IRDA asks SBI Life Insurance to repay 275 crores to Policyholders

March 12, 2014 Bimabazaar- Adminstrator 1096 Views 0 Comments

IRDA during onsite inspection conducted in December, 2010 found that M/s.SBI Life Insurance Company Limited (the Life Insurer) has offered Dhanaraksha Plus Limited Premium Paying Term (LPPT) Group Insurance Product which was a 2 year premium paying term plan, by collecting second year’s premium upfront along with the first year premium.

From the information furnished it is noticed that 93% of second year premiums were received in advance along with first year premiums in the year 2008-09, 94% in the year 2009-10 and 97% in 2010-11.Thus the premium collected is more on lines of a Single Premium than two yearly regular premiums against the approved File and Use features.

Whereas the Authority, having noticed that the Life Insurer has a single premium version of the product, viewed that when a policy holder was prepared to pay both the years’ premium upfront, the Life Insurer should have offered single premium policy that offers the same benefits.

The Authority in the Order Ref: IRDA/Life/ORD/Misc/215/09/2012 dated 18thSeptember, 2012 already made it clear that there was no informed choice to the members of the group.

Whereas it was also noticed that 99.99% of the total premium thus procured under the Dhanaraksha Plus LPPT product was sourced by Corporate Agents of the Life Insurer belonging to SBI Group and that the Life Insurer has paid 40% of first year premium as First Year commission and 7.5% of Second year’s premium as Second Year Commission.

However, had the Single Premium version of product been offered to the policy holders, the actual commission payable would have been only 2%.Hence it can be concluded that the large scale sale of LPPT as single premium payment policy has only facilitated higher commission payments to the insurance intermediaries involved who are predominantly SBI and its associate Banks.

Whereas with the above act, the Life Insurer has adopted business practices in violation of prescribed regulatory norms viz., (a) LPPT sold as Single Premium Policy in violation of approved File and Use features,

(b) Paying excess commission to Corporate Agents over and above the eligible 2% commission they would have been otherwise eligible had the Single Premium version of the policy been offered.

(c) No informed choice given to the members of these Group Insurance Policies as envisaged under Regulation 3(2) and 3(3) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.

Thus it is concluded that these violations were detrimental to the interests of members of Group Insurance Schemes of the concerned Master Policyholders.

Whereas the Authority had imposed a penalty of Rs.5,00,000 (Rupees Five Lakhs only) vide order No. IRDA/LIFE/ORD/MISC/215/09/2012 dated 18th September, 2012 for this violation and reserved the right to examine issuance of suitable directions to the Life Insurer under Section 34(1) (b) of the Insurance Act, 1938, to identify the members / beneficiaries as the case may be of the group insurance schemes and apportion the excess commission paid to Corporate Agents, over and above the eligible 2% of commission on the product, and refund the same to the members / beneficiaries of Group Schemes by debiting the same to shareholders’ account.

Whereas the Authority, on the basis of scheme wise premium collections furnished by the Life Insurer vide email dated 20thJuly, 2012, carried out calculation and estimated that an excess payment of 44% of one installment of the regular premium received upfront along with the New Business Premium in the First Year was made to the Corporate Agents.

Accordingly, an amount of Rs.275,29,48,437 (around 44% of regular premium of Rs.625,67,00,994received in advance upfront along with the First Year’s premium ) is considered as refundable to the members / beneficiaries of the group insurance schemes under which the premiums are wrongly collected during 2008-09, 2009-10 and 2010-11 as per ‘Annexure – A’ of this order.

Accordingly, it is considered that the following amounts shown in TABLE-A shall be apportioned amongst the members / beneficiaries of the group insurance schemes and be refunded accordingly.

TABLE – A

Sl No.	Financial Year	Number of Lives covered	Premium received in advance upfront (in Rupees)	44% of the premium to be refunded as per these directions amongst Members / Beneficiaries of Group Insurance Schemes (In Rupees)
1	2008-09	3884	3,47,83,130	1,53,04,577
2	2009-10	276474	218,80,01,581	96,27,20,695
3	2010-11	477215	403,39,16,283	177,49,23,165
	Total		625,67,00,994	275,29,48,437

Whereas the Authority had, after consultation with members of consultative committee constituted under Section 110G of the Insurance Act, 1938, issued a notice under Section 34 of the Act vide letter dated 30th April, 2013, seeking submissions as to why the directions be not issued under Section 34 of the Act for refunding the above referred quantum of excess commission paid, to the members/beneficiaries of the group insurance policies.

Whereas on considering the submissions of the Life Insurer vide letters dated 3rd June, 2013 and during personal hearing held on 4th December 2013, the Authority issues the following directions to the Life Insurer:

i) Identify the members/beneficiaries, as the case may be, of each of the master policies issued as per ‘Annexure – A’ during the years 2008-09, 2009-10 and 2010-11.

ii) Distribute the excess commission so paid to Corporate Agents as detailed in ‘Table – A’ above to the members/beneficiaries of the said master policies referred in ‘Annexure – A’.

iii) The amount of Rs.275,29,48,437 to be refunded as directed in these orders shall be debited to Shareholders account.

iv) The above action to be initiated immediately and shall be completed within 6 months from the date of this order.

v) Cost of regulatory compliance of this order shall be borne by share holders of the Life Insurer.

The ‘Managing Director & CEO’ of the Life Insurer shall file a certification with the Authority confirming that the apportionment of the amount to be refunded as indicated in (iii) above amongst Members and Beneficiaries was made in fair and equitable manner. This certification should reach the Authority within 15 days from the date of complying with the directions.

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

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