IRDAI vide Order bearing reference number: IRDAI/E&C/ORD/MISC/115/09/2024 dated September 06, 2024, issued an Order in the matter of M/s SBI Life Insurance Co. Ltd. (“ Insurer”) with respect to the Show Cause Notice (“SCN”) dated July 15, 2024, issued by the Authority in connection with on-site inspection conducted by the Authority.
The observations/ issues raised by the Authority and decisions on these observations are summarized hereunder for reference:
Sl. No.
Violation
Observations of Authority
Decision of Authority
1.
Charge No. 1
Violation of Clause 6 of Corporate Governance Guidelines dated 18th May, 2016 and Clause 2 of Circular IRDA/Life/CIR/GDL/285/12/2014 dated 29.12.14 read with Regulation 42(e)(iv) of IRDA (Linked Products) Regulations, 2013 & Regulation 49(a) read with Regulation 34(e) & 34(g)(iv) of IRDA (Non-Linked Insurance Products) Regulations, 2013.
Clause 6, Corporate Governance Guidelines, 2016:
“6. Control Functions
Given the risks that an insurer takes in carrying out its operations, and the potential impact it has on its business, it is important that the Board lays down the policy framework to put in place:
· robust and efficient mechanisms for the identification, assessment, quantification, control, mitigation and monitoring of the risks;
· appropriate processes for ensuring compliance with the Board approved policy, and applicable laws and regulations;
· appropriate internal controls to ensure that the risk management and compliance policies are observed;
· an internal audit function capable of reviewing and assessing the adequacy and effectiveness of, and the insurer’s adherence to its internal controls as well as reporting on its strategies, policies and procedures; and
· Independence of the control functions, including the risk management function, from business operations demonstrated by a credible reporting arrangement.”
Reg. 42(e)(iv), IRDA (Linked Products) Regulations, 2013:
“Claims settlement – The insurer may take the services of the group policyholder in facilitating the registering and settlement of a claim, however, the insurer is totally responsible to ensure that the claim payment is made in the name of the insured member, with respect to the life cover available in the group linked products, even if the cheque is sent to the group manager for administrative convenience. For other claim payments, the payment shall be made in accordance with the scheme rules. This payment shall be made only when the service is rendered.”
Regulation 34(e), IRDA (Non-Linked Insurance Products) Regulations, 2013-
“In non-employer-employee cases, the individual group member would be treated as the insured beneficiary and the group policyholder will be only the holder of the group policy. In such cases every care shall be taken by the insurer in the matter of issue of certificate of insurance to the members of the group, who are insured. It is necessary that such certificate contains information on the schedule of benefits, the premium and charges, if any, levied and important term s and conditions of the insurance contract. The certificate shall also state the procedure to be followed to register a claim with the insurer including the full address of the office of the insurer where the claim shall be registered. While the group policyholder may play a role in facilitating the registering and settlement of a claim, the insurer is totally responsible to ensure that the claim payment is made in the name of the insured member or his/her nominee even if the cheque is sent to the group policyholder for administrative convenience or through any other electronic mode of payment to the specific bank account of the insured.”
34(g)(iv) of IRDA (Non-Linked Insurance Products) Regulations, 2013-
“The insurer may take the services of the group policyholder in facilitating the registering and settlement of a claim, however, the insurer is totally responsible to ensure that the claim payment is made in the name of the insured member or his/her nominee even if the cheque is sent to the group policyholder for administrative convenience or through any other electronic mode of payment to the specific bank account of the insured. This payment shall be made only when the service is rendered.”
The insurer had obtained the necessary authorization from the members in the standard membership form of all the three credit life products and submitted a certificate confirming the same.
Charge is not Pressed
2.
Charge No. 2
Violation of Section 45 of Insurance Act, 1938 and Circular IRDA/Life/GDL/Misc/186/10/2015 dated 28.10.2015.
“Section 45, Insurance Act, 1938:
Policy not to be called in question on ground of mis-statement after two years-
- No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e., from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later.
