No.IRDA/ENF/ORD/ONS/149/05/2021

Final order in the matter of M/s Visista InsuranceBroking Services Pvt Ltd 

Based on thereply of M/sVisista Insurance Broking Services Pvt Ltd (thebroker) dated 05/08/2020, to the show-cause notice dated 15/05/2020 and submissionsmade during Hearing on 6th May 2021 at 11.30 AM (through VideoConferencing), taken by Member (Distribution).

Background:

1. An on-site inspection of Visista Insurance Broking Services Pvt Ltd was conducted by the Authorityduring the period from 26th to 28th December 2018. The Inspection findingswere communicated to the broker for their comments on 27/02/2019. The reply ofthe broker was received by their letter dated 20/03/2019. A show-cause noticewas issued to the broker on 15/05/2020, to which the broker submitted its replyby its letter dated 05/08/2020. In its reply, thebroker had requested for a personal hearing. Accordingly, a hearing wasgranted to the broker on 6-5-21 and the same was held through videoconferencing.

2. On behalfof the broker, the personal hearing was attended by Mr. A. SrinivasRao, Principal Officer; Binay Ranjan Dash, General Manager and Mr. V. Somaraju,Senior Manager Compliance. From the Authority, Mr RandipSingh Jagpal, CGM (intermediary); Mr. P.K. Maiti, GM (Enforcement) and Mr.Vikas Jain, AGM (Enforcement) attended the hearing

Charges,Submissions in reply thereof and Decisions:

3. Charge 1:

Theinsurance broker while making their application for renewal of their license on8th November, 2017, stated under clause 8.3 of the application mentionedthe name of one of their officials as Chief Executive Officer, who is overallin charge of the insurance broker. In addition, the broker also mentioned thename of another official as Principal Officer and also overall in charge. Inview of the above, the broker was asked to submit a copy of the appointmentletter in regard to the official whom they mentioned as CEO and also copy ofthe necessary Board Resolutions to that effect. The insurance broker failed tofurnish the said information.

As per regulation 13(3),the broker is required to “inform the Authority in writing, if any informationor particulars previously submitted to the Authority by them are found to befalse or misleading”. However same was not done.

Hence there is a violationof regulation 13(3) of IRDAI (Insurance Brokers) Regulations 2018. Further, thebroker failed to submit the board minute during the inspection. Hence, there isa violation of Circular No. IRDA/INSP/CIR/ONS/157/09/2018 dated 20thSeptember, 2018 for non-submission of required documents as sought by theinspection team.

Submissionof the Broker:

The broker submitted that there were some discussions to appoint as CEO the official whosename was mentioned as CEO in the renewal application but this did notmaterialise. Inadvertently, in the renewal application, the designation ofthe said official was mentioned as CEO and overall in charge. However, this wascorrected in the organisation structure, where his responsibility is stated asoverall in charge - business development & reports to principal officer.This was a clerical mistake which was corrected promptly and they had informedthe Authority by their letter dated 05/12/2017. They also submitted the copy oftheir communication to the Authority.

The brokeralso submitted that the copies of the Board minutes could not be providedduring inspection as their Company Secretary was out of town & returnedlater. The broker has furnished a copy of the minutes.

Decision:The broker should note that submission of necessary documents during Authorityinspection,is the duty of the entity, to make the inspection effective. Further nonsubmission of documents within the specified timeline may be construed as adeliberate attempt to restrict Authority’s inspection team from examining the functioningof the Broker. The Broker is cautioned for the lapse and advised that anyrecurrence of similar lapse will be viewed seriously in future.

4. Charge 2:

Inorder to verify whether the insurance broker is extending assistance to theirclients at the time of claims, a sample of 10 claims identified from the claimsreported during the year 2017-18 was shared with the insurance broker. From thedocuments furnished it is observed that the insurance broker is deficient inassisting the client in case of claim. There is no system in place to track aclaim and also advice the clients on the required documents.

