The Insurance Regulatory and Development Authority of India (hereinafter referred to as “the Authority”) carried out an onsite inspection of M/s. India First Life Insurance Company Limited (hereinafter referred to as “the Life Insurer”) from 05^th September, 2012 to                                14^th September, 2012. The Authority forwarded the copy of the Inspection Report to the Life Insurer vide letter dated 30^th January, 2013 seeking comments on the same. Upon examining the submissions made by the Life Insurer vide letter dated 21^st February, 2013, the Authority issued Show Cause Notice on 11^th June, 2014 which was responded to by the Life               Insurer vide letter dated 18^th July, 2014. As requested therein, a personal hearing was given to the Life Insurer on   29^th October, 2014.  Dr.P Nandagopal, Managing Director & CEO,                  Mr. Chandan Khasnobis, Appointed Actuary, Mr.A.K.Sridhar, Chief Investment Officer, Mr.Karni Arha, Chief Financial Officer, Mr.K.R.Viswanarayan, Chief Compliance Officer, Mr.Tejas Panchal, Group Head-Compliance, Mrs.Shashikala Chowdary, National Account Manager were present in the hearing on behalf of the Life Insurer. On behalf of the Authority, Dr (Ms) Mamta Suri, the then Sr.JD (Inspection & Compliance), Ms. J. Meena Kumari, Sr. JD (Actuarial), Mr.V.Jayanth Kumar, JD (Life) and Mr.G.R.Surya Kumar, DD (Executive Assistant to Chairman) and Mr. K. Sridhar Rao, AD (Inspection-Compliance) were present in the personal hearing. 

 

The submissions made by the Life Insurer in their written reply to Show Cause Notice as also those made during the course of the personal hearing were taken into account.

 

The findings on the explanations offered by the Life Insurer to the issues raised in the Show Cause Notice and the decisions are as follows.

 

 

 

Under Form-KT-1 of Actuarial Report and Abstract as at 31-03-2012, in respect of non-linked group life business for premiums not guaranteed for more than one year, the amount considered was Rs.14,913 Crores though the corresponding amount as per respective N LB-1 was Rs. 9,242 Crores. 

 

 

 

 

Under KT-1, in respect of ~Education-143L002V01 and ~Young India — 143L011V01~ unit linked products, the amount considered was based on ~Sum assured - Fund value + Future premium~ though the products offered ~Sum assured + Fund value + Future premium~ as death benefit.

 

Further, it was observed that the ~sum at risk after reinsurance~ was also incorrectly arrived for the purposes of Required Solvency Margin calculations in respect of some of the product versions under ~Mahajeevan-143N018V01~, ~Smart Save-143L010V01~ and ~Money Balance­143L017V01’.

 

 

 

In respect of ~Retirement Benefit Plan- 143N016V01~, the insurer has declared, based on present interest rate scenario and other market conditions, an interest rate between 9.4% p.a. and 9.8% p.a. based on the particular scheme fund value as at 31.03.2012. However as per respective File & Use of the product, contributions under this plan are invested as per Non-linked Investment Regulations. The investment pattern of the fund is governed by the IRDAI regulation on the controlled fund (Pension & General Annuity Fund).In this regard, it was observed that though the Life insurer had maintained a separate fund (NON PGF) for the product of Rs. 160.88 Crores as at 31-03-2012, investments in G. Sec and Other approved Securities stood at 38.09% only as against the required minimum of 40% applicable for Pension & General Annuity business as per regulation applicable to non-linked business.

 

 

 

 

Reinsurance premiums were not ceded, as per the respective treaty in place (50:50 quota share per life). It was observed, for the quarter April-June 2012 itself that there was a short payment of around    Rs. 30 lakhs involving a few hundred lives. As the full credit of the reinsurance arrangement was taken in arriving at the mathematical reserves and claim payments from time to time, the gap caused concern as the same left scope for disagreement from the reinsurer to honor respective claims. 

 

Reinsurance commission of 50%/10% available to the Life insurer under reinsurance treaty for medically underwritten individual life policies was not accounted so far.

 

The above are in violation of

 

 

 

 

 

Reinsurance arrangements on 50:50 quota share basis with Hannover Re & GIC, under reinsurance program for the years 2011-12 and 2012-13 were not filed with the Authority.  

 

 

 

In terms of Investment Policy - IP with respect to non-linked investments, Chief Investment Officer (CIO) was authorized, in certain circumstances, to go beyond statutory/regulatory prudential and exposure norms applicable to investments by allowing reducing proportion of G-Sec and infrastructure investments to even 0%.  IP also permitted blanket relaxation with respect to Group and Sector (Industry) exposure up to 15%. 

 

 

 

It was observed that the Fund Managers in the Investment front office can trade for any amount. The process of not keeping internal (for e.g. per day, per security, etc.) limit for individual Fund Managers which they can trade may expose the Life insurer to increased operational risk.

 

This is in violation of Clause 6 of Corporate Governance Guidelines IRDA/F&A/CIR/025/2009-10 dated 05/08/2009.

