Summary: The Ministry of Finance published the Draft Insurance Ombudsman (Amendment) Rules, 2025 (“Draft IO Amendment Rules”), for public consultation in November 2025, which continue to remain in draft form. The Draft IO Amendment Rules proposed significant amendments to the current regime, including digitisation measures, enhanced penalties, and establishment of an appellate authority to entertain appeals against awards passed by the Ombudsman. We revisit the basic principles regime, with mediation as its cornerstone, highlight areas of ambiguity, and analyse the direction of Draft IO Amendment Rules are taking.
The Insurance Ombudsman
Inspired by the success of Reserve Bank of India’s (“RBI”) Banking Ombudsman Scheme (first introduced in 1995), the office of the Insurance Ombudsman was constituted under the Redressal of Public Grievance Rules, 1998 (“RPG Rules”), which was later superseded by the Insurance Ombudsman Rules, 2017 (“IO Rules”). These rules position the Insurance Ombudsman as an Alternative Dispute Resolution (“ADR”) mechanism intended to “resolve all complaints relating to settlement of claim on the part of insurance companies in cost-effective, efficient and impartial manner.[1]
Mediation by the Insurance Ombudsman
Rule 13(2) of the IO Rules provides for the Ombudsman to act as counsellor and mediator (in matters within the terms of reference) with the written consent of the parties. Under Rule 16, after hearing the parties, the Ombudsman may make a recommendation, a copy of which is shared with the complainant and the insurer. If the complainant accepts, the insurer must comply with the terms.
Although both parties need to consent for mediation, only the complainant (i.e., the policyholder) has the power to determine whether the recommendation is acceptable. While not binding on the complainant, this process raises questions on whether the insurer is bound by the said recommendation.
As per the ADR Rules, the key role of a mediator is to facilitate effective discussion between the parties and assist them in identifying issues, reducing misunderstandings, clarifying priorities, and exploring areas of compromise.[2] However, mediation (as mode of conflict resolution) is one where parties arrive at a “mutual agreement” facilitated by an impartial third party. The unilateral right of the complainant under the IO Rules to accept the recommendation raises questions on whether this constitutes “mutual agreement” and is, in reality, a mediation.
In conventional mediation, recommendations are non-binding unless accepted by both parties. Although Rule 16(3) of the IO Rules uses the terms “shall comply”, the IO Rules do not specifically provide that the mediation recommendation be binding on the insurer. This poses various practical difficulties, and the recommendation runs the risk of being rendered unenforceable under the current regime. Currently, the insurer’s non-compliance of the recommendation leaves the complainant with no recourse but to reinstate proceedings before the Ombudsman or approach a court.
However, the Draft IO Amendment Rules now seek to create a clear procedural pathway to address the insurer’s/insurance broker’s non-compliance with the recommendation (once accepted by the complainant) by allowing the complainant to seek a binding award under Rule 17. Rule 17(6) of the IO Rules specifically provides that an award passed by the Ombudsman is binding on the insurer. However, this still does not address the ambiguity regarding whether mediation “recommendations” ultimately bind the insurer, as it may be argued that the non-compliance is a separate issue and does not have any bearing on whether the recommendation is binding.
Mediation by the Ombudsman is still to become an effective mode of dispute resolution in the insurance sector.As per the Annual Report of the CIO for FY 2023–24, the Ombudsman redressed 15528 of the 36850 entertainable complaints through mediation, accounting for over 42 per cent of entertainable complaints disposed. This percentage dropped to approximately 39 per cent in FY 2024–25.[3]
In Puneet Singhal v. Insurance Ombudsman,[4] the Ombudsman, in its order, expressly mentioned that the complaint stood resolved through mediation under Rule 16 of the IO Rules, as the insurer had agreed to review the complainant’s claim. However, the insurer held the claim as not tenable and rejected it. The Delhi High Court, on a writ petition filed by the complainant, observed that nothing indicated that the complaint was settled through mediation and redirected the matter to the Ombudsman for reconsideration. This judgment showed how unclear mediation recommendations can lead to delays.
