Violation of  Provision 1 under Part 1 of Schedule B and Provision B (1)   under Part II of Schedule B of IRDA (Preparation of Financial Statements and Auditor’s Report of Insurance Companies) Regulations, 2002.

 

Submission of the insurer: The general insurer informed that the company incurred claim assessment expenses under weather based schemes and recovered from the reinsurers at a certain percentage of the premium ceded as per the treaty. The general insurer also confirmed that the company has rectified the accounting treatment and is adjusting the loss assessment expenses recoveries under claims account w.e.f FY 2012-13.

 

 

The insurer has entered into agreements with Insurance Brokers to market the Rubber Plantation Insurance Policies. As per clause 3 of the agreement, the broker is allowed to issue premium receipt, cover note/policy on behalf of AIC and also small claims up to the limit of Rs.20,000/-, if required, will be verified by the experienced officers of Broker. For rendering such services, AIC agreed to pay to the Broker an additional amount over and above the eligible brokerage, towards policy servicing charges and survey fees. 

It is also noticed that the Proposal form used for coverage of Rubber Plantation Insurance does not contain the details of intermediary and there was no proof available that the broker has got mandate from the customers / prospects for the said insurance arrangement.  

b) Clause 6 under Annexure II of Corporate Governance guidelines   issued by Authority vide circular: No. IRDA/F&A/CIR/025/2009-10,    dated     5^th August, 2009.

c)   Section 31B(2) of Insurance Act,1938 read with Authority’s Circular IRDA/F&I/CIR/DATA/091/06/2010 dated 11^th June 2010.

 

1) The general insurer accepted the lapse of not collecting intermediary details in the proposal form and has rectified the same by instructing the brokers to provide intermediary details in the proposal form and to collect the insured mandate. Taking note of the submissions, no charges are being pressed.

2) The general insurer entered into agreements with two brokers for policy servicing and survey of claims of rubber plantation policies.  As per clause 3 of the agreement, loss is assessed by the broker/broker’s employee. There is possibility of conflict of interest which may be prejudicial to the insurer, since the broker procuring the business is also involved in claim survey job. The general insurer has thus violated the Authority’s commission circular ref.no.011/IRDA/Brok-comm/Aug-08   dated 25^th August, 2008 and Regulation 19(1) of IRDA (Insurance Brokers) Regulation, 2002 by making additional payouts towards other services over and above commission and also by entering into an agreement with broker for survey job and making payment to the employee of the broker. Further, insurer by continuing the agreements with the brokers, has also violated para 8.5 of Outsourcing guidelines dated 1^st February, 2011.

In respect of claim amounts lying in stale cheque account, it was observed that the general insurer has not put in place proper systems to follow-up either with the farmers insured through intermediaries or the Nodal Bank through which the farmers were insured. 

 

Violation of Clause 6 of Annexure II of IRDA Guidelines on Corporate Governance Circular no. IRDA/F&A/Cir/025/2009-10 dated 5^th August, 2009. 

 

The company informed at Charge 6(4) that claims are presently made through RTGS and also bank account is being made mandatory for non loanee farmers too from Khariff 2010. The company further informed that it not only resends the undelivered claim cheques to the address on record but also takes the assistance of brokers to contact the beneficiary farmers of unclaimed amounts. In support of submission, the general insurer submitted two sample follow up letters addressed to claimants by Jaipur RO along with fresh payment details. The Authority takes note of the submissions and directs the insurer to initiate payment of all claims settled and furnish status report within 45 days of the receipt of this order.

 

On examining the documents provided by the general insurer on clarifications received from banks, no charges are pressed.

 

Para 12 of AIC’s Pilot Weather Based Crop Insurance Scheme (hereinafter would be referred as ‘WBCIS’ ) states that “Actuarial Premium rates for each season for each notified crop and each notified Reference Unit Area shall be calculated using standard Premium Rating methodology”. However, it is noticed that though the company is arriving at actuarial premium rates for each notified crop and each notified reference unit area, the actual charged premiums are different from those arrived at actuarially.

 

Violation of point 3 (vi), 8 & 11 of F&U guidelines dated 28^th September, 2006 and para 3 of Form C dated 6^th June, 2007 filed with Authority under the referred F&U guidelines.

 

Submission of the insurer: The general insurer informed that the ultimate premium rates are set at district level for all the ‘area approach based schemes’ i.e NAIS, WBCIS & MNAIS.

 

The reason that the implementing States find it more equitable and convenient to treat all the farmers in a district uniformly as far as premium rate is concerned. Thus under WBCIS, State Government being implementing the scheme and because of demand from the government, the company  notifies uniform premium rate at district level. As such, the company moved from ‘stand-alone’ pricing to ‘portfolio’ pricing after approval of actuary and the Board.