- A policy of life insurance may be called in question at any time within three years from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later, on the ground of fraud: Provided that the insurer shall have to communicate in writing to the insured or the legal representatives or nominees or assignees of the insured the grounds and materials on which such decision is based. Explanation I.–For the purposes of this sub-section, the expression “fraud” means any of the following acts committed by the insured or by his agent, with intent to deceive the insurer or to induce the insurer to issue a life insurance policy:–
- the suggestion, as a fact of that which is not true and which the insured does not believe to be true;
- the active concealment of a fact by the insured having knowledge or belief of the fact;
- any other act fitted to deceive; and
- any such act or omission as the law specially declares to be fraudulent. Explanation II.–Mere silence as to facts likely to affect the assessment of the risk by the insurer is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the insured or his agent keeping silence, to speak, or unless his silence is, in itself, equivalent to speak.
- Notwithstanding anything contained in sub-section (2), no insurer shall repudiate a life insurance policy on the ground of fraud if the insured can prove that the misstatement of or suppression of a material fact was true to the best of his knowledge and belief or that there was no deliberate intention to suppress the fact or that such misstatement of or suppression of a material fact are within the knowledge of the insurer: Provided that in case of fraud, the onus of disproving lies upon the beneficiaries, in case the policyholder is not alive. Explanation.–A person who solicits and negotiates a contract of insurance shall be deemed for the purpose of the formation of the contract, to be the agent of the insurer.
- A policy of life insurance may be called in question at any time within three years from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later, on the ground that any statement of or suppression of a fact material to the expectancy of the life of the insured was incorrectly made in the proposal or other document on the basis of which the policy was issued or revived or rider issued: Provided that the insurer shall have to communicate in writing to the insured or the legal representatives or nominees or assignees of the insured the grounds and materials on which such decision to repudiate the policy of life insurance is based: Provided further that in case of repudiation of the policy on the ground of misstatement or suppression of a material fact, and not on the ground of fraud, the premiums collected on the policy till the date of repudiation shall be paid to the insured or the legal representatives or nominees or assignees of the insured within a period of ninety days from the date of such repudiation. Explanation.–For the purposes of this sub-section, the misstatement of or suppression of fact shall not be considered material unless it has a direct bearing on the risk undertaken by the insurer, the onus is on the insurer to show that had the insurer been aware of the said fact no life insurance policy would have been issued to the insured.
- (5) Nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal. “No policy of life insurance effected before the commencement of this Act shall after the expiry of two years from the date of commencement of this Act and no policy of life insurance effected after the coming into force of this Act shall after the expiry of two years from the date on which it was effected, be called in question by an insurer on the ground that a statement made in the proposal for insurance or in any report of a medical officer, or referee, or friend of the insured, or in any other document leading to the issue of the policy, was inaccurate or false, unless the insurer shows that such statement was on a material matter or suppressed facts which it was material to disclose and that it was fraudulently made by the policy-holder and that the policy-holder knew at the time of making it that the statement was false or that it suppressed facts which it was material to disclose: Provided that nothing in this section shall prevent the insurer from calling for proof of age at any time if he is entitled to do so, and no policy shall be deemed to be called in question merely because the terms of the policy are adjusted on subsequent proof that the age of the life insured was incorrectly stated in the proposal.”
Insurer had been following the practice of repudiating the claims wherein the fraud was established and the date of death was within 3 years of the risk commencement date or date of issuance of the policy or date of rider of the policy, whichever is later.
Insurer had identified 86 claims that had been repudiated after expiry of 3 years from date of policy, even if death has occurred within 3 years of DOC / date of revival of policy.
The Insurer is advised to adhere to the provision of Section 45 of Insurance Act, 1938 while settling the death claims.
3.
Charge No. 3
Violation of Circular No IRDA/ACTL/FUP/VER 2.0/ DEC 2001 on File and Use Procedure dated 12th December 2001.