Mediation under the RBI Ombudsman
The RBI introduced the Integrated Ombudsman Scheme, 2021 (“IOS 2021”), to address consumer complaints involving deficiency in services rendered by RBI-regulated entities.[5] Clause 14 of the Scheme provides that the RBI Ombudsman shall endeavour to promote settlement of a complaint by agreement between the complainant and the regulated entity through facilitation or conciliation or mediation. However, Clause 14(8) goes on to stipulate that an amicable settlement arrived between the parties shall be recorded and signed by both parties, “directing the parties to comply with the terms” within the stipulated time.
Consequently, the RBI Ombudsman’s recommendation pursuant to mediation invoked by the parties is binding, given that it is agreed upon by both parties. Owing to this, dispute resolution through mediation in the banking sector has been a major success. This is evident from RBI’s Annual Report for FY 2024–25 for the IOS 2021, which shows that 93,752 of the 1,80,621 maintainable complaints (i.e., 51.91 per cent) were resolved through mutual settlement, conciliation, or mediation. Moreover, such consent-based mediation undertaken by the RBI Ombudsman has significantly reduced the risk of a settlement’s enforceability being challenged before a court. We could not find any orders passed by a High Court as a challenge to mediated settlements under the IOS 2021.
The RBI also introduced the Integrated Ombudsman Scheme, 2026 (“IOS 2026”), which supersedes the IOS 2021. Effective July 1, 2026, the IOS 2026 seeks to further streamline the ADR mechanism by strengthening the Ombudsman’s powers and enhancing efficiency in complaint resolution, including through settlements.
The Draft Insurance Ombudsman (Amendment) Rules, 2025
The Draft IO Amendment Rules proposed significant amendments to the current regime including digitisation measures, enhanced penalties, and establishment of an appellate authority to entertain appeals against awards passed by the Ombudsman. However, concerns arise from the Draft IO Amendment Rules’ treatment of mediation recommendations. While Rule 16(3) of the IO Rules requires insurers (or insurance brokers, as the case may be) to comply with mediation recommendations within 15 (fifteen) days of receipt of the complainant’s acceptance, the proviso sought to be inserted vide Draft IO Amendment Rules states that in case of non-compliance, the complainant may approach the Ombudsman for passing an award under Rule 17. This emboldens the argument that unilateral mediation recommendations lack binding force, as insurers retain the ability to decline compliance with mediation recommendations and await formal awards. Furthermore, the Draft IO Amendment Rules fail to solve for insurer consent not being expressly required for the settlement to become effective. This departs from the consent-based mediation model successfully implemented under the RBI Integrated Ombudsman Scheme.
Conclusion
Considering the evolution of ADR mechanisms has hinged on avoiding traditional litigation routes, it is somewhat counterintuitive if litigation is the outcome of an ADR mechanism. Therefore, it should ideally be modified to resolve such an outcome. The current IO Rules differ from conventional mediation principles by allowing settlement without the consent of all parties involved. Since it is unclear whether the Ombudsman can bind the parties under mediation, the consent of parties and their intent to arrive at a compromise becomes more important. The IO Amendment Rules are trying to address the foundational consent deficit in mediation with the aim of enhancing the effectiveness of the Ombudsman framework.
In line with the principles of mediation under the Mediation Act and the RBI Scheme, we believe that the IO Rules could also include a consent-based mediation and specifically make such mediation settlements binding on parties, once mutually accepted. This would strengthen the Ombudsman as a genuine ADR mechanism for personal insurance that preserves its expeditious, conciliatory character while ensuring settlements rest on genuine mutual agreement.
[1] Rule 3, Redressal of Public Grievances Rules, 1998.
[2] Rule 4, Alternative Dispute Resolution Rules, 2003.
[3] Council for Insurance Ombudsman, Annual Report for Financial Year 2024-2025.
[4] Puneet Singhal v. Insurance Ombudsman and Another, 2025 SCC Online Del 734.
[5] Press Release dated November 12, 2021 – The Reserve Bank – Integrated Ombudsman Scheme, 2021.
