Ref:IRDA/NL/ORD/MISC/91/04/2021

Orderin the matter of M/s Liberty General Insurance Limited.

Based on the

(i)       ShowCause Notice (SCN) reference no. IRDAI/NL/Liberty/SCN/207/2020-21 dated 29^thSeptember, 2020 in connection with onsite inspection by Insurance Regulatoryand Development Authority of India (the Authority or IRDAI) from 30^thJuly, 2018 to 1^st August, 2018.

(ii)       Response of M/s. LibertyGeneral Insurance Limited (LGIL or Insurer or the Company) dated 26^thOctober, 2020 to the aforesaid SCN.

(iii)      The submissions madeby LGIL during the Personal Hearing through video conference held on 17^thDecember, 2020 at 11:30AM, by the Chairman of the Authority.

(iv)      Further, submissionby LGIL vide email dated 18^th January, 2021.

1.      Background:

1.1.       IRDAI had conducted an onsite inspection of M/s Liberty GeneralInsurance Limited from 30^th July to 1^st August,2018. The inspection, inter alia, revealed certainviolations of provisions of the Guidelines on Motor Insurance Service Provider(MISPGuidelines) issued by the Authority through IRDA/INT/GDL/MISP/202/08/2017dated 31^st August, 2017 and Circulars thereunder, provisions ofInsurance Act 1938, Regulations, Guidelines issued thereunder.

1.2.       A copy ofthe report was forwarded to the insurer on 12^thSeptember, 2018seeking their response. On examining the submissions made by the insurerthrough their letter dated 18^th October, 2018, a Show Cause Notice(SCN)was issued on 29^th September, 2020.The insurer repliedto the SCN videletter dated 26^th October, 2020.As requestedby the insurer,personalhearing was granted to the company on17^th December, 2020.

1.3.       On behalfof the insurer, Shri Roopam Asthana, Chief ExecutiveOfficer, Shri Udayan Joshi, President – Personal Lines Underwriting, Claims& RLM, Shri Amit Jain, President, Retail Lines and marketing, Shri RiteshJiwarajka, CFO and Shri Vimal Kishor, SVP, Company Secretarywere present. Onbehalf of the Authority, Shri Randip Singh Jagpal, CGM (Intermediaries), Smt. YegnapriyaBharath, Chief General Manager (NL), Smt. Anita Josyula, General Manager (NL), ShriRahul Agarwal, Manager(NL) and Shri A. Rama Sudheer, Manager(NL) of IRDAIattended the hearing.

1.4.       The submissions madeby LGILin its letter dated 26^th October, 2020,submission during the personalhearing on 17^th December, 2020and those made videemail dated 18^thJanuary, 2021 of the insurer have been carefully considered by theAuthority and on that basis the decisions on the chargesare given as under:

2.      Charge No. 1:

2.1.       Violation of Guideline15 (5) (d):Theguidelines state that theMISP or any of its associate company, shall not receive directly or indirectlyfrom the Insurer and the Insurer shall not pay directly or indirectly to theMISP or any of its associate company any fees, charges, infrastructure,advertising expenses, documentation charges, legal fees, or any other paymentby whatever name called except as specified in the said guidelines.

2.2.       Insurer hasoutsourcing agreement with M/s Dolphin Auto wheels and Dolphin Advisors, whosedirectors are having directorships with Dolphin Two Wheelers Private Limited(DTW) and Dolphin Bikes Private Limited (DBPL). Dolphin Bikes Private Limited(DBPL) is an MISP.The insurer made paymentstowards display of banner anddistribution of marketing material to Dolphin Auto wheels and Dolphin Advisors.

2.3.       Further, insurer madepayments towardsdisplay of banner, infrastructure support and distribution ofmarketing material to M/s T S Mahalingam& Sons Finance Division (TSM), whois an MISP sponsored by the insurer.

3.      Summary of insurer’ssubmissions:

3.1.       Theinsurer has submitted that the company does not transact any insurance premium throughDTW and DBPL and hence question of indirect payments through Dolphin Autowheelsin respect of insurance business does not arise.

3.2.       Inrespect of payments made to TSM, the insurer submitted that the outsourcingagreement with TSM remained effective inadvertently and the same wasunintentional. The insurer further submitted that the outsourcing arrangementwith TSM has been terminated subsequently.

4.      Decision on Chargeno.1:

4.1.       Taking intoconsideration the insurer’s response that they have not transacted anyinsurance business through DTW and DBPL and hence, no indirect payments havebeen made to the said entities, no charge isbeing pressed in this regard.

4.2.       In respectof TSM, it is evident from the submissions made by the insurer and from theavailable invoices that the insurer had made payments to TSM, for outsourcing ofservices utilized by the insurer after 1^st November, 2017, i.e.after the MISP Guidelines have come into effect. As per available records, suchpayments have been made in 13 instances.

4.3.       Theinsurer’s submission that the continuation of outsourcing arrangement with TSM wasdue to inadvertenceis not tenable. Hence, the arrangement with andcorresponding payments towards ‘display of banner, infrastructure support anddistribution of marketing material to TSM are in violation of para 15 (5) (d)of MISP Guidelines.

4.4.       Therefore, theAuthority in exercise of the powers vested under Section 102(b) of theInsurance Act,1938 imposes a penalty of Rs.13,00,000/- (Rupees thirteenLakh only). Further, the insurer is directed to ensure in future that anyengagement with automotive dealers is strictly in compliance with MISPGuidelines.

5.      ChargeNo. 2:

5.1.       Violation of para 4(a)to be read with para 3(c) of MISP Guidelines:Para 4(a) Any automobile dealeras defined in guidelines 3(c) of the MISP Guidelines and one who does notattract any of the disqualifications as laid down in Section 42 of thelnsurance Act, 1938 shall be eligible to become a MISP.

