IRDA has asked SBI Life to refund Rs275 crore for collecting premium upfront on a policy, which had two premium payment terms. But why did IRDA approve this product which was cleverly designed to earn hefty commission for SBI?
The Insurance Regulatory and Development Authority (IRDA) has ordered SBI Life to refund Rs275.29 crore to the policy holders as the money was collected from them in violation of norms.
The product had two premium payment term (PPT). Yet, in nearly 95% of the policies sold, SBI Life had collected the second year premium for its policy Dhanaraksha Plus Limited Premium Paying Term in the first year itself. What is worse, this policy was sold to those who availed of home loans from SBI and its associate banks during the period 2008-2011. The policy was intended to cover the outstanding loan in case of death of the policyholder during the term of the loan. As every one who has taken a mortgage in recent times knows, there is also an element of indirect coercion to take these policies to secure the borrowing.
SBI Life also had a single premium version of the product, but it did not provide an informed choice to the buyer. The reasons were simple. The single premium policy earned only 2% commission for intermediaries, which in this case was mainly SBI and its associate banks. The two PPT policy earned hefty 40% of the first year premium as commission and 7.5% of the second year premium as commission to banks which sold the policy. Clearly, the two PPT policy was bound to be much more expensive than the single premium policy if the commission levels have such huge difference.
It can be concluded that SBI and its associated banks did not act in best of customer interest by offering a cheaper option. SBI Life crafted a product with two PPT which could not have been for customer convenience. It would have been justified if the PPT was for two-thirds or at least half of the loan repayment period. In that case, there is respite to the customer in having flexibility to pay premium over a period of time. But, what is the advantage of two PPT versus single premium for customer? It is disadvantageous as the premium paid over two years would be higher than single premium due to inbuilt humongous difference in commission levels.
So, why did IRDA permit the two PPT toxic product to be launched at all? Did the regulator fail to anticipate that the product was structured to be mis-sold and is completely against customer interest? While IRDA may seem to have helped investors by asking for the premium to be refunded, this is a fit case for holding the regulator itself accountable. In fact this would also be a fit case for class action, both against SBI Life as well as the regulator.
Did IRDA expect that the consumers can easily find out that single premