IRDA comes down heavily on SBI Life for collecting second year premium upfront along with the first year premium in a policy called Dhanaraksha Plus Limited Premium Paying Term.
IRDA has asked SBI Life to refund Rs.275 crore to the beneficiaries of a group policy called Dhanaraksha Plus Limited Premium Paying Term (DPLPPT) for allegedly violating various norms.
The insurance regulator has asked SBI Life to distribute the excess commission paid to its corporate agents under the scheme to the beneficiaries of DPLPPT. IRDA has instructed the company to refund the amount to policyholders within in six months.
In a circular, IRDA said that it has found that the company had collected second year’s premium upfront along with the first year premium from the beneficiaries of DPLPPT which is against the File and Use norms. Though the company too offered single premium policy of DPLPPT, it sold regular policy and collected premium more on lines of a single premium than two yearly regular premium.
“Whereas the Authority, having noticed that the Life Insurer has a single premium version of the product, viewed that when a policy holder was prepared to pay both the years’ premium upfront, the Life Insurer should have offered single premium policy that offers the same benefits. The regulator already made it clear that there was no informed choice to the members of the group,” said IRDA.
Typically, single premium policies are cheaper than regular premium policies for policyholders as premium and commission structure of former are very low. In addition, the group single premium policies offer commission of only 2% as against commission of up to 40% in first year and up to 7.5% in second year of regular policies.
IRDA noticed that 93% of second year premiums were received in advance along with first year premium in the year 2008-09, 94% in 2009-10 and 97% in 2010-11.
Surprisingly, a whopping 99.99% of total premium collected under DPLPPT was sourced through corporate agents particularly SBI bank and its subsidiaries. The company had disbursed commission 47.5% (40% for first year premium and 7.5% second year premium) of collected premium through the policy instead of channeling it through single premium policy which offers commission of only 2%, said IRDA.
Under the DPLPPT, SBI Life had collected close to Rs. 626 crore in three years from 2008 to 2011. The regulator has asked the company to refund at least 44% or Rs. 275 crore of collected premiums to the beneficiaries of the group insurance policy.
Earlier, IRDA had imposed a fine of Rs. 5 lakh on SBI Life for this violation. According to some media reports, SBI Life is planning to contest against IRDA’s order in court.