Forthe sample cases, the broker could not give any evidence to establish that theyhave “given prompt advice to the client of any requirements concerning theclaim”; which is a requirement of Clause 7(c) of Schedule VIA (Code of conduct)under regulation 28, IRDA (Insurance Brokers) Regulations, 2013. 

Submissionof the Broker:

The brokersubmitted that there are efforts & follow up with the clients, many aredocumented and some are oral & verbal. They are having one dedicated claimshandling team, comprising of two persons which is guided by one more seniorperson, with 30 years’ experience in public sector insurance company. Theclients are satisfied in general and have rewarded the broker with repeatappointments year after year. The clients in the sample cases, i.e. M/s. NCC,M/s. Koya Company, M/s.Gaja Engineering, M/s. Heritage Foods are satisfied too,have rewarded them year after year and they have not raised any grievancesrelated to claims.

Decision:

TheBroker could not provide any evidence to establish that in the sample claimcases identified, the broker has provided claim assistance to its clients inorder to ensure compliance of Para 7 of Schedule I-Form H under Regulation 30of IRDAI (Insurance Brokers) Regulations, 2018. The Broker is directed tomaintain proper records in order to demonstrate compliance of said regulation.Any recurrence of similar lapse will be viewed seriously in future.

5. Charge 3: 

Thebroker has opened an office in Sri City of Andhra Pradesh and the broker didnot inform the Authority about this office. This is violation of Regulation38(4)(i) of the IRDA (Insurance Brokers) Regulations, 2013.

Submissionof the Broker:

Thebroker submitted that Sri City Andhra Pradesh is a special Economic Zone (SEZ)and Development Economic Zone (DEZ), located 55 kms from Chennai. Many businesshouses including Multi-National companies (MNC) have set up their manufacturingactivities. There exists huge potential for insurance business too. However, theywere not getting the qualified persons for recruitment in this area withoutwhich they cannot open a branch office. So they had rented one work station inSri city~s office, hired persons for services, these service persons collectinformation, documents, premium cheques etc. and provide other assistance,guidance and supervision from their qualified persons at Branch office,Chennai. The qualified persons at Branch office, Chennai visit regularly andsolicit business there. They submitted that Sri city, Andhra Pradesh is not aBranch office. They also submitted if they get the qualified persons forthe place, they will open the office there and will inform the authority.

Decision: 

Fromthe submission of the broker it is evident that they are performing allfunctions of the Broker, including solicitation, through their office at SriCity. However, they did not intimate Authority because there is no BrokerQualified Person posted in that office. The broker’s submission, that it is nota branch office, is not acceptable as the broker is soliciting business fromthe office and also providing services to its clients from there. Hence, thebroker has violated the provisions of Regulation 38(4)(i) of the IRDA(Insurance Brokers) Regulations, 2013 which mandates the broker to inform tothe Authority regarding opening of any new branch office. Therefore, by virtueof powers vested under Section 102 (b) of the Insurance Act, 1938, theAuthority levies a penalty of Rs. 1,00,000/--(Rupees one Lakh only), for thesaid violation.

6. Charge 4:

i. The broker spentRs.16,98,020/- and Rs.16,35,303/- towards Business Promotion Expenses duringthe years2016-17 and 2017-18 respectively and the insurance broker spent an amount ofRs.11,13,210/- towards printing of brochures. The broker failed to submit the break-upof expenses, including name of the payee, nature of payment, copy of any agreementand the copies of the brochure.

ii.The brokerhad incurred Consultancy and Professional Expenses of Rs.25,99,918/- during theyear 2017-18. But the broker failed to provide any agreement/letter ofappointment and the details regarding nature of consultancy etc.

Hence,the broker violated the provisions of the Circular No. IRDA/INSP/CIR/ ONS/157/09/2018dated 20th September, 2018 for non-submission of required documentsas sought by the inspection team.