Para 3(c): AutomobileDealer means a person who is an authorised dealer or a sub-dealer of anautomobile manufacturer for selling new or used automotive vehicles.

5.2.      Insurer has engaged M/s 9191 cars private limited (9191) and M/sCars 11 (Cars 11) as MISPs who are not authorized dealer or sub-dealer of anauto mobile manufacturer.

5.3.      The following automobile dealers, who are selling cars of multipleautomobile manufacturers, have been appointed by the insurer as MISPs, eventhough they do not have authorization from all OEMs:

                   1.       OSL Consultancy Services PVT Ltd

                   2.       Panchajanya Residency Pvt Ltd

                   3.       Turquoise Autobots LLP

                   4.       Universal Distributor

                   5.       Rajhans Automobiles

                   6.       Deccan Automobiles Ltd

                   7.       Vardhaman Automobiles

                   8.       Unique Automobile India Pvt. Ltd

6.      Summary of insurer’ssubmissions:

6.1.    The insurer submittedthat in line with their interpretation that used car dealers can be appointedas MISP, the Company appointed 9191 and Cars 11 as MISPs and mentioned that usedcar dealers are not influenced / controlled in any manner by OEMs. Further, theinsurer submitted that the company did not transact any business with M/s 9191Cars Pvt Ltd w.e.f. 18^th October, 2019 and with M/s Cars 11 w.e.f.27^th October, 2018.

6.2.    The insurer submittedthat before registering the used car dealers as MISPs, the company has now madeit mandatory to update the authorization letter (s) / agreement from MISP. It furtherstated that there could be instances where an automobile dealer would havetie-up with one OEM for doing the new motor vehicle business and simultaneouslythe dealer would also be in the business of selling used car vehicles ofmultiple OEMs. In such cases, the automobile dealer will have the authorizationfrom one OEM with respect to new motor vehicle business but not for the usedcars as OEMs have no involvement in second or third sale of the vehicle.

7.      Decision on Chargeno.2:

7.1.   Para4(a) of MISP Guidelines provides for eligibility conditions for appointment ofMISP and it states that any automobile dealer as defined in guideline 3(c)shall be eligible to become MISP. Guideline 3(c) defines Automobile dealer as aperson who is an authorised dealer or a sub-dealer of an automobilemanufacturer for selling new or used automotive vehicles. Further, guideline3(f) definesMISP as an automobile dealer appointed by the insurer or theinsurance intermediary to distribute and/or service motor insurance policies ofautomotive vehicles sold through it.From a reading of guideline 4(a), 3(c) and3(f), it is clear that only those dealers or sub-dealerswho are authorised by automobilemanufacturer are eligible to be appointed as MISPs.

7.2.   Fromthe documents available on records, it is seen that the insurer has appointedtwoused car automobile dealers, i.e. 9191 and Cars11, as MISPs, who are not authorised dealer ora sub-dealer of any automobile manufacturer.This is not in consonance with para4(a), 3(c) and 3(f) of MISP Guidelines.

7.3.   However,considering the fact that the insurer has terminated agreements with both thedealers in question and considering the submissions made by the insurer thatthe automobile manufacturers have no involvement in respect of used car dealersand the fact that the appointment of these MISPs has taken place at the time ofintroduction of new guidelines, the insurer is cautioned to be careful in future,to ensure that appointment of MISP is made strictly in accordance with the MISPGuidelines.

7.4.   Fromthe documents available on record, it is seen that the insurer has appointed8 identifiedautomobile dealers, who are selling new or used cars of various automobilemanufactures,as MISPs. However, all these automobile dealersdo not haveauthorization from all the automobile manufacturersfor selling new or usedvehicles, whichis not in consonance with para 4(a), 3(c) and 3(f) of MISP Guidelines.

7.5.   However,taking into consideration that all the 8 identified automobile dealers haveauthorization from atleast one of the automobile manufacturer and also considering thesubmissions made by the insurer that the automobile manufacturers have noinvolvement in respect of used car dealers, the insurer is cautioned to becareful in future, to ensure that appointment of MISP is made strictly in accordancewith the MISP Guidelines.Going forward, the insurer is directed to strictlycomply with para 4(a) to be read with 3(c) of MISP Guidelines.

8.      Summaryof Decisions:

8.1.    Thefollowing is the summary of decisions in this order:

9.     The penalty amount of Rs.13,00,000/-(Rupees thirteen lakhonly) shall be remitted by the insurer by debiting the shareholders’account within a period of forty-fivedays from the date of receipt ofthis order through NEFT/RTGS (details for which will be communicatedseparately).An intimation of remittance may be sent to Mrs. Yegnapriya Bharath,Chief General Manager (Non-Life) at the Insurance Regulatory and DevelopmentAuthority of India, Survey No.115/1, Financial District, Nanakramguda,Hyderabad 500032, email id - ypriyab@irdai.gov.in. 

10.   Further,the Order shall be placed before the Board of the General Insurerin the upcoming Board Meeting and the General Insurer shall provide a copy ofthe minutes of the discussion.

11.   TheGeneral Insurer shall submit an Action Taken Report to the Authority ondirection given within 90 days from the date of this Order.

12.   If the insurerfeels aggrieved by this Order, an appeal may be preferred to the SecuritiesAppellate Tribunal as per the provisions of Section 110 of the Insurance Act,1938.

Sd/-

Place:  Hyderabad                                          (Dr.Subhash C. Khuntia)

Date:15^th April, 2021                                        Chairman