 

The Authority takes note of the submissions of the general insurer and no charges are pressed.

 

It was observed from the system generated acknowledgement register that receipt no.10006 was issued in favour of a broker on 30^th September, 2010 for Rs.9,42,816 for the proposals procured during June 2010. Similarly, receipt No. 10012, dated 30^th March, 2011 was issued in favour of another broker for Rs. 2.70 lakh towards insurance premiums pertaining to Kharif 2010 season.

 

Submission of the insurer: The general insurer submitted that brokers collect premium from remote places and sometime they submit declarations and premium DDs in a lot. The insurer has submitted the details of DDs received from the brokers.

 

The Authority decision is conveyed at charge 8 of the Order.

The insurer had not ensured insurable interest of the insured by obtaining the relevant documents as specified in the WBCIS scheme and also in compliance to the insurer HO circular dated 16^th June, 2010.  It was also observed that in good number of proposals, the vital fields viz., address of the proposer, bank details of the proposer, signature of the proposer, signature of the insurance intermediary were not available. 

 

It was noticed that the insurer is not in practice of issuing any cover notes on assumption of risk, but the same are being issued at the time of payment of claim before obtaining a discharge voucher for payment of claim amounts.

 

On examination of eight Certificates of Insurance and 36 proposals, it was observed that many proposals either do not have date or insured signature or bank details or risk details required for underwriting the proposal. Further, the company has not issued to the insured/s any premium receipt, cover note, policy / Certificate of insurance for the proposals referred in inspection observation.

i) Regulation 7 of IRDA (Protection of Policyholders’ Interests) Regulations,

     ii) Clause 6 of Annexure II of IRDA Guidelines on Corporate Governance

              Circular no. IRDA/F&A/Cir/025/2009-10 dated 5^th August, 2009.

 

Reply to charge 6(ii) - The general insurer replied that the index insurance products are implemented on Area basis approach and neither the scheme nor the operational modalities of the State Govt. notification mandate for collection of documentary evidence for each individual insured. Further, tenant farmers and share croppers are also eligible farmers to avail the benefit of the scheme.  The general insurer has also clarified that the three incomplete proposals identified by the inspection team were actually not accepted by the company as they did not bear the signature of the insured/broker.

 

Reply to charge 6(iii) - The general insurer replied that the cover notes are issued subject to satisfaction of all the terms and conditions and during the period under review cover notes were being prepared manually leading to delay in issue. The company has started issuing cover notes from its system enabled Business Operation system since 2012-13.

 

 

 

 

As per the scheme provisions,  claim amounts are to be directly credited to the farmers’ individual bank accounts, whereas, the insurer is in practice of sending a physical cheque in the name of the insured.     Further it is also noticed that many cheques were returned undelivered with the reason, “no such addressee found”.   

 

Violation of Clause 6 of Annexure II of IRDA Guidelines on Corporate Governance guidelines circular no. IRDA/F&A/Cir/025/2009-10 dated 5^th August, 2009.

 

On examination of the outstanding claims of Kharif 2010 season pertaining to non-loanee farmers, it was observed that 34 claims pertaining to Bharatpur district of Rajasthan State amounting to Rs.2.50 lakh were not settled as on date of inspection and  the reason stated as non-receipt of discharge Voucher.

 

Violation of Clause 6 of Annexure II of IRDA Guidelines on Corporate Governance guidelines circular no.IRDA/F&A/Cir/025/2009-10 dated 5^th August, 2009.

Submission of the insurer: The general insurer informed that letters addressed by the company got returned undelivered.  In support of submission, insurer has provided copy of two letters addressed in September, 2012 & 2013 to one of the farmers and also informed that the company is in the process of verifying the insured through personal inspection for releasing the claims.

 

a)   It was informed by the company that on receipt of the premium, the company is issuing acknowledgement – cum – receipt to the intermediary and not to policy holder.

b)   An acknowledgement – cum – receipt dated 1^st October, 2010  was issued to a broker for Rs.1,02,42,578, whereas 13 receipts forming part of this total amount were dated during the period 7^th Oct to 29^th Nov,2010. Similarly another receipt amounting to Rs.14,08,032 dated 14^th February, 2011 was issued to same broker and the dates of receipts forming part of this total amount were dated during the period 25^th to 29^th March, 2011. It was observed that the receipts were issued in advance i.e even before receiving the premium by the company and also the receipt amount differs from the actual premium received.

