SBI Life had allegedly violated IRDAI norms by paying excess commission (47.5%) to SBI and its subsidiary.
IRDAI has rejected a plea made by SBI Life insurance regarding an earlier order to refund Rs. 275 crore to beneficiaries of group insurance policy members for allegedly flouting IRDAI norms relating to payment of money to agents.
Last year, IRDAI found that the company had collected second year’s premium upfront along with the first year premium from the beneficiaries of a group policy called Dhanaraksha Plus Limited Premium Paying Term (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.
Typically, single premium policies are cheaper than regular premium policies for policyholders as premium and commission structure of former are very low. Such policies offer commission of only 2% as against commission of up to 40% in first year and up to 7.5% in second year under regular policies.
IRDAI 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 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 a commission of only 2%, said IRDAI.
Under the DPLPPT, SBI Life had collected close to Rs. 626 crore in three years from 2008 to 2011. The regulator had asked the company to refund at least 44% or Rs. 275 crore of collected premiums to the beneficiaries of the group insurance policy.
IRDAI has directed SBI Life to submit a compliance report in this regard within 45 days.
Earlier, IRDA had imposed a fine of Rs. 5 lakh on SBI Life for this violation.