IRDA imposed a hefty fine of Rs 1.47 Crore on HDFC Standard Life Insurance Ltd for violation of various regulatory provisions. IRDA had conducted an onsite inspection at the premises of the Insurer. Such inspection is carried on once in 3-4 years. IRDA issued a show cause notice to HDFC life; to which it replied and after a personal hearing the penalty was levied.
The insurer made highly excessive payments for marketing expenses and advertising campaigns to its corporate agents namely HDFC, HDFC Bank, HDFC Securities HDB Financial Services. The purpose of the regulation that has been violated here is to ensure that no additional payments should be made to the corporate agents other than commission legally allowed. Many insurers indirectly make payments to the corporate agents in guise of marketing expenses/ sales promotion/ training/infrastructure support/ advertisements campaigns etc. Such payments are often not supported by any material considerations in return. The burden of this extra payment naturally falls on the policyholders who fall prey to expensive products and malpractices during sale of insurance. IRDA imposed a penalty of Rs. 35 lacs - Rs. 5 lac each for 7 instances of violations.
Insurer allowed soliciting insurance business through unlicensed entities. The company submitted that some duly licensed Specified Persons (selling agents in Corporate Agent setup) were operating with multiple codes for the purposes of ease in reporting and maintaining data. IRDA did not accept this and concluded that unlicensed and perhaps untrained people have sold policies to common public! - Penalty of Rs. 5 lacs.
In case of home loan protection policies, the insurer had put a 90-day waiting period exclusion clause in its product approval application (called File & Use application). As per this clause, under the policy, if the life insured dies within 90-day waiting period, the claim would not be paid even if otherwise eligible. IRDA approved the product and directed the company to remove the said clause before using the product for sale. The company removed the clause albeit after some delay. In 21 cases, the death claims were rejected on the basis of this exclusion clause. IRDA imposed a penalty of Rs. 5 lac each for 21 cases and also directed insurer to pay the rejected claims - Penalty of Rs. 105 lacs!!
IRDA has sent strict signals to all insurers after its penal actions against big names in life insurance space like ICIC Prudential Life and now HDFC Standard Life.
The mood of the regulator can be gauged well from the following quote in the penalty order -
"A penalty of this nature is a regulatory necessity in order to impress upon management of any insurance company that regulatory prescriptions have to be complied with at all times and failure to do so will entail appropriate regulatory action… - J Hari Narayan, Chairman IRDA."
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