The insurer sold products outside their valid dates and lacked proper infrastructure management. However, they have since updated their system to prevent such issues.
The insurer is cautioned for selling insurance policies after the withdrawal of the product and advised to adhere to the extant regulations in this regard.
4.
Charge No. 4 and Charge No. 5
Charge No. 4
Violation of regulation 30(b)(ii), 30(b)(iv), clause 1(b) of Form U under Schedule VII read with regulations 2(j) and 30 of IRDAI (Insurance Web Aggregators) Regulations, 2017
Reg 30(b)(ii), 30(b)(iv), IRDAI (Insurance Web Aggregators) Regulations, 2017:
“Remuneration to the Insurance Web Aggregator –
b. Remuneration in any form shall be payable to Insurance Web Aggregators by insurers in compliance with the following provisions:
ii. Leads which are converted into sale of insurance policies will entitle the Insurance Web Aggregator to earn remuneration as applicable to insurance intermediaries.
iv. Insurance Web Aggregator can undertake Outsourcing functions to provide ‘Insurance Services’ as per Form U (Insurance outsourcing services that can be undertaken by Insurance web aggregators) of Schedule VII of these regulations in respect of policies procured through them. In such instances, the insurer may pay the Insurance Web Aggregators, reasonable service charges at mutually agreed rates fixed in the service agreements with the Insurance Web Aggregators.”
Clause 1(b), Form U, Schedule VI, IRDAI (Insurance Web Aggregators) Regulations, 2017 –
“Insurance Outsourcing Services that can be undertaken by Insurance Web Aggregators-
b. Outsourcing relationships between Insurers and Insurance Web Aggregators shall be governed by written contracts between the Insurer and the Insurance Web Aggregator that clearly describe all material aspects of the outsourcing arrangement, including charges for services, the rights, responsibilities, and expectations of all parties.”
Violation of Regulation 21 of IRDAI (Outsourcing by Indian Insurers) Regulations, 2017-
“21. REPORTING REQUIREMENTS: Insurers shall report all the outsourcing arrangements where annual pay-out either per outsourcing service provider or per activity is One Crore rupees or more, every year within 45 days from the close of the financial year. The format for reporting is given in Annexure III. Notwithstanding the above threshold for periodic reporting, the Authority may call for details, cause inspection in respect of any outsourcing arrangements.”
Insurers shall ensure that outsourced services comply with regulatory requirements, including clear documentation of service costs and activities.
Any outsourcing arrangement should be transparent and properly scrutinized to avoid conflicts of interest and ensure fair payments.
The Authority exercised the power vested under Section 102(b) of the Insurance Act, 1938 levied a penalty of Rs. 1 Crore (Rupees One Crore only) and advised the Board of the Insurer to –
i. put in place a Comprehensive Policy on Outsourcing in accordance with the extant Regulations/instructions of the Authority; and
ii. place before the Board, the Authority’s order for review of the observations made on the effectiveness of systems and processes put in place for outsourcing transactions and to address conflict of interest.
The Authority has directed the Insurer to:
1. Remit the penalty of Rs. 1,00,00,000/- (Rupees One Crore) within a period of 45 days from receipt of this Order.
2. An intimation for remittance may be sent to Shri T. Venkateswara Rao, General Manager (E & C) at IRDAI.
3. This Order shall place before the Board of the insurer at its upcoming meeting so that the Insurer shall provide a copy of minutes of the discussion.
4. Insurer shall submit an Action Taken Report to the Authority on direction given within 90 days from the date of this Order.
5. If Insurer feels aggrieved by this Order, an appeal may be preferred to the Securities Appellate Tribunal, Mumbai as per the provisions of Section 110 of the Insurance Act, 1938.
A copy of the Order is attached for your ready reference.
Source category: IRDAI
Attachments
- /2024/428_2024_09_06_-_IRDAI_Order_in_the_matter_of_SBI_Life_Insurance_Co_Ltd.pdf
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