SBI Life Insurance fined Rs 1 crore for regulatory violations; Irdai asks insurer to adhere to rules to settle death claims
Sep 9, 2024
Synopsis
SBI Life Insurance has been fined Rs 1 crore by the Insurance Regulatory and Development Authority of India (Irdai) for violating regulations related to outsourcing, insurance web aggregators. The insurer was found to have engaged with web aggregators without clear agreements specifying services and fees, failed to report outsourcing payments, and repudiated claims beyond the three-year period.
The Insurance Regulatory and Development Authority of India (Irdai) has imposed a penalty of Rs 1 crore on SBI Life Insurance for violating various regulations related to dealings with insurance web aggregators and outsourcing activities. The insurance regulator has also issued an advisory to the life insurance company for repudiating multiple insurance claims.
SBI Life Insurance fined Rs 1 crore for violating outsourcing, web-aggregator regulations
The insurer was found to have engaged with web aggregators without clearly outlining the services provided and the corresponding fees, according to the Irdai order. Additionally, it neglected to report outsourcing payments to the regulator as mandated.
The Irdai's inspection revealed that the insurer had engaged with several web aggregators, including Policybazaar, MIC Insurance, Compare Policy, Easypolicy, and Wishfin. While the insurer claimed to have outsourced post-sale activities like premium reminders and policy service assistance, the agreements lacked specific details on the services provided and the basis for the per-seat per-month payment structure.
The regulator also found that the insurer paid Rs 1.93 crore to Extent Marketing and Technologies Pvt. Ltd. during 2017-18 and 2018-19. Despite being obligated to report these payments, the insurer failed to do so. The vendor was found to have no infrastructure of its own and relied heavily on outsourcing, with 95% of its revenue being transferred to third parties.
The Irdai concluded that the insurer's outsourcing arrangements violated regulations regarding conflict of interest, transparency, and due diligence. The insurer was also found to have paid unreasonable fees to the web aggregators.
The Irdai has directed the insurer to establish a comprehensive outsourcing policy that aligns with current regulations and guidelines. Furthermore, the insurer is required to present the Irdai's order to its board for a review of the effectiveness of its systems and processes related to outsourcing transactions and conflict resolution.
Adhere to Section 45 of the Insurance Act to settle death claims: Irdai tells SBI Life Insurance
Another issue was related to death claim processing where Irdai cautioned SBI Life Insurer to strictly follow the provisions of Section 45 of the Insurance Act, 1938. According to the observation of the inspection by the Irdai, SBI Life Insurance was found to have repudiated 21 insurance claims on the grounds of non-disclosure or death occurring within three years of policy issuance. However, Irdai's inspection revealed that the insurer had not provided sufficient evidence to support its claims.
In another case, the insurer submitted that the death occurred within three years of policy issuance but was reported after the three-year period. "In case of 17 other cases, the insurer stated that they have repudiated the claims as the date of death was within three years of policy issuance," according to the Irdai order.
The insurer argued that it had followed the Irdai's circular dated October 28, 2015, "they had been following the practice of repudiating the claims wherein the fraud was established and the date of death was within 3 years of the risk commencement date or date of issuance of the policy or date of the rider of the policy, whichever is later."
However, the Irdai found that the insurer had settled 86 claims, totalling Rs 10.21 crore (Rs 5.78 crore claim amount & penal interest of Rs 4.43 crore).
The Irdai has directed SBI Life Insurance to adhere to the provisions of Section 45 of the Insurance Act, 1938 while settling the death claims. The insurer has been instructed to ensure that all future claims are settled in accordance with the law. According to Section 45 of the Insurance Act, 1938: No policy of life insurance shall be called in question on any ground whatsoever after the expiry of three years from the date of the policy, i.e., from the date of issuance of the policy or the date of commencement of risk or the date of revival of the policy or the date of the rider to the policy, whichever is later.
The Irdai's action against the insurer is a significant step towards protecting the interests of policyholders and ensuring that insurers adhere to the regulatory framework. This case highlights the importance of insurers providing clear and transparent explanations for claim denials.
SBI Life Insurance cautioned for selling insurance policies after withdrawal
Irdai also cautioned insurers for selling insurance policies after the withdrawal of the product and advised them to adhere to the extant regulations in this regard. According to the order: "There were a sample of seven instances where the proposal form was filled and subsequently policy issuance of insurance product was materialised after the date of withdrawal. Further, the proposal form of policy number 45462486210 was filled out on 17th November 2017. However, the insurance product SBI Life — Smart Shield (UIN: 111N067V04) was launched on 20th November 2017. Therefore, the filling of the proposal was done before the launch of the product.
"Hence it is concluded that the insurer has sold insurance products after the withdrawal date / before the launch date. Further, the insurer has also failed to ensure suitable infrastructure requirements before the launch of new products and after the withdrawal of existing products," the regulator said.
The insurer submitted, "At the time of the vesting of Pension Policy no. 8001898504, SBI Life Annuity Plus version (UIN - 111N083V05) was in existence. Therefore, in order to maintain continuity from the vesting date in accordance with the approved terms of conditions SBI Life - Unit Plus 3 Pension product, annuity policy had been issued under an earlier version of the Product. Besides, they submitted that they have now streamlined the system to prohibit data entry after withdrawal."
[The Economic Times]
