Document Detail
Based on the
(i) Show Cause Notice (hereinafterreferred to as “SCN”) Dated 5th April, 2016 issued by theAdjudicating Officer appointed by the Authority.
(ii) Reply of M/s Exide Life InsuranceCompany Limited, erstwhile ING Vysya Life Insurance Co. Ltd.,(hereinafterreferred to as “Exide Life”) dated 5th May, 2016 to the SCN.
(iii)Submissions made by Exide Life beforethe Adjudicating Officer during Personal Hearing on 17th June, 2016 atthe office of Insurance Regulatory and Development Authority of India, 7thFloor, United India Building, Basheerbagh, Hyderabad.
(iv)Inquiry Report of AdjudicationOfficer dated 30/10/2017,
(v) Reply Letter dated November 10,2017 of Exide Life to the Inquiry Report.
(vi)Authority’s letter dated July 30,2018 to Exide Life intimating invoking Section 102 of Insurance Act 1938 andgiving them an opportunity of personal hearing in the matter
(vii) The Submissions made by Exide Lifein its letter dated 14th August, 2018 and during the PersonalHearing held on 30th August, 2018 at 3.30 PM chaired by Dr. SubhashChandra Khuntia, Chairman, IRDAI, at the office of Insurance Regulatory andDevelopment Authority of India, Financial District, Nanakramguda, Hyderabad.
Background:
1. On examination of the data submitted by Exide Life withthe Authority through its letter No. EXL/Regl/42/2014-15 dated 21stMay, 2014 in accordance with Circular No. IRDA/F&A/CIR/DATA/066/03/2012dated 2nd March, 2012, it was observed that during the FY 2013-14 ExideLife had paid Rs.24 crores towards the “Infrastructure facility charges” and Rs.6.46 crores under the heads such as Auditorium Charges, Car parking, Rent forCorporate office and utility charges for Corporate Office, etc (totalling Rs.30.46 crores) to its Corporate Agent M/s. ING Vysya Bank Ltd., which is nowmerged with Kotak Mahindra Bank (hereinafter referred to as “Corporate Agent/Bank”)in violation of Clause 21 of the Guidelines on Licensing of Corporate Agentsdated 14/7/2005 (hereinafter referred to as “Corporate Agency Guidelines”) andSection 40 A of Insurance Act, 1938 as the same exceeded the limit ofexpenditure on commission stipulated under Section 40A of the Insurance Act,1938.
2. As regards possible violation of Section 40 ofInsurance Act, the matter was referred to Adjudicating Officer appointed by theAuthority as per the provisions of Section 105 (C) of Insurance Act 1938 asamended from time to time. The Adjudicating Officer issued a Show Cause Noticethrough letter No. IRDAI/ADJ/ExideLife/001/2016-17/OTW/441 dated 5thApril, 2016 under Rule 4 of the Insurance (Procedure for Holding Inquiry byAdjudicating Officer) Rules, 2016 (hereinafter referred to as “AO Rules”) toExide Life.
3. Exide Life vide its letter dated 5th May,2016 submitted its response to the SCN and as per the request of Exide Life,the Adjudicating Officer granted a personal hearing in the matter on 17thJune, 2016.
4. The Adjudicating Officer submitted the inquiry reportalongwith recommendations to the Authority on 30/10/2017. The report was forwardedto Exide Life by the Authority on 9th November, 2017. Anopportunity for personal hearing by the Chairman, IRDAI was also offered. ExideLife vide its letter dated 10th November, 2017 stated that theAdjudicating Officer has observed in his report that there is no loss sufferedby the Policyholders, hence requested to condone the deviation and stated thatthey have no further submission to make on the report of Adjudicating Officer. The Insurer did not avail of the opportunity of personal hearing.
5. The Authority issued another letter dated July 30, 2018mentioning all the previous violations on the payouts to Corporate Agents byExide Life intimating that invoking provisions of Section 102 of Insurance Act,1938 is contemplated as penalty provisions of Section 40 (3) of Insurance Actare without prejudice to the provisions of Section 102 of the Insurance Act andallowed another opportunity of personal hearing in the matter.
6. ExideLife vide its letter dated 14th August, 2018 submitted its responseto the letter dated July 30, 2018 and also opted for Personal hearing, whichwas held by the undersigned on 30th August, 2018 at IRDAI office,Hyderabad. Mr. Kshitij Jain, CEO & MD, Mr. Anil Kumar C, CFO and Ms.Arpita Sen, CCO of Exide Life were present in the hearing. On behalf of theAuthority, Mr. V. Jayanth Kumar, CGM(Life), Mr. G.R. Surya Kumar, GM (EA to Chairman), Mr. Gautam Kumar, DGM (Life-Coordination), Ms. B. Padmaja, DGM (F&A-Life) and Ms. B. Aruna, Manager(Life-RA) were also present.
(i) Chargesunder SCN dated 5th April, 2016 by the Adjudication Officer
Under theprovisions of the Circular No. IRDA/F&I/CIR/F&A/066/03/2012 dated 2ndMarch, 2012, Exide Life submitted the details on the payments made to Agentsand intermediaries under Section 31 B of the Insurance Act, 1938 for thefinancial year 2013-14 vide its letter dated 21st May, 2014. Onexamining the information submitted by Exide Life, it was observed that anamount of Rs. 30.46 crore was paid by Exide Life to the Corporate Agent INGVysya Bank during the financial year 2013-14 towards “infrastructure facilitycharges” in addition to the commission.