Submissionof the Broker:

Thebroker submitted that they had incurred the amounts on the business promotionand had shared the details of the expenses. The broker submitted that theserisk inspection reports were kept along with each underwriting files &clients wise, so that the files are complete and holistic. This took some timeto dig out the reports from separate underwriting files & client files.Hence, these reports could not be provided to the inspection team. However,they have provided the invoice copies during inspection.

Further,they submitted the copies of risk inspection reports. Post personal hearing thebroker submitted the breakup of the expenses of Rs25.99 Lakh along with therisk inspection reports. But the broker did not submit any agreement as it wasbased on oral negotiations with the consultants.

Decision:

The brokershould note that submission of necessary documents during Authority inspection, is theduty of the entity, to make the inspection effective. Further non submission ofdocuments within the specified timeline may be construed as a deliberateattempt to restrict Authority’s inspection team from examining the functioningof the Broker. The Broker is cautioned for the lapse and advised that anyrecurrence of similar lapse will be viewed seriously in future.

7. Charge 5:

Onexamination of the Form 26AS of a director of the insurance broker, it is noticedthat the said director has received an amount of Rs.65,46,639/- andRs.24,00,328/- from an entity during the years 2016-17 and 2017-18 respectivelyunder section 194C of the IT Act. Further, the said director has also receivedRs.18,00,000/- each during the same period from another company under section192 IT Act i.e. towards salary even while being a director and full-timeemployee of the broking company and had drawn a salary of Rs.7,02,000/- fromthe insurance broker.

Thebroker failed to furnish requisite document as requisitioned by the inspectionteam. Further submission of the broker did not bring any clarity on the issueon receiving multiple salaries by the referred shareholder and director. The submissionof the broker in regard to “conflicts of interest” is not convincing. There isviolation of clauses 1 and 2(j) of Schedule I-Form H under regulations 30 &8(2) of the IRDAI (Insurance Brokers) Regulations, 2018 and non-submission ofdocument which attracts action under clause 1(f) of Schedule II - Form Z underregulation 42 of the IRDAI (Insurance Brokers) Regulations, 2018.

Submissionof the Broker:

Thebroker submitted that the payments to the said director and shareholder from anentity relates to various contract works for the year 2016-17 & 2017-18,which that director had been executing prior to becoming Director of the insuranceBroker and continues to do so even now. The contract works and payments aredrawn in individual capacity. They further submitted that there is no conflictof interest as the entity which made the payments is an independent entity, thepromoters, ownership & control is different from Visista.

Theyfurther clarified that the said director was paid remuneration which waserroneously categorized as salary but it was a bonus that should have been categorizedunder the head bonus and salaries and they confirmed that they followrecognized standard of professional conduct.

Decision:

Thebroker should note that submission of necessary documents during Authorityinspection,is the duty of the entity, to make the inspection effective. Further nonsubmission of documents within the specified timeline may be construed as adeliberate attempt to restrict Authority’s inspection team from examining the functioningof the Broker. The Broker is cautioned for the lapse and advised that anyrecurrence of similar lapse will be viewed seriously in future.

8. Charge 6: 

Fromthe perusal of sample cases, it was observed that proposal forms have not beenobtained by the Broker. In the matter of “conduct in relation to furnishing ofinformation”, every Insurance broker shall “ensure that the informationprovided by the client on the basis of which the risk is accepted by theinsurer is made part of the proposal form and shared with the client and theinsurer”.

Henceby not obtaining the proposal form, the broker has violated Clause 4(c) ofSCHEDULE I – Form H (see regulation 30 & regulation 8(2)) of IRDAI(Insurance Brokers) Regulations, 2018.

