IRDA Circular: Directions under Section 34 of the Insurance Act, 1938 In the matter of M/s SBI Life Insurance Company Limited

Whereas Clause C-4 of Guidelines on Group Insurance Policies given in Circular No. 015/IRDA/Life/Circular/GI Guidelines/2005 dated 14th July 2005prescribes that there shall be no other payment whether as management expenses or documentation expenses or profit commission or bulk discount or payment of any description, to the agent or corporate agent or group organizer or group manager.

Whereas M/s SBI Life Insurance Company Ltd [hereinafter called Life Insurer] had made certain payments towards reimbursement of Group Administration Expenses to various master policy holders.

Whereas the above payments made by the Life Insurer were in violation of Clause C-4 mentioned above, for which the Authority had imposed a penalty of Rs 70 lakh vide Order dated 8th July 2011.

Whereas the above Order of the Authority was without prejudice to initiate further action onthe Corporate Agents and the Master Policy Holders, the onus of which it was stated, equally lies with the Life Insurer.

Whereas the Authority has taken note of the submissions of the Life Insurer in this regard vide letters dated 17th February 2011, and 30th March 2011 and also both written and oral submissions made during the personal hearing accorded on 9th May, 2012 which are as under:

1. that Life Insurer has entered into arrangements / agreements with Master Policy Holders and agreed to pay administrative fee in consideration of various services, inter alia, dispatching mailers to customers, collecting membership forms, remitting premia, to make aware the members their rights and obligations, maintenance of customer data, answering customer queries and facilitating claim process are found not agreeable.
2. that the said payments relate to a product called ‘Super Suraksha’ that was launched in the year 2002, well before issuance of the Group Insurance Guidelines is considered.
3. that it has filed a new product with the Authority to replace the then existing one on 28th September, 2006 for which a final approval was received from IRDA on 05th November, 2007 is also taken into consideration
4. inability expressed by the Life Insurer to recover the wrongful payments from respective Master Policy Holders

Whereas upon taking note of the Life Insurer’s submissions, it has come to the following conclusions

• that majority of the functions stated to have been assigned to Master Policy Holders was anyway part of their [Master Policy Holders’] responsibility for administering a Group Insurance Scheme.
• thatthere was no case for the Insurer to assign core activities to Master Policy Holders that are to be discharged by themselves during the course of their doing Group Insurance business. Even if such activities were assigned to the Master Policy Holders, the guidelines specifically prohibit payment of monies of any sort to Master Policy Holders.
• that the explanation offered by the Life Insurer for not replacing the then existing product, immediately on getting approval for a new product by the Authority is also not tenable in view of the fact that the insurer continued to sell the old product much beyond the date of approval accorded to the new product. Such explanation cannot legalize a payment which is prohibited in the guidelines.

However owing to the nature of the business, with regard to the payment made upto the date of approval of the new product, i.e. upto October 2007 a considerate view may be taken. However, such a dispensation cannot be accorded to the following payments made subsequent to October 2007 and the Authority treats such payment as wrongful payments violative of the guidelines mentioned above.

The above payments are not in the interests of the policyholders.

Now, therefore, the Authority, after consultation with the Consultative Committee constituted under Section 110 G of the Insurance Act, hereby directs as under:

1. Identify the members/beneficiaries as the case may be of each Master Policy against which the Life Insurer has reimbursed the administrative expenses as a percentage of premium. A list of master policy is attached to this order as Annexure A;
2. Distribute the wrongful administrative charges paid, amongst the respective members/beneficiaries of each Master Policy by way of refund to the respective members/beneficiaries;
3. For this purpose, recalculate the premium chargeable for each member of each Group Insurance Scheme of the Life Insurer without taking into consideration 20% of premium that is paid to Master Policy Holders.
4. Difference between the original premium and the recalculated premium as in (iii) above to be refunded back to the respective members/beneficiaries
5. The amount to be refunded as directed in these orders shall be made good by the shareholders.
6. The above action to be initiated immediately and shall be completed within 6 months from the date of receipt of this order.
7. Cost of the regulatory compliance of this order to be borne by Shareholders of the Life Insurer.

The above directions are issued in exercise of the powers vested in the Authority under Section 34(1)(b) of the Insurance Act, 1938.

Ref: IRDA/Life/ORD/Misc/228/10/2012  Date: 05-10-2012