party insurance arrangements have become an important feature of modern commercial transactions. While they offer convenience and accessibility, they also create significant consumer protection concerns relating to transparency, disclosure, and accountability. Disputes frequently arise when consumers discover hidden exclusions, unclear pricing structures, or limitations in coverage only after a claim is rejected.
This article has argued that the core issue in many such disputes is not merely the existence of facilitation charges or intermediaries, but the adequacy of disclosure and the quality of informed consent obtained from consumers. Indian consumer protection law and insurance regulation must therefore evolve to ensure greater transparency in bundled and facilitated insurance transactions.
At the same time, consumers must exercise reasonable caution by reviewing policy documents and raising concerns promptly upon receipt. A combination of stronger disclosure obligations and increased consumer awareness can help create a fairer and more transparent insurance ecosystem. As insurance products continue to become integrated into everyday commercial services, the law must ensure that convenience does not come at the cost of consumer understanding and protection.
