Chennai, Feb 21 (IANS) Directing private life insurer SBI Life Insurance Company Ltd. to refund excess commission of Rs.275.29 crore to policy holders, the Indian insurance regulator Friday reiterated that it has necessary powers to pass such an order under the Insurance Act.
In a letter to SBI Life, the chairman of Insurance Regulatory and Development Authority of India (IRDAI) T.S. Vijayan directed the insurer to implement its March 2014 order to refund Rs.275.29 crore of excess commission to the policy holders.
The SBI Life is a 74:26 joint venture between State Bank of India (SBI) and BNP Paribas Cardif of France.
Throwing out the contention of the private life insurer that the regulator does not have the power to issue directions, the IRDAI said Section 34 of the Insurance Act enables it to issue directions to any insurer to prevent actions that are detrimental to the interests of policy holders.
With regard to SBI Life’s contention that the regulator’s assumption that excess commission would be charged from the policy holders was erroneous, Vijayan said it lacked the logic of prudent business principles.
“It is the fundamentals of the business of life insurance that any expense/outgo would be loaded in the costs (read premiums). Therefore, the views of insurer are not acceptable,” Vijayan told SBI Life’s managing director and CEO Arjit Basu in the letter.
A copy of the letter was uploaded in IRDAI’s website late Friday.
Last March, IRDAI ordered SBI Life to refund Rs.275.29 crore excess commission collected to holders of Dhanaraksha Plus Limited Premium Paying Term policy.
SBI Life’s policy in question has two premium payment options – single premium and two-year premium paying plan.
In the case of single premium policy, the premium for the entire policy period is collected upfront. The commission paid on that cannot be more than two percent as per the Insurance Act.
On the other hand, the premium under the two-year premium paying plan is slightly higher and the commission rate is 40 percent on the first year premium and 7.5 percent on the second year premium.
According to IRDAI, SBI Life’s corporate agents mostly State Bank of India and its associate banks did not reveal to the policy holders the availability of single premium option.
The corporate agents sold the two-year premium payment plans. They collected the premium for two years in advance. This is done mainly to pocket 40 percent commission on the first year premium and 7.5 percent on the second year premium.
The IRDAI found out this practice during its onsite inspection of SBI Life’s books.