Contribution

What is contribution?

Contribution is the rule that applies when the same property, interest or expense is insured with more than one insurer. Each insurer pays its fair share of the loss, usually in proportion to its sum insured, and together they pay no more than the actual loss. An insurer that pays more than its share can recover the excess from the others.

Contribution is a companion to the principle of indemnity. Having two policies does not let the insured collect twice. It applies only to indemnity contracts. Life, personal accident and fixed-benefit health policies pay their stated amounts independently, so contribution does not arise.

How contribution works in India

• Statute. Under Section 34 of the Marine Insurance Act, 1963, a person insured twice for the same interest may claim from the insurers "in such order as he may think fit", but cannot receive more than the indemnity, and holds any excess in trust for the insurers. Section 80 then requires each insurer "to contribute rateably to the loss" in proportion to its liability, and lets an insurer that overpays sue the others. General insurance policies carry a contribution clause built on the same idea.
• Product rules. The IRDAI (Insurance Products) Regulations, 2024 name the contribution clause among the basic principles insurers must follow.

Health insurance: the policyholder chooses

IRDAI has changed how contribution works for individual health insurance. Under the Master Circular on Protection of Policyholders' Interests, 2024:

• For indemnity health policies, a policyholder with cover from more than one insurer can claim under any policy of their choice. That insurer becomes the primary insurer.
• If the chosen policy's cover is less than the admissible claim, the primary insurer must ask for details of the other policies and coordinate with the other insurers to settle the balance, without causing hassle to the policyholder.
• For benefit-based health policies, the policyholder can claim from all insurers on the occurrence of the insured event.

Property cover linked to bank loans

The same master circular deals with a common problem in retail general insurance: a customer may hold one policy bought on their own and another arranged by a bank or lender for the same asset. In that case the insurer "will not apply contribution clause". Under-insurance is assessed on an overall basis, comparing the total sum insured under all policies with the value at risk.

Example

A warehouse worth ₹60 lakh is insured with Insurer A for ₹40 lakh and Insurer B for ₹20 lakh, both on an indemnity basis. A fire causes a loss of ₹15 lakh.

The owner receives ₹15 lakh in all, equal to the loss, not ₹15 lakh from each insurer.

What contribution means for distribution

• Ask about existing cover. Proposal forms ask whether the customer holds other policies on the same risk. A truthful answer avoids disputes later and is part of utmost good faith.
• Group plus retail health. Many salaried customers have group health cover from their employer and a retail policy of their own. Advisers should explain that the customer can choose which policy to claim from first, and that using the group policy first may protect the retail policy's no claim bonus. The customer should check each policy's terms before deciding.
• Top up and super top up. A top up or super top up policy is designed to pay after a deductible, often met by a base or group policy. It is a layered arrangement rather than duplicate cover, and should be sold that way.
• Double cover through lenders. Home loan and business loan customers sometimes end up with two property policies. Bank and NBFC partners should check for existing cover before adding another, since duplicate premiums bring no extra claim value and attract complaints.
• Commercial programmes. Large accounts may spread cover across insurers or layers. Brokers should make sure each policy states how it interacts with others (primary, excess or rateable), so claims are not delayed by disputes between insurers.