(a)
(b)
(ii) Provisionsof Clause 21 of Corporate Agency Guidelines and Section 40 A of Insurance Act,1938:
Clause 21 of Corporate Agency Guidelines:
Section 40 A (1) of the Insurance Act, 1938:
(iii) Submissionsof Exide Life to the SCN:
(iv) Recommendationof Adjudicating Officer
While examiningwhether the payment of Infrastructure facility charges, over and above thecommission, by Exide Life to the Corporate Agent is in compliance with the provisionsof Section 40 A of Insurance Act, 1938 and Clause 21 of Corporate AgencyGuidelines, the Adjudicating Officer mentioned that Clause 21 categoricallyprohibits Insurer to pay any amount other than the permitted agency commission,whether as administration charges or reimbursement of expenses or profit commissionor in any other form the Corporate Agent, therefore, no other charges arepermitted in the Corporate Agency Guidelines and recommended the following:
“
(i)
(a)
(b)
(c)
(ii)
(iii)
(9) Analysisof the Response:
As per Clause 21 ofCorporate Agency Guidelines, Insurershall not pay any amount other than the permitted agency commission, whether asadministration charge or reimbursement of expenses or profit commission or inany other form to the corporate agent,except for reasonable expenses towards co-branding sales literature.
Withregard to the submission that the payouts are not repetitive it is observedthat the agreement entered between the Bank and Exide Life dated March 27, 2012is for ‘Facilities and Cost’ and the Annexure A of the Agreement shows thebroad nature of the facilities that would be provided by the Bank in agreementwith Exide Life. The payouts are made for the facility to assist “attending toconcerns or queries of the policyholders as per the service standards and normsprescribed by the Insurer (Exide Life) from time to time and/or redirect suchconcerns or queries to Insurer” as stated in the said agreement and do notpertain only for infrastructure costs as claimed by Exide Life. It is observedin this regard that the Bank as Corporate Agent of the Life Insurer hasresponsibility to attend to the queries from its policyholders withoutrequiring any payouts from the Life Insurer. The Agreement also contains thecost towards display of Exide Life advertisements on the Bank branch buildingswhich shall not exceed Rs. 50,000/- per the Bank branch location, unlessotherwise mutually agreed between the parties. It is observed that the Bank asCorporate Agent is one of the beneficiaries of these advertisements. Furtherthe Bank is not in the business of providing infrastructure facilities. Thus,the submissions that these contracts and payouts are not related to theCorporate Agent tie-up are not accepted and it is held that the payouts inquestion are in violation of Clause 21 of Corporate Agency Guidelines.
Furtherthe penalties already levied vide order dated 30/07/2012 were for similarviolations i.e. reimbursements made to the ING Vysya Bank in financial years2009-10 and 2010-11 for advertisements primarily aimed at building the brandimage of the company and towards setting up the sales kiosks, organizing theroad shows and customer awareness programs at different Bank locations.
Exide Life waspenalized for an amount of Rs. One lakh for the payouts made over and above thepermissible limits to Corporate Agents/Brokers under the heads marketingresearch activities during the financial year 2011-12 vide Authority’s Order No.IRDA/F&I/ORD/464.1/9/F&A/RDL-31B/2011-12/181 dated 11/12/2013 based onthe review of reports filed under Circular dated 2/3/2012.
Exide Life was alsopenalized for an amount of Rs. Two lakhs vide Order No. IRDA/F&A/ORD/MISC/185/11/2018dated 14/11/2018 for the payouts to ING Vysya Bank under the head ofInfrastructure facility charges during the FY 2012-13.
From the above it isclear that the violation of Clause 21 of IRDAI Corporate Agency Guidelines, 2005by the Exide Life is repetitive in nature. It is further seen that these largepayouts are being made repeatedly while Exide Life has not been able to complywith the expenses of management limits statutorily mandated in the respectiveyears.
Thus it is held thatpayout of Rs 24 Crs made by Exide Life towards the “Infrastructure facility charges” to its CorporateAgent during the FY 2013-14 is in violation of the said provisions of Clause 21of Corporate Agency Guidelines.
The provisions ofSection 105C read with Section 40 (3) of the Insurance Act are withoutprejudice to the provisions of Section 102 of the Insurance Act.
(10) Decision:
In view of theabove, in exercise of the powers conferred under Section 102 (b) of InsuranceAct, 1938, a penalty of Rs. 3 lakhs (Rs. three lakhs) is hereby imposed forrepeatedly violating during 2013-14 the provisions of Clause 21 of CorporateAgency Guidelines read with Section 40 A of Insurance Act, 1938. Further, ExideLife is directed to place this Order before the next meeting of the AuditCommittee of their Board and the next Board Meeting of Exide Life so that theBoard can take note of the violation and to take preventive action to avoidsuch violations in future. The Authority may be provided with copies of the minutesof those meetings.
11. Thepenalty amount of Rs. 3 lakhs (Rs. Three lakhs only) shall be remitted by ExideLife by debiting the Shareholders’ Account within a period of 45 days from thedate of issuance of this Order through NEFT/RTGS. An intimation of remittancemay be sent to Mr. V. Jayanth Kumar, Chief General Manager (Life) at theInsurance Regulatory and Development Authority of India, Survey No.115/1,Financial District, Nanakramguda, Hyderabad 500032, email id life@irda.gov.in
12. If Exide Life feels aggrieved by any of the decisions inthis Order, an appeal may be preferred to the Securities Appellate Tribunal asper Section 110 of the Insurance Act, 1938.
Place : Hyderabad (Dr. Subhash C. Khuntia)
Date : 15th November,2018 CHAIRMAN