Submissionof the Broker:

Thebroker submitted that there were 14 Motor policies, where they had obtained theRC Book, previous insurance copy, prepared the RFQ (request for quotation),obtained the quotes, recommended for insurance along with RFQ (request forquotation). They submitted that this RFQ (request for quotations) contains allnecessary information about the proposal and when submitted to client, becomesbinding for all the information contained therein. This RFQ (request forquotations) works as substitute for proposal form. There was 1 individualMediclaim policy, where they had adopted the similar procedure and there were 2Fire policies, where they had adopted the similar procedure, there by this RFQ(request for quotations) works as substitute for proposal form. They furthersubmitted that in regard to other 3 Engineering policies, there are RFQ(request for quotations), which are further detailed containing all theinformation. Further, there are quote comparison statements, recommendationletter with terms conditions, price etc. These RFQ (request for quotations) andthe correspondence and recommendation letter acts as the proposal form &basis of contract. Later the broker also submitted one case showing thepractice being followed and submitted the copies of documents under a grouphealth policy.

Decision:

Clause 4(c) of SCHEDULE I – Form H of IRDAI (Insurance Brokers) Regulations, 2018 andRegulation 8(1) of IRDAI (Protection of Policyholder’s Interest) Regulations 2017mandate usage of Proposal form. Hence submission of the Broker that the RFQ(request for quotations) acts as the proposal form is not acceptable. TheBroker is cautioned for the lapse and advised that any recurrence of similarlapse will be viewed seriously in future.

9. Charge 7:

Therenewal notices sent by Broker did not contain a warning about the duty ofdisclosure including the necessity to advise changes affecting the policy,which have occurred since the policy inception or the later renewal date and renewalnotices did not contain a requirement for keeping a record (including copies ofletters) of all information supplied to the insurer for the purpose of renewalof the contract.

Theobservation is on mandatory content of a renewal notice. All the sample casesidentified were before the effective date of IRDAI (Insurance Brokers)Regulations, 2018. Hence there is violation of Clause No. 6 (b) & 6(c) ofSchedule VI-A of Reg. No. 28 of IRDA (Insurance Brokers) Regulations, 2013.

Submissionof the Broker:

The brokersubmitted that from the list taken as sample & stated in the report, thereare 12 retail policies, where there are mails reminding for renewal, followedby oral, telephonic & personal conversation about the changes requiredduring renewal. These changes are incorporated while inviting the terms &quotes from insurance companies and in other 10 corporate policies, there arerenewal reminder seeking changes in assets & values (for Fire Policies& Burglary Policies), changes in the data (for Group Health policies),changes in terms & conditions (for Marine Policies), which are documented.

Further,the broker submitted that there is no central depository to store these renewalnotices, these are kept in the underwriting files only. They also added thatthey are sending all renewals containing all necessary disclosures andwarnings. In support of their submission, the broker, post personal hearing,furnished copies of few sample renewal notices sent during the month ofApril, 2021.

Decision: Thesubmission of the broker is taken on record and the broker is advised to ensurethe compliance to Clause 6 of Schedule I-form H under Regulation 30 of IRDAI(Insurance Brokers) Regulations,2018, in letter and spirit.

Summaryof Decisions:

10. The following is the summary of decisions in this order:

Conclusion:

11. As directed under the respectivecharges, the penalty of Rs. One Lakh shall beremitted by the Insurance broker within a period of 45 days from the date ofreceipt of this Order through NEFT/ RTGS (details for which will becommunicated separately). An intimation of remittance may be sent to Mr. PrabhatKumar Maiti, General Manager (Enforcement) at the Insurance Regulatory andDevelopment Authority of India, Sy. No. 115/1;Financial District; Nanakramguda; Gachibowli; Hyderabad – 500032.

12. The Broker shall confirm compliance inrespect of the above decisions, within 21 days from the date of receipt ofthis order. The order shall be placed in the upcoming Board meeting and thebroker shall submit a copy of the minutes of the discussion.

13.  If the Broker feelsaggrieved by any of the decisions in this order, an appeal may be preferred tothe Securities Appellate Tribunal as per Section 110 of the Insurance Act,1938.

Date : 25th May, 2021

Place : Hyderabad

(S.N. Rajeswari)

Member (Distribution)