Wednesday, February 07^th, 2011 at 03.00 PM

The Insurance Regulatory & Development Authority, 3rd Floor, Parishram Bhavanam, Basheer Bagh, Hyderabad

In Chair: Sri J Hari Narayan, Chairman, IRDA

The Insurance Regulatory & Development Authority (the Authority) caused an inspection on M/s SBI Life Insurance Company Limited (hereafter referred as Life Insurer) which revealed certain gross violations of Guidelines on Group Insurance Policies issued vide Circular No. 015/IRDA/Life/Circular/GI Guidelines/2005 dated 14^th July, 2005. Based on the findings of the inspection report, a show cause notice was issued to the life insurer who had submitted their explanation and sought a personal hearing.

The personal hearing was accorded to the Life Insurer on February 07^th, 2011. Sri M N Rao, CEO and his team were present. On behalf of the Authority, Sri G. Prabhakara, Member (Life), Sri Kunnel Prem, CSO (Life) and Sri D V S Ramesh, Deputy Director (Life) were present.

The findings and the explanations offered to the issues raised in the Show Cause Notice dated 16^th November, 2010 are as follows.

Payments were made by the Insurer towards reimbursement of Group Administration Expenses to various Master Policyholders in violation of Clause C – 4 of the above referred guidelines issued by the Authority under Section 34 of the Insurance Act, 1938 (the Act).

Based on the above referred findings and subsequent submissions of the insurer, the Authority issued a Show Cause Notice dated 16^th November, 2010 which was responded to by the Insurer vide its letter dated 23^rd December, 2010. These submissions of the insurer as also those made during the course of the personal hearing granted by the Authority on February 07^th 2011 were taken into account.

The submission of the insurer that reimbursement of administrative expenses in consideration of certain functions discharged by various entities in their capacity as Master Policyholder is not tenable. The Authority had issued Group Insurance Guidelines under Section 34 of the Insurance Act. Under these Guidelines, a commission is payable to the Agent or Corporate Agent in respect of group insurance policies which should not exceed the percentage approved by the Authority. The commission payable to an Insurance Agent, in the event of solicitation of such insurance business by such agent, shall be as approved under File and Use. Further, no payment shall be made towards management expenses, document expenses or profit commission or bulk discount or payment of any other description to the Agent or Corporate Agent or Group Organiser or Group Manager (the last two terms also include synonymously Master Policy Holder).

Despite these specific Guidelines, the Life Insurer paid the above referred expenses in violation, to 8 of its Corporate Agents and 6 other Master Policy Holders who are listed at Item A and Item B respectively in the Annexure attached hereto.  

The Life Insurer in its defense stated that the Guidelines were issued in July 2005 and earlier there were no Guidelines and they took some time to redesign the policy and such revised policy was submitted for the approval of the Authority and such approval was accorded by the Authority on 5^th November 2007.

The Authority gives the benefit of doubt to the Life Insurer for payments made prior to 5^th November 2007 but it notices that payments referred herein continued to be made even after the approval of revised product on 5^th November 2007. Hence, the Authority has come to the conclusion that the payments made by the Life Insurer are wrongful and in violation of the Guidelines.

While payments were made, in violation of the referred guidelines on group insurance policies issued to 14 master policy holders (as attached hereto); it is considered that the Insurer has failed to adhere to the within referred guidelines every time when such payment is made. The violation of the referred guidelines invites a penalty under Section 102(B) of the Act and the Authority is empowered to impose a penalty not exceeding Rs.5 lakh for each such violation and punishable with fine. Considering the gross and continued nature of the violations, the Authority has come to the conclusion that it is just and proper to impose a penalty of Rs.5 lakh each for such payments made in 14 instances to Corporate Agents and Master Policy Holders totaling Rs.70 lakh.

The above penalty is to be paid by M/s SBI Life Insurance Company Limited without prejudice to the action which the AUTHORITY would take against the Corporate Agents and Master Policy Holders who have by receiving such payments also violated the regulatory instructions, the onus of which would equally lie on the life insurer.

The penalty amount of Rs 70,00,000 (Rupees Seventy Lakhs only) shall be paid within a period of 15days from the date of receipt of this order through a crossed demand draft drawn in favour of Insurance Regulatory and Development Authority and payable at Hyderabad which may be sent to Shri Kunnel Prem, C S O (Life) at the Insurance Regulatory and Development Authority, 3rd Floor, Parisrama Bhavan, Basheer Bagh, Hyderabad 500 004. 

Dated 08^th July, 2011 at Hyderabad

Sd/-

(J Hari Narayan)

CHAIRMAN