Based on the

(i)           Show Cause Notice (hereinafter referred to as “SCN”) referenceNo.IRDA/Enf/ SCN/2018/NL/UIIC-Insp.rpt dated 29^th August, 2018 inconnection with the on-site inspection conducted by the Insurance Regulatoryand Development Authority of India (herein after referred to as ‘the Authority’or ‘IRDAI’) during 5^th to 16^th October, 2015.

(ii)          M/s. United India Insurance Co Ltd (hereinafter referred to as“UIIC” or as “general insurer”) response dated 31^st October, 2018 tothe aforesaid SCN.

(iii)       Thesubmissions made by UIIC during the Personal Hearing held on 28^thNovember, 2018 at 3.00 PM, taken by the Chairman of the Authority at itsoffice at Hyderabad.

(iv)      Further submissions/data submitted by UIIC post personal hearing videletter dated 14^th December, 2018.

Background:

2. The IRDAI had conducted an onsiteinspection of M/s. United India Insurance Co Ltdduring 5^th to 16^th October,2015. The inspection report, inter alia, revealed certain violations ofprovisions of the Insurance Act, 1938, Regulations, Guidelines and variouscirculars issued there under.

3.  Acopy of the inspection report was forwarded to UIIC on 19^th April, 2017seeking their response. On examining the submissions made by UIIC vide letterdated   29^th May, 2017 and 7^th February, 2018 ,a SCN was issued on 29^th August, 2018, which was responded to by UIICvide letter dated 31^st October, 2018. As requested by UIIC therein,personal hearing was granted to UIIC on 28^th November, 2018. 

4.  Mr. Girish Radhakrishnan, CMD, Mr. S Shankar, GM, Mr.B.Rajaram, GM, Mr. R.Hariharan, DGM, Mr. K.Nandakumar, DGM, Ms.DNaga Lakshmi, DGM, Ms Gauri Venkatesan, DGM & CCO and Mr Sanjay Joshi, Chief Manager were present inthe personal hearing on behalf of UIIC. On behalf of the Authority, Mr. PrabhatKumar Maiti, GM (Enforcement), Mr. G.R. Surya Kumar, GM (EA to Chairman) and Mr.K.Sridhar,AGM (Enforcement) were also present.

5. The submissionsmade by the UIIC in its letter dated 31^st October, 2018, during thepersonal hearing on 28^th November, 2018 and those made post personalhearing vide letter dated 14^th December, 2018 have been consideredby the Authority and on that basis the decision on each of the charges isgiven as under:

Chargeno.1

6. Violation of Para 2 (ii-c) under Schedule II-B of IRDA (Assets,Liabilities and Solvency Margin of Insurers) Regulations, 2000; as perwhich,

“Reservefor claims incurred but not reported (IBNR) shall be determined using actuarialprinciples. In such determination, the appointed actuary shall follow theGuidance Notes issued by the Actuarial Society of India, with the concurrenceof the Authority, and any directions issued by the Authority, in this behalf”.

On examining thedocuments, it was observed thatin respect of Motor-Own Damage and health businesses, UIIC kept the IBNRreserve lesser than that implied by the calculations using actuarial principles, based on paid claim Data figuresas on 31st March, 2015.

7. Summary ofsubmissions

The Actuary could not go bythe reserves implied by the calculations based on the claims paid data sincethe same was not consistent with trends seen in earlier years.

Insurer submitted that theprocedure of estimating IBNR reserves for FY 2015-16, 2016-17 and 2017-18 wasnot the same as carried out during the FY 2013-14 & 2014-15. Insurerstated that the Appointed Actuary after thediscussions with the Management decided to keep the reserves as percalculations based on actuarial principles during all the three FY 2015-16,2016-17 & 2017-18.

8. Decision oncharge no.1

IRDAI from timeto time has clarified to all general insurers that the estimate of IBNR reservesshall be determined using actuarial principles.

The AppointedActuary is expected toensure compliance toguidelines on estimation of IBNR claims provision as prescribed at Chapter I ofcircular no.11/IRDA/ACTL/ IBNR/2005-06, dated 8-6-2005.

However, takingnote from the insurer submission that the Appointed Actuary has recommended theIBNR provision exactly as estimated and also insurer made a provision asrecommended by Appointed Actuary during the three FYs 2015-16, 2016-17 and2017-18, the charge is not pressed. The general insurer is advised to ensurestrict compliance of Para 3 & 4 under Schedule II of IRDAI (Assets,Liabilities and Solvency Margin of General Insurance Business) Regulations,2016.

Chargeno.2:

9. Violation of

I)            Circularno.IRDA/NL/CIR/F&U/003/01/2011 dated 6^th January, 2011, circular no.048/IRDA/De-tariff/Dec-07dated 18^th December, 2007 and Guideline1, 3(ix), 8& 11 of Fileand Use guidelines ref.021/IRDA/F&U/SEP-06 dated 28.09.2006 as the insurer offeredrates/discounts other than those filed & approved by IRDA. As per thereferred circulars/guidelines;

-       rates proposed to be chargedshall be filed following due process

-       Competition shall not lead tounprincipled rate cutting and other improper underwriting practices.

