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SBI Life Insurance Company Ltd., a private life insurer, was directed to reimburse the excess commission of Rs. 275.29 crore to policyholders, by the Indian insurance regulator on Friday. Chairman of the Insurance Regulatory and Development Authority of India (IRDAI) Mr. T.S. Vijayan wrote a letter to the company instructing them to execute its March 2014 order to refund Rs. 275.29 crore of excess payment to the policy holders.
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This private life insurer is a 74:26 joint venture between the State Bank of India (SBI) and BNP Paribas Cardif of France. Earlier, the SBI Life Insurance Company had raised a dispute that the regulator has no such powers to issue directions, but the IRDAI dismissed the contention of the company, and said that according to section 34 of the Insurance Act, it has the power to issue directions to any insurer to stop the activities that are harmful to the interests of policy holders.
In the letter to SBI Life’s Managing Director and CEO Mr. Arjit Basu, Vijayan said this was lacking the logic of sensible principles of business. “The intrinsic ideology of the life insurance business lies in the fact that any expense would be added into the cost of premiums. Thus, the insurer views are unacceptable,”
The IRDAI has uploaded a copy of this letter on its official website late Friday. In March last year, the IRDAI asked SBI Life to refund the excess commission of Rs. 275.29 crore to the holders of Dhanaraksha Plus Limited Premium Paying Term policy. This policy has two premium payment options: single premium plan and two-year premium paying plan. In single premium policy, the premium for the entire policy period is collected in advance. The commission paid should not be more than 2% according to the Insurance Act.
Coming to the two-year premium paying plan, the first-year premium is much higher with a commission rate of 40% than 7.5% in the second year. As per the IRDAI, SBI Life’s corporate agents, mainly comprising State Bank of India and its associate banks, did not inform policyholders about the single premium option. The corporate agents sold the two-year premium payment plans and collected two years premium in advance. The motive wasto get 40% commission on the first year premium and 7.5% on the second year’s premium. The IRDAI discovered this practice during its on-site inspection of SBI Life’s books.
The IRDAI is trying to protect the policyholders, while SBI Life pretended as if it has accepted the orders and carried its business as usual.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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