 

 

 

Under Para 32 of Sch. 16 of Financial Statements for 2011-12, the Life Insurer had shown Rs.2.34 Crores as Unclaimed Amount on account of "Cheques issued but not encashed by the policyholders". However, as per trial balance dated 31-03-2012, cheques issued were Rs.2.16 Crores and the balance Rs.17.85 lakhs refunds were pending for approval. Hence correct reporting was not ensured.

 

 

 

 

 

 

 

 

Non-Linked premium within days of grace had not been recognized as outstanding premium, though they maintain mathematical reserve to honor any claims arising during the period. Thus, Sch. 12 of Accounts (Advances and Other Assets) was understated to the extent of the same.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Most of the proposals along with proposal deposit remittances were received at bank branches of Corporate Agents (Banks) and no corporate agent had recorded the date of receipt of the proposal related documents. The date on which the proposal papers along with proposal deposit instrument received at the Life Insurer~s office was reckoned as ~date of receipt of proposal’.

 

 

 

 

 

 

 

 

 

 

 

 

 

Proposal forms pertaining to ~over the counter~ (OTC) version of Unit Linked Plan "Smart Save" did not cover the mandatory disclosure "In this policy, the investment risk in investment portfolio is borne by the policyholder" on top of the proposal form.

 

 

 

 

 

The provisions with regard to income tax benefits available on proposal form did not include the prevailing condition of sum assured being at least 10 (ten) times the premium paid in any year during policy term. 

 

 

 

 

It was observed that many employees of banks (Corporate Agents) who were not specified persons (SPs) were soliciting insurance business and commissions paid to the respective corporate agents. Also, bank employees other than SPs had signed the relevant documents. It was also observed from the top 25 producers on the basis of premium procured during 2011-12, pertaining to Andhra Bank and Bank of Baroda, there were only 4 and 3 SPs respectively. Thus, it is evident that most of the business solicited by these Banks was through unlicensed individuals.

 

From the sales process examined, it was observed that the employees of the Banks were acting as introducers or referrals and the sale was closed by the Business Development Managers / insurance Advisors. Though the licensed SPs on behalf of a corporate agent were not involved in the solicitation and close of sale process, commission on the policies which were sourced by the Business Development Managers/insurance Advisors was given to the corporate agents.

It was observed that the Life insurer had created some dummy codes in their new business processing / policy administration systems (Life Asia) and good number of policies were logged under such dummy codes and those policies were sourced by the Business Development Managers on the references of Bank employees (who were not SPs) and commission was paid to the respective corporate agents (Banks).

 

 

 

 

 

 

 

No controls were in place on whether the inspection reports carried out by the virtue of the provisions of Circular IRDA/CAGTS/CIR/LCE/093/06/2010 dated 07/06/2010 sent to Corporate agents, were placed before the Board of respective corporate agents. The Life insurer did not also provide the action taken reports to the inspection team, as required under Para 2 of the said circular.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

This is in violation of File & Use guidelines - Circular No IRDA/ ACTL/ FUP/VER 2.0/Dec. 2001, dated 12.12.2001.

 

 

 

On examination of the premium income generated, commission paid and reimbursement of advertisement and publicity expenses, it was observed that the % of commission (net of ST) plus reimbursement of expenses to the premium income generated under "Abhaya Jeevan" (AB Group Life Insurance Scheme) is to the tune of 15.73% and19.18% in 2010-11 and 2011-12 respectively, whereas the same in case of "Jeevan Suraksha" (Bank of Baroda Group Life Insurance Scheme) it was 118%and 44.66% respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no systems in place to examine the capabilities of Divisional Marketing Associates (DMAs), at the time of appointing them. The activities that were outsourced to DMAs are to carry out recruitment and training the prospective advisors.

 

 

 

 

 

 

 

 

Under ULIPs, all the charges (including mortality, policy administration) were deducted during the period between ~Date of Death~ to ~Date of claim intimation/registration~. In this regard, on scrutiny of the details of charges deducted under a sample policy numbers, the time gap between ‘Date of Death’ and ‘Date of death claim registration’ was significant.

 

 

 

 

 

 

 

 

 

 

 

 

A certificate was not obtained at the end of the membership form from the prospect (member to be covered under the group scheme who has signed in vernacular) that the contents of the form and documents were fully explained to him that he fully understood the significance of the proposed contract, as required under Regulation 3(4) of IRDA (Protection of Policyholders~ interests) Regulations, 2002. It was also observed that claims were unduly repudiated on the grounds that "non­disclosure in health declaration”.

 

 

 

In case of repudiation of a death claim under group policies, the fact of repudiation was not communicated to the claimant / nominee whereas the same was communicated to the respective branch manager of the Bank and the grievance redressal procedure like review of the claim, Ombudsman address, etc., were not provided in the communication sent even to the Bank branch managers.   The insurer did not put in place any systems to ascertain whether the fact of repudiation of claim was communicated to the nominee / claimant by the master policyholder.

 

 

The Life insurer sent the certificates of insurance (COI) to the master policyholders and did not put in place systems to ascertain whether the said COIs were transmitted to the members covered under all the Group Schemes and also, the premium charged was not mentioned in the COI.