-       Every insurer tomarket the product strictly in accordance with the terms and conditions andother features of the product as cleared by the Authority and the rates quotedshall be within the range filed with the IRDAI.

II)           Regulation 3(2) and 11(1) of IRDA (Protection of Policyholders’Interests) Regulations, 2002 as the insurer provided incorrect information tothe prospect on the risk coverage and chargeable premium.

As per Regulation3(2), “An insurer or its agent or other intermediary shall provide allmaterial information in respect of a proposed cover to the prospect to enablethe prospect to decide on the best cover that would be in his or her interest”.

As perRegulation 11(1), “The requirements of disclosure of ‘material information’regarding a proposal or policy apply, under these regulations, both to theinsurer and insured”.

On examining the samplepolicy files of UIIC, it was noted that

a)    The Insurer has not recordedjustification for the “extent of discount” given to different clients. Thediscount given is derived from market forces, as the insurer relies on quotesgiven by other competitors. The premium rates filedby insurer with regard to erstwhile tariff wordings of ‘Erection All Riskspolicy’ under F&U guidelines is inclusive of premium for Act of God (AOG) risks. In the sample cases examined, insurerhas separated the premium into base premium + STFI premium + EQ premium and theinsurer has nowhere informed to Authority in the F&U documents about the separationof premium. Thus insurer presented a false picture, as if it is offering a hugediscount on the base premium and charging premiumseparately for AOG perils.

b)    The rating of two GroupTailor made Health policies issued to two corporate clients has been derivedfrom quotes taken from other insurers, without examining the viability of ratesoffered.

10. Summary of submissions

a)    The rates forSTFI are included in the base cover in the erstwhile tariff. Although the STFIrates are included, the tariff does not prohibit the insurer to chargeseparately for STFI. These STFI rates are printed on the face of the policy forclarity to the insured and the intention is not to misguide the insured. As perthe common market practice, based on individual merits, discounts are offeredon basic cover excluding STFI. The percentage of discount/loading allowable fora risk will depend on various individual risk features. Subsequently, EQ andSTFI rates are applied along with the premium for other add-on covers. STFIrates are catastrophic perils and are not limited to a single risk, hence acommon rate is being charged for all similar risks.

The insurersubmitted that it has put in place several control measures in the IT systemitself to ensure that discounts are not offered indiscriminately.

b)    The insurer is continuouslyanalyzing the viability of Group Health policies and has already gone aheadwith course correction with regarding to pricing as warranted taking intoconsideration the track record of the insured/risk factors and good features ofthe risk along with some margin for expenses and IBNR. All these measures haveresulted in better claim performance subsequently and the good trend continues.

11. Decision on chargeno.2

a) As per coverage, exclusionsand memorandum 6 of erstwhile tariff wordings of Erection All Risks Policy(EAR), coverage towards STFI perils (Storm, Tempest, Flood,Inundation, Hurricane, Cyclone, Typhoon and Tornado) is an in-built cover and rate chargedfor EAR cover is to include the cover for STFI perils.

In the two policiesexamined, the general insurerhas separated total premium into base premium and STFI premium. Whereas, thegeneral insurer has filed a consolidated premium and has not shown anybifurcation of rate in the rate filed under F&U guidelines towards baserate and rate for STFI perils. In the quotations/policy schedule issued to theprospect/insured, insurer has bifurcated the rate into base rate for EAR coverand a separate rate for STFI perils and has allowed differential discount onboth the rates.

In the first policy, insurer has shown STFIperils coverage as an add-on cover and similarly in the schedule of secondpolicy, insurer has shown STFI perils coverage as an additional cover.

By adopting the aboveapproach, insurer gave a misleading impression that it has given a heavydiscount on the base cover and has shown the coverage of STFI peril as anadd-on/additonal cover. The practice adopted by the insurer in the instantcases is in deviation of the rate guide filed with the Authority, wherein asingle rate has been filed for the EAR risk which includes STFI perilscoverage.

In view of the violationsobserved in the two policies examined which were issued during January &February, 2015, the Authority in exercise of the powers vested under Section102(b) of the Insurance Act,1938 imposes a penalty of Rs.2 lakh (Rs.1lakh for each of the two policies).

b) UIIC accepted that therating of two health policies referred in the observation was based on variousrisk factors along with the factor of prevailing competitive quotes in order toensure retention of renewals.

It was observed from theavailable internal office notes that the rates offered by insurer under thereferred two policies was to match competitors quotes rather than consideringthem on the basis of risk factors as required under F&U guidelines. The loadings/discount structure shouldbe as filed by the insurer and cleared by IRDAI under F&U guidelines. By allowing discounts on unsound grounds, the insurerhas deviated from the rating structure filed with the Authority.

