IRDA cancels Corporate Insurance Agency license of Rose Valley Chain Marketing

IRDA has cancelled the corporate agency license of Rose Valley chain marketing system. Rose Valley was a corporate agent of LIC. Rose Valley was under the scanner of IRDA since long. This is a big blow to all other chain marketing systems operating in India in similar lines. They will have to immediately change their business models before they face the axe of IRDA.

 

By virtue of powers vested in the Authority under section 14 (2) (h) of the IRDA Act, 1999, the Authority has carried out an on-site inspection of the Corporate Agent at their Registered Head Office at RGM-25/3010, Raghunathpur,VIP Road, Kolkata – 700 059 on 27th and 28th May,2010.

The Authority has communicated findings of Inspection seeking comments of the corporate agent. The corporate agent has responded vide its letter dated 24th July, 2010. Upon examination of the explanation/clarifications of the corporate agent on the inspection findings the Authority noticed pertinent violations of Regulations and Guidelines and show caused the corporate agent vide its letter dated 23rd December, 2010 seeking explanation as to why appropriate action should not be taken against them on grounds of following charges.

Charge 1: It is brought to the notice of the Authority that the Company is Sourcing business through Multi Level Marketing through persons who do not possess any certificate / License issued under Licensing of Corporate Agents Regulations, 2002.It is also observed that commissions are paid to the persons other than specified persons.

In view of the above it is established that the business is sourced through the persons other than specified persons which is in contravention of Regulation 9(2)(ii)(a) of IRDA (Licensing of Corporate Agents) Regulations,2002 and Cl.17 of Guidelines issued on Licensing of corporate Agents issued vide Circular no. 017 / IRDA / Circular / CA Guidelines / 005 dated 14th July,2005.

Charge 2: In terms of provisions of Cl.21 of Guidelines issued on Licensing of corporate Agents, the Company shall not charge an administration fee, service charge, or any other charge to the policy holder insured through it.. But as per evidences available with the Authority (copies of which have been sent to you along with our letter dated 11th July, 2010)

It is observed that the Company has charged a processing fee ,joining fee, admission fee which is in violation of Cl.21 of Guidelines issued by the Authority on Licensing of Corporate Agents vide Circular no.017/IRDA/Circular/CA Guidelines/2005 dated 14th July,2005.

The corporate agent offered its explanations vide letter dated 18.01.2011 and requested the Authority for an opportunity of personal hearing. Upon considering the same the corporate agent was given an opportunity to present their case in person on 25.11.2011. The corporate agent represented by Mr.Spandan Sengupta, its legal advisor and Mr. Manosij Chatterjee, Corporate insurance Executive appeared before me on 25.11.201 at 3.00 pm in IRDA Office and offered submissions on the charges.

As regards charge 1 , the corporate agent denied the charge and stated that their objective is to penetrate into market with vast network and further they elaborated that they are in process of appointing one at least one SP in each location to sustain the pressure of large volume of business. It was also submitted that the current average production per SP is 1300 policies per year.

During personal hearing Mr.Spandan Sengupta explained about their business model and submitted that they are part of Rose Valley group which is also having many other businesses such as Hotels, Real estate, FMCG products, Mineral water etc. These sister concerns usually conduct trade fairs for promoting their respective business. The SP’s of corporate agent present in such events where they come into contact with 5 to 6 thousand people to whom they can solicit insurance business.

It is for this reason average production of SP is high. However, it is pertinent to note that the application form to enroll as member in chain vividly portrays the business model known as Multi Level Marketing, since it seeks details of superiors and indicating ranks in chain along with membership number. Further LIC voucher no.195 is clearly indicating details of team strength and upward and downward chain and details of commission paid.

This shows that they are soliciting insurance business by resorting to business model known as Multi Level Marketing. This is further evident from main objects clause of their MOA which includes chain marketing as one of their main objects. Hence I am of considered view that the corporate gent has violated provisions of Regulation 9(2)(ii)(a) of IRDA (Licensing of Corporate Agents) Regulations,2002 and Cl.2,8,17 of the Guidelines.

As regards charge 2, the corporate agent contended that the joining fee mentioned therein pertains to membership fee of land clubs, which is collected for onward transfer to their real estate business books. However, this contention is not supported by relevant documents. The receipts and payments account of their Guskara branch clearly shows that they are collecting joining fee in violation of the provisions of Cl.21 of Guidelines. Hence I am of the considered opinion that the corporate agent has violated provisions of Regulation 9(2)(ii)(a) of IRDA (Licensing of Corporate Agents) Regulations,2002 and Cl.2,8,17,21 of Guidelines .

Having regard to the facts of the case and documents related therein, I am of the considered opinion that the charges made against the corporate agent stand established. It will not be in interest of policyholders for M/s Rose Valley Chain Marketing System to continue to function as corporate agent.

Accordingly, on a judicious exercise of the powers vested in the Authority under Section 14(1) of the IRDA Act, 1999 and section 42(5) of the Insurance Act, 1938 read with Regulation 11(a),11(b),11(c),and 11(d) of IRDA (Licensing of corporate agents) Regulations,2002, the license bearing no.883899 granted to M/s Rose valley Chain marketing System Ltd. is cancelled with immediate effect. The corporate agent is hereby ordered along with insurer with whom it is attached to, to make necessary arrangements for servicing of insurance policies earlier serviced/being serviced by it, under intimation to the Authority.

PLACE: HYDERABAD
DATE: 09.03.2012