The Insurance Regulatory and Development Authority of India (herein after referred to as “the Authority”) issued a certificate of registration bearing No.110 to Tata AIA Life Insurance Co. Ltd. (herein after referred to as “the insurer”) on 12^th February 2001 to carry on business of Life Insurance in India in terms of Section 3 of the Insurance Act, 1938. In terms thereof the insurer is subject to the terms and conditions of the certificate of registration and is required to abide by the provisions of the Insurance Act, 1938 (herein after referred to as ‘the Act’), the Insurance Regulatory and Development Authority Act, 1999, and other directions issued by the Authority from time to time by way of circulars and/or guidelines.

 

On review of the expenses of management (EoM) statements submitted by the insurer with the Authority for the financial year 2012-13 to 2014-15, it was observed that the insurer was non-compliant with EoM limits prescribed under Section 40B of the Insurance Act, 1938 read with Rule 17D of the Insurance Rules, 1939. The insurer reported EoM ratio of 109.58%, 105.78% and 127.10% for the said years respectively.

The Authority communicated the findings to the insurer vide letter dated 12^th February, 2014 and 29^th July, 2014 and sought explanation. The insurer submitted its response vide letter dated10^th March, 2014 and 14^th August, 2015. The Authority examined the reply of the insurer and issued Show Cause Notice vide letter dated 18^th November, 2015. The insurer submitted its reply to the Show Cause Notice vide letter dated 9^th December, 2015. As requested by the insurer, a personal hearing was given with Smt. V.R. Iyer Member (F&I) in the chair.

 

The Gist of submissions of the insurer as regards challenges faced by them were as under:

    i).        Launch of limited number of product basis new regulations in January, 2014

   ii).        Lack of third party distribution arrangement

 iii).        Investment into rebuilding agency

 

The insurer also submitted that financial year 2014-15 was a period of rebuilding the organization with changes in the top management. The major focus areas were making the Bancassurance tie up a success and new initiatives in the form of launch of life planner model for Agency, Product research and development and Brand building.

 

During the personal hearing, the insurer reiterated their submissions and explained the fall in their business without corresponding reduction in the expenditure levels despite cost cutting measures taken by them. The insurer further confirmed that despite the fact that there was expense overrun, as per the Board approved policy of the insurer, expense allocation to the par funds are kept at minimum much less than the permitted levels, thus ensuring that the interest of the par policyholders is not impacted.

 

The insurer further indicated that owing to the measures taken in the last two years they have been able to achieve growth in new business and submitted that they expect to be compliant with the EoM limits by the financial year 2016-17.

 

The insurer requested the Authority to condone the non-compliance in the three financial years from 2012-13 to 2014-15.

 

Decision:

 

The Authority after considering the various submissions of the insurer is of the following view:

 

1.    The Authority vide circular No. IRDAI/F&A/CIR/FA/059/03/2015 dated 31^st March, 2015, advised all the insurers to comply with the existing circulars and provisions of Rule 17D of the Insurance Rules, 1939 until further orders.

 

2.    Based on the facts on record, the insurer is non-compliant with EoM limits as per provisions of section 40B of the Insurance Act, 1938 read with Rule 17D of the Insurance Rules, 1939 for the three financial years from 2012-13 to 2014-15.

 

3.    The insurer’s submissions that there is no impact on the par policyholders despite the expense overrun have been considered.

 

4.    In view of the above, in exercise of the powers conferred upon the Authority under Section 14 of the IRDA Act, 1999 read with section 64K(2) of the Insurance Act, 1938, the insurer is hereby warned of the contravention with the provisions of section 40B of the Insurance Act, 1938. The contravention has been taken on record and no further action is being taken against the insurance company on the basis of the confirmation provided by the insurer that despite the non compliance with the limits of EoM as provided in the Act, Rules framed thereunder, the insurer has ensured that during the year 2014-15, the interest of the par policyholders are not impacted, compliance with the product filing has been ensured and at no time interest of the policyholders have been affected.

 

5.     The insurer is advised to bring the expenditure levels within the prescribed limits as stipulated under the Act and the Regulations framed thereunder. Further, the insurer shall ensure compliance with product filing at all times and at no time shall the interest of the policyholders be allowed to be adversely affected.

 

6.    The insurer is further advised to note that any future occurrence of this nature resulting in non-compliance of the provisions of Insurance Act, 1938, the IRDA Act, 1999 and the Regulations notified thereunder, as also the various directions issued by the Authority shall be viewed seriously and visited with appropriate action by the Authority. 

 

7.    The insurer is hereby, directed to bring this warning letter to the Notice of their Board in its next meeting. A copy of note placed before the Board and the duly certified relevant extract of the Board Resolution thereon, shall be filed with the Authority.

 

8.    The insurer is further directed to strictly adhere to the Act, Regulations made there under, Guidelines and Circulars issued in this regard from time to time.