Government of India
Ministry of Finance
Department of Financial Services
Unstarred Question No. 2061
To be answered on Thursday, August 30, 2012 / 8 Bhadrapada, 1934 (Saka)
Insurance companies violating norms
2061. SHRI RAJEEV CHANDRASEKHAR:
Will the Minister of FINANCE be pleased to state:
(a) whether a private life insurance company was recently found violating norms pertaining to commissions paid to corporate agents, referral agents and brokers;
(b) if so, the details thereof and the action taken against the private life insurance company by Insurance Regulatory Development Authority (IRDA); and
(c) the steps that Government has taken or proposes to take to prevent such scams/frauds by insurance companies in the future?
Minister of State in the Ministry of Finance
(Shri Namo Narain Meena)
(a) and (b): The Insurance Regulatory and Development Authority (IRDA) has informed that during the course of onsite inspections carried out by IRDA in some private life insurance companies, instances of payments other than permitted commission/brokerage were observed by way of reimbursement of promotional expenses, advertisement expenses etc. Instances have also been observed by IRDA where payments were made to referral entities towards sales expenses - contests, professional fee- other research, marketing expenses etc. Regulatory actions taken by IRDA by imposing penalties against the private life insurance companies are given in Annex.
(c): Section 40A (1) of Insurance Act, 1938 prescribes the limitation of expenditure on commission payable to an insurance agent. IRDA also issues circulars/guidelines, from time to time, to insurers with regard to payment of any amount other than the permitted agency commission. Moreover, Regulation 19 of IRDA (Insurance Brokers) Regulations, 2002 prescribes maximum remuneration payable to Insurance Brokers and Regulation 11(7) to 11(12) of IRDA (Sharing of Database for Distribution of Insurance Products) Regulations, 2010 prescribe the limits and other conditions for payment of remuneration to referral companies. The commission payouts are also monitored through File and Use applications for each insurance product in addition to the overall ceilings prescribed in the Act.
Name of the Insurer
Statutes / Provisions violated
Shriram Life Insurance Co.
Other expenses incurred on referral partners-Violation of Cir No. IRDA/Cir/004/2003 dated 14.02.2003
Training expenses paid in addition to Brokerage in violation of Regulation 19 of IRDA (Insurance Brokers) Regulations, 2002.
ICICl Prudential Life Ins. Co.
Payouts other than commission to corporate agents-violation of Clause 21 of Corporate Agency guidelines and Section 40(2) of Insurance Act, 1938.
Unauthorized other payments to referrals-Violation of Referral circular dated 14/2/2003.
Floating contests to referrals and incurring expenses in the name of contests-Violation of Referral circular dated 14/2/2003.
Payouts in the form of other payments to brokers beyond prescribed ceiling- Violation of 40(A) & 40(1) of Insurance Act, 1938, Regulation 19 of IRDA (Insurance Brokers) Regulations, 2002.
HDFC Life Insurance Co.
Other payouts to corporate agents - violation of Section 40A of Insurance Act, I 938 and Clause 2 I of Corporate Agency guidelines
ING Vysya Life Insurance co.
Other payout to referral partners- Violation of Circulars dated 14/2/2003 and 7/2/2008.
Reimbursement of marketing expenses to corporate agents-Violation of Clause 21 of Corporate Agency guidelines.
TATA AIG Life Insurance Co.
Business promotion payments to corporate agents-Violation of Clause 21 of Corporate Agency guidelines.