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Title: FINAL ORDER
Reference No.: IRDA/LIFE/ORD/MISC/176/10/2015
Date: 12/10/2015
In the matter of M/s. TATA AIA Life Insurance Company Ltd.
Based on the Reply of M/s TATA AIA Life Insurance Co Ltd dated 6thAugust 2015 to the Show Cause Notice Dated 16th July, 2015 and Submissions made by them during Personal Hearing on 16th September, 2015 at 2:30 PM, Chaired by Sri Nilesh Sathe, Member (Life), IRDAI, at the office of Insurance Regulatory and Development Authority of India, 3rd Floor, Parishrama Bhavanam, BasheerBagh, Hyderabad.
On examination of the Annual Returns filed by TATA AIA Life Insurance Co. Ltd., (hereinafter referred to as “the Life Insurer”) for the financial year 2013-14, it is noticed by the Insurance Regulatory and Development Authority of India (hereinafter referred to as “the Authority”) that the Life Insurer has not fulfilled its obligations towards Social Sector obligations as stipulated under IRDA (Obligations of Insurers to Rural or Social Sector) Regulations, 2002 and reported 25,797 lives as against the target of 55,000 lives. The Authority sought clarifications from the Life Insurer and examined the replies submitted by the Life Insurer including the Audit certificate of a CA Firm submitted by the Life Insurer certifying that they have covered 55,105 lives towards social sector obligations for the Financial Year ended March 31, 2014. After examining the replies of the Life Insurer, the Authority has carried out a focussed onsite inspection of Corporate Office of the Life Insurer from 23rd December, 2014 to 24th December, 2014 to examine the compliance of the Life Insurer to Social Sector obligations for the Financial Year 2013-14.
The Authority forwarded a copy of the Inspection Report to the Life Insurer vide letter dated 13th March, 2015 seeking their comments. On examining the submissions made by the Life Insurer vide letter dated 29th April, 2015, the Authority has issued a Show Cause Notice (SCN) on 16thJuly, 2015 which was responded to by the Life Insurer vide letter dated 6th August, 2015. As requested therein, a personal hearing was given to the Life Insurer on 16th September, 2015.
Mr. Naveen Tahilyani, Chief Executive Officer; Mr.Swaminathan, Chief Compliance Officer; Mr. Ravi Vishwanath, Chief Distribution Officer; Mr. AnupamDatta, VP-Sales; Mr. S. Senugupta, VP-Rural were present in the personal hearing on behalf of the Life Insurer. On behalf of the Authority, Mr. V. Jayanth Kumar, Joint Director (Life) and Ms. B. Aruna, AD (Life-Regulatory Actions) were present.
The submissions made by the Life Insurer in their written reply to the Show Cause Notice as also those made during the course of the personal hearing were taken into account.
The findings on the explanations offered by the Life Insurer to the issues raised in the Show Cause Notice dated 16th July, 2015 and the decisions are as follows.
Charge No.a: Inspection observation revealed that The Life Insurer has taken the individual policies which are not ‘in force’ for calculating compliance towards social sector obligations which is a violation of Circular No. IRDA/Life/Rural & Social Obligations/076/2004-05 dated 23/2/2005.
Charge No. b: The Life Insurer has also confirmed that in the Financial Year 2013-14, the net number of lives covered under ‘in force’ policies are 53,918 whereas the target is 55,000 lives. This is a clear violation of Regulation 3 (B) (1) (b) (i) (IV) of IRDA (Obligations of Insurers to Rural or Social Sectors) Regulations, 2002.
In response to the above charges ‘a’ and ‘b’ , the Life Insurer submitted that they have covered 55,105 lives in the FY 2013-14 including the lapsed policies and the net number of lives covered under ‘in force’ policies is 53,918. The Life Insurer further stated that there was no individual Micro Insurance product with them, due to changes in product regulations, since December 2013 which otherwise would have helped them not only achieve but surpass the mandate.
Decisions on Charges ‘a’ and ‘b’:
The response of the Life Insurer clearly shows that they have taken into account the ‘lapsed policies’ into consideration while calculating the social sector obligations and violated the provisions of Circular IRDA/Life/Rural & Social Obligations/076/2004-05 dated 23/2/2005. The said Circular defines the term “lives” as new lives insured during the financial year and in force as on 31st March of the year.
The submission of the Life Insurer that because of the non availability of micro insurance product since Jan-Mar 2014, which otherwise would have helped them to exceed the mandate is not acceptable as there is no bar on the Life Insurer to sell any other individual/group products, other than micro insurance product, to the Social Sector. And Social Sector, as per the (Obligations of Insurers to Rural or Social Sectors) Regulations, 2002 (Regulations), includes unorganized sector, informal sector, economically vulnerable or backward classes and other categories of persons both in rural and urban areas.
The Life Insurer is expected to have in place the business strategies for complying with Social Sector business obligations as stipulated in the Regulations. The Life Insurer shall note that compliance to Social Sector Obligations is a statutory mandate for all the Insurers. By covering only 53,918 lives as against the mandate of 55,000 lives in the Financial Year 2013-14 (which is 13th year of operation of the Life Insurer), the Life Insurer has violated the Regulation 3 (B) (1) (b) (i) (IV) read with Regulation 3 B (2) of IRDA (Obligations of Insurers to Rural or Social Sectors) Regulations.
However, in view of the submissions made by the Life Insurer at the time of personal hearing, a lenient view is taken by the Authority and the Life Insurer is WARNED that a repeated default will be will be viewed very seriously in future.
Charge No. c: Inspection revealed that in the proposal form Nos. C284639129, C284661016 and C284662280, the micro insurance agent himself signed on behalf of Life assured which is a violation of provisions of Regulation 3 (4) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.
In response, the Life Insurer submitted that they have dedicated managers for Rural and Micro Insurance channel to coordinate with the MI Agents and Specified Persons. Apart from regularly insisting and reminding the Agents about importance of adhering to the Code of Conduct, they also have regular audits carried out by the internal auditors of the Company. While generally there is a diligent adherence to the code of conduct, any deviations observed are dealt with strict action and they terminate the agents. In these cases, 2 micro insurance specified persons (MISPs) were identified. One of them has not submitted any business since 01 April 2014 and the other had sourced 18 policies in 2014-15 and NIL in 2015-16 and both the codes have been cancelled and MISPs removed from being Tata AIA Life Specified persons.
Decision: Though the Life Insurer has terminated the micro insurance agents/specified persons who are involved in such activities, the Life Insurer has failed to identify such issues at the time of underwriting and the policies where Micro Insurance Agents are signing the proposal form on behalf of the Life Insured cannot be termed valid contracts because the proposer/life assured himself has not signed/submitted the proposal to the Life Insurer. The Authority therefore issues a WARNING to the Life Insurer and advises to strengthen their internal checks and incorporate robust internal controls to weed out such defective proposals at the stage of underwriting itself.
Further, if the Life Insurer feels aggrieved by this Order, an appeal may be preferred to the Securities Appellate Tribunal as per the provisions stipulated under Section 110 of the Insurance Act, 1938.
Place : Hyderabad (Nilesh Sathe)
Date : 09 October, 2015 MEMBER (Life)