In view of the violationsobserved in the two policies examined which were issued during August &September, 2015, the Authority in exercise of the powers vested under Section102(b) of the Insurance Act,1938 imposes a penalty of Rs. 2 lakh (Rs.1lakh for each of the two policies).

Charge no.3:

12. Violation of Regulation 9of IRDA (Protection of Policyholders’ Interests) Regulations, 2002. As per the Regulation:

-       A general insurer has toappoint a surveyor within 72 hours of the receipt of intimation from theinsured.

-       A surveyor shall not takemore than six months from the date of his appointment to furnish his report.

-       On receipt of survey report,an insurer shall within a period of 30 days offer a settlement of claim to theinsured.

-       Insurer shall pay the amountwithin 7 days from the date of acceptance of the offer by the insured.

On examining the sample documentspertaining to UIIC, it was observed that

a)    There are numerouscircumstances where the surveyor has been appointed beyond 72 hours.

b)    In 28 claims, thesubmission of survey report has been delayed beyond six months.

c)    In 33 claimsthere has been a delay in settlement of claim by the insurer after the receiptof final surveyor report.

13. Summary of submissions

a)    UIIC informed that as perdata available, the delay in appointment of surveyor with regard to surveyorappointed cases has been 25% during 2015-16, 25% during 2016-17 and 17.70%during 2017-18. With regard to delay in appointment of surveyor, insurersubmitted that incorrect data entry in the system has contributed to theobserved delay in appointment in many cases and provided few samples whereinsuch data error has occurred.

Further, UIIC submitted thata revised Surveyor Management policy is being implemented w.e.f. 1^stApril, 2019 which expressly specifies the timelines for appointment ofSurveyors, report submission and claims settlement. Checks and balances havebeen introduced in the IT systems. In case of delays, the same gets escalatedto next higher authority.

b)    UIIC provided claim wise datainforming where out of 28 claims referred in the charge, only in 5 claims therewas a delay in submission of surveyor report due to non submission of documentsby claimants.

c)    UIIC submitted claim wisedata of 33 sample claims referred in the charge giving the details of date ofreceipt of surveyor report, date of offer made by UIIC on receipt of surveyorreport, date of receipt of acceptance of offer by UIIC and date of claimpayment. UIIC further submitted that the operating offices and claimsservicing hubs have been sensitized to strictly adhere to turnaround timesthrough periodic reviews and reports designed to capture this data through theIT system for better monitoring.

14. Decision on charge no.3

a)   Based on the submission on dataerrors which lead to presentation of data indicating delay in appointment ofsurveyor, insurer is advised to ensure compliance to timelines at all times andto track/monitor the progress on a regular basis to make sure that in no case delayhappens in appointment of surveyor.

b)   With regard to 28 sample claimcases referred in the inspection observation on the delay in receipt of surveyreport, insurer clarified that there was a delay in receipt of survey report in5 cases due to non receipt of documents from claimant. In this regard, theinsurer is advised to communicate clearly in writing to claimant / surveyor, in case of a delay in receipt of any necessary documents.

c)   On examining the data provided by insurer with regard to 33claims on delay in claim settlement post receiving survey report, it isobserved that in case of 12 claims there has been a delay beyond 30 days inmaking an offer to claimant. The delay in days beyond the stipulated period inmaking an offer is in the range of 17 days to 886 days. Details as below:

In view of the violationobserved in the 12 sample claim cases (with date of loss prior to 26^thDecember, 2014) on delay in making an offer by the general insurer afterreceipt of surveyor report, the Authority in exercise of the powers vestedunder Section 102(b) of the Insurance Act,1938 imposes a penalty ofRs.5 lakh..

Further, the general insureris directed to pay penal interest for the delayed period as per the provisionsof Regulation 9 of IRDA (Protection of policyholders’Interests) Regulations, 2002.

15.       Summaryof Decisions:

16.       Inconclusion, as directed under the respective charges, the total penaltyamount of Rs. 9 lakh (Rupess nine lakh only) shall be remitted by UIIC bydebiting shareholders’ account within a period of 45 days from the date of receipt of this order through NEFT/RTGS (details for which will be communicatedseparately).  An intimation of remittance may be sent to Mr. Prabhat KumarMaiti, General Manager (Enforcement) at the Insurance Regulatory andDevelopment Authority of India, Survey No.115/1, Financial District,Nanakramguda, Hyderabad 500032, email id - enforcement@irda.gov.in. 

Further,

        i.          TheOrder shall be placed before the Board of the general insurer in the upcomingBoard Meeting and the general insurer shall provide a copy of the minutes ofthe discussion.

       ii.          Thegeneral insurer shall submit an Action Taken Report to the Authority ondirection given within 90 days from the date of this Order.

17.       IfUIIC feels aggrieved by this Order, an appeal may be preferred to theSecurities Appellate Tribunal as per the provisions of Section 110 of theInsurance Act, 1938.

Place:  Hyderabad                                                                 (Dr.Subhash C. Khuntia)

Date: 06/02/2019                                                                 Chairman