 

 

Submission of the insurer: The general insurer informed that

a)     Due to large volume of proposals cover notes could not be issued, as there was some delay in underwriting, and this happened only in Hyderabad RO where pilot WBCIS was implemented for the first time in 2010-11 involving insurance brokers.

c)     The amount of Rs.14,27,877/- includes the premium of Rs.19,845 received from three non-loanee farmers whose proposals were received directly and not through the broker. The acknowledgement-cum-receipt in favor of the broker is issued only for the business procured through the broker.

 

 

On examining the details of DDs and receipt no’s provided by the general insurer vide mail on 24/12/2014 w.r.t receipt no.10012; it is observed that the reply is silent on the delay in receipt of premium of Rs.2.70 lakh from the broker. By not replying, insurer has accepted to the charge of the Authority and by this insurer has violated the provisions of Section 64VB of Insurance Act, 1938.

 

a)   On the cover notes issue, the Authority decision is conveyed at point 7 /charge 6(iii) above.

b)   Insurer has not submitted DD no’s nor any documentary evidence on receipt of amounts from broker prior to issue of acknowledgement cum receipt nor informed the reasons for delay in accounting by 10 to 50 days after receipt from broker. The insurer’s office had deviated from the Head office guidelines given vide circular no.AIC/R&D/04/2007-08 dated 23^rd November, 2007(point 3), circular no.NIL dated 15^th April, 2008 & Circular no.AIC/R&D/05/2008-09 dated 20^th June, 2008 (point 1).

c)   Further, inspite of specific instruction in the show cause notice, insurer has not provided any documentary evidence on the receipts of 3 non loanee farmers referred in its reply.

 

The Bengal gram crop claims of Kurnool district, AP were to the tune of Rs.2.63 crores. It was observed that R.O. Hyderabad of the insurer has not settled these claims with the nodal banks, stating the claims to be on higher side compared to the previous season. 

 

Violation of Regulation 9(5) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002. 

 

Submission of the insurer: The general insurer informed that claims amounting to Rs.2.547 crore were approved after verification and disbursed to 2052 farmers on 7^th December 2012 and 8^th February, 2013.

 

Taking note of the submissions of insurer on claim settlement, no charges are pressed.

 

 

a) No formal mechanism is in place to ensure the authenticity and correctness of the declarations submitted by the nodal banks, which form the basis for settlement and disbursement of claims to farmers. Three instances were referred in the observation where refund was sought from the banks after claim payment.

b) In the light of the instances of wrong mentioning of crops, acreage, reference weather stations, and reference unit areas by the banks while sending the declaration forms, the insurer’s office had not placed any mechanism to investigate into heavy claim ratios.

Violation of Clause 6 of Annexure II of IRDA Guidelines on Corporate Governance Circular no. IRDA/F&A/Cir/025/2009-10 dated 5^th August, 2009. 

Submission of the insurer: The general insurer submitted that WBCIS being multi agency scheme, the roles of different agencies have been defined in the scheme. Owing to the multi-agency nature of the programme, the company does not have complete control over the processes and need to depend on other stakeholders.  Either during the season or before claim settlement, the company would undertake verification of bank records on random basis.

The Authority takes note of the submissions of the insurer and no charges are pressed.

 

The company has paid Rs. 200 crores to the Government of India, out of retained profits/surplus generated over six years from National Agricultural Insurance Scheme (NAIS) as its share of profits. This payment was shown   an ‘ad hoc payment’ under ‘Advances and Other assets’ under schedule 12.

(a)The amount paid is in the nature of appropriation of profits and the same does not qualify to be recognized as asset.

(b)In arriving at ‘Available Assets’ for solvency purposes as at 31^st March, 2011, it was observed that full amount Rs. 200 Crores was considered for solvency purposes.

a)   Section 64V of Insurance Act, 1938.

b)   Provision 2 given under ‘Schedule I – Valuation of Assets’ of IRDA (Assets, Liabilities and Solvency Margin of Insurers) Regulations, 2000.

c)   Provision 1 under Part I of Schedule-B of IRDA (Preparation of financial statements and Auditor’s report) Regulations 2002 by not adhering to Para 49 (a) of ICAI’s Framework for the preparation and presentation of financial statements read with Para (6) of AS-26.

Submission of the insurer: The general insurer informed that the said accounting treatment was with due approval of the Board. Further submitted that taking note of the inspection observation, the said advance of Rs. 200 crore was not considered by the company for the purpose of calculation of solvency margin from the financial year 2011-12 onwards.

 

Violation of Regulation 3(9) of IRDA (General Insurance–Reinsurance) Regulations, 2000.