Document Detail

Title: Final Order
Reference No.: IRDA/LIFE/ORD/MISC/268/12/2014
Date: 02/12/2014
in the matter of M/s. Birla Sun Life Insurance Company Ltd.
Based on the Reply to the Show Cause Notice dated September 15, 2014 and the Reply of the Life Insurer vide its letter BSLI/IRDA/2014/Comp/5318 dated 07th October, 2014.
 
On examination of a representation dated 22/05/2014 received from People’s Action for Transformation, Micro Insurance Agent of Birla Sun Life Insurance Company Ltd., it is observed by the Insurance Regulatory and Development Authority (hereinafter referred to as “the Authority”) that under Bima Kavach Yojna (BKY) one of the Life Insurance Products of Birla Sun Life Insurance Company (hereinafter referred to as the “Life Insurer”), a number of maturity claims were in outstanding as at 31.3.2014.
 
The Authority sought observations of the Life Insurer on this matter. Upon examining the submissions made by the Life Insurer the Authority has issued a Show Cause Notice vide letter No. IRDA/Life/Ref/MI/03/2013 dated September 15, 2014. The Life Insurer has submitted its response to Show Cause Notice vide letter dated 7th October, 2014. In the Show Cause Notice dated September 15, 2014, the Authority has specifically asked the Life Insurer to indicate its desire for a personal hearing, failing which the matter will be proceeded with, based on the material available on record. The Life Insurer did not opt for the opportunity of personal hearing. Therefore, based on the records available, the Authority issued the Final Order.
 
The findings on the response submitted by the Life Insurer to the issues raised in the Show Cause Notice dated September 15, 2014and the Decision are as follows:
 
Charge 1: Bima Kavach Yojna (BKY), an individual product which was approved by IRDA in September 2001 was sold by the Micro Insurance Agent in violation of Regulation (4) of IRDA (Micro Insurance) Regulations, 2005. 
 
 
In response to the above Charge, the Life Insurer submitted that ‘Bima Kavach Yojna (BKY)’ was approved by IRDA as a dedicated single premium endowment product for rural segment in September 2001 with premium paying option of Rs. 50/100/200 with a maturity amount of Rs. 55/110/220 respectively.    In November 2005, IRDA issued Micro Insurance Regulations 2005 and that the Life Insurer allowed the product to be marketed by Micro Insurance Agent (MI Agent) as its features substantially meet product requirements of Micro Insurance Products.

Decision:
 
On examining the submissions it is to submit that Regulation 2(g) of IRDA (Micro Insurance) Regulations 2005 defines a Micro Insurance Policy as an insurance policy sold under a plan which has been specifically approved by the Authority as a Micro Insurance Product. On examination of the BKY product, it is observed that the BKY product’s term is three years whereas Micro Insurance Regulations (Schedule II of IRDA (Micro Insurance) Regulations, 2005) stipulate a minimum term of five (5) years for a Micro Insurance Product. It is clarified that ‘Micro Insurance Agents’ as a specialised category of distribution channel in the insurance space are allowed to be appointed by the insurers by entering into a Deed of Agreement in accordance to the provisions of Regulation (5) of IRDA (Micro Insurance) Regulations, 2005 and Regulation (2) (f) specifies that a Micro Insurance Agent shall be appointed for distribution of micro insurance products. As per provisions of Regulation (4) of IRDA (Micro Insurance) Regulations 2005, the MI Agent shall not distribute any product other than a Micro Insurance Product.   Hence, allowing a MI Agent to sell other than Micro Insurance Products is a violation of the Regulation (4) of IRDA (Micro Insurance) Regulations 2005. Therefore, the Authority by exercising the powers vested under Section 102 of the Insurance Act, 1938, levies a penalty of Rs. 5,00,000 (Rs. Five lakhs) on the Life Insurer for the said violation.
 
Charge 2:      It is observed that out of the total policies 6,69,960 (from the year 2001 to 2011) issued, claims in respect of 4,11,091 policies were outstanding as at 31/03/2014 and of that 1,01,209 claims are pending between 2 years – 3 years while 3,09,882 claims are pending for more than three years. Non settlement of the claims referred herein is in violation of Regulation 8 (2) and 8 (3) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.
 
In response to the above charge, the Life Insurer submitted that out of 6,69,960 policies issued under the said product, the Life Insurer received 4,595 death claims and 2,54,274 maturity claims and surrender claims till March 2014 and all have been settled. The balance policyholders have not submitted any claim and that it made several attempts to reach these customers through various channels but the success achieved was limited as the maturity amounts are small, the policyholders are not willing to accept the cheques as they did not have Bank Account and disbursing cash had its own risk. The Life Insurer further submitted that it has proactively taken various initiatives to make maturity payouts and that the success ratio has been small in all cases. It was also submitted that despite several operation challenges it will continue to make out the best efforts to ensure that payouts are made to these policyholders and the interests of the policyholders are protected. It was further submitted that there is no single case of either death claim or maturity where the policyholder has submitted the documents and payout is pending at BSLI. The Life Insurer also informed that it is willing to explain their position further if the Authority so desires.    
 
Decision:
 
From the information furnished on 30th July, 2014 it is observed that the life insurer garnered the following number of policies since launch of the said product:
 
Financial Year
Total No. of Policies Issued
Total Premium (Rs)
2001-02
2,005
1,85,200
2002-03
10,421
8,01,450
2003-04
25,878
20,73,000
2004-05
48,116
36,93,200
2005-06
63,916
51,48,900
2006-07
87,695
63,36,700
2007-08
1,16,874
99,87,450
2008-09
1,59,652
1,62,97,250
2009-10
1,29,274
1,41,36,100
2010-11
26,129
27,56,500
 
6,69,960
6,14,15,750
 
Of the above, the following are the particulars of the claims outstanding since Financial Year 2008-09:
 
Sl.No.
Financial Year
Total Count Of Policies
Amount - In Rs
1
2008-09
52,225
43,72,830
2
2009-10
42,334
33,87,120
3
2010-11
82,659
77,89,925
4
2011-12
1,05,136
1,06,87,655
5
2012-13
1,06,040
1,25,13,600
6
2013-14
22,697
26,27,955
 
 
4,11,091
4,13,79,085
 
Of the above the following are the age-wise analysis of the claims outstanding:
 
Sl No
Description
Outstanding Maturity claims
Outstanding Death Claims
No. of Policies
Claim Amount
No. of Policies
Claim Amount
1
Claims pending between 2 years – less than 3 years
 1,01,209
1,17,11,260/-
-
-
2
Claims pending for more than three years
 3,09,882
 2,96,67,825/-
-
-
 
From the above, it is observed that though the Life Insurer is stated to have initiated above mentioned mechanisms/steps for settling the claims, the fact is that as at 31/3/2014, the total number of claims outstanding are 4,11,091 which is 61% to the total policies sold (6,69,960) and the amount outstanding is Rs. 4,13,79,085 which is 67% to the total premium received (Rs. 6,14,15,750). It is also observed that out of total policies issued, 46% maturity claims are pending for more than three years.   
 
From the above data and analysis, it is observed that the Life Insurer is not sensitive in paying adequate attention for settlement of the maturity claims. The Life Insurer’s submissions that its efforts to reach the customers through various channels was limited, as the maturity amounts are small and that the policyholders are not willing to accept the cheque, as they did not have bank accounts and disbursing the cash had its own risk, is not tenable.
 
The Life Insurer in response to the Show Cause Notice informed that it started remitting the payout by Postal Department by Money Order, which it could have initiated a long back, owing to the size of claims involved. The business obligations towards rural and social sector include the timely settlement of claims and the low ticket policies can present problems in settling the claims by bank mode. The Life Insurer that commenced procuring the policies in 2001-02 under this particular product apparently did not put in place effective claim settlement procedures in line with Regulation (8) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.
 
The Life Insurer shall note that while procuring the business of small ticket policies the company should have been cognizant of the intricate issues involved and accordingly shall keep the effective operational procedures for policy servicing including the claim settlement with due priority. The Life Insurer shall also note that the company as part of its life insurance business is also in the business of claim settlement, which is in fact, most important of all the services, to ensure that the targeted policyholder segment repose their faith in the business of life insurance.     
 
Attention of Life Insurer is drawn to the provisions of Regulation 8 (2) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002 that requires a life insurance company to process the claim without delay upon receiving a claim. A maturity claim for which the life insurer is supposed to be proactive in settling the claim is expected to process the settlement without any delay. Where a policy of life insurance is due for maturity, there is no case for the life insurer to wait till the receipt of the claim from a policyholder. Therefore, the life insurer grossly failed in complying with the provisions of Regulation 8 (2) referred herein.
 
Regulation (8) (3) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002 envisages the settlement of a claim within 30 days from the date of receipt of all relevant papers and clarifications required. However, as already pointed out, in respect of a maturity claim, the life insurer shall be proactive reasonably well before the actual date of maturity so as to ensure that the claim is settled in accordance to the terms and conditions of the contract. Therefore, the life insurer grossly failed in complying with the provisions of Regulation 8 (3) also.  
 
Therefore, the Authority by exercising the powers vested under Section 102 of the Insurance Act, 1938, levies a penalty of Rs. 5,00,000 (Rs. Five lakhs) each on the Life Insurer for the violation of -
 
(1)   Regulation 8(2) and 
(2)  Regulation 8(3)
of the IRDA (Protection of Policyholders’ Interests) Regulations, 2002.
 
The Life Insurer is also directed to settle all the outstanding maturity claims under this product within 180 days from the date of this Order along with the interest in accordance to the provisions of Regulation (8) (5) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.
 
The Life Insurer also directed to furnish a monthly claims settlement report to the Authority till the settlement of the final claim.
 
The penalty amount of Rs. 15,00,000/- (Rs. Fifteen lakhs only) shall be remitted by the Life Insurer by debiting the Shareholders’ Account within a period of 15 days from the date of issuance of this Order through a crossed Demand Draft drawn in favour of Insurance Regulatory and Development Authority and payable at Hyderabad. TheDemand Draft may be sent to Mr. V. Jayanth Kumar, Joint Director (Life) at the Insurance Regulatory and Development Authority, 3rd Floor, Parishram Bhavan, Basheer Bagh, Hyderabad 500004. OR the penalty may be remitted through the NEFT as per details being intimated to the Insurer through a separate e-mail, under intimation to Joint Director (Life) at email id life@irda.gov.in.  
 
 
Place : Hyderabad
Date   : 1st December, 2014
 
T.S. Vijayan
                                                                                                                CHAIRMAN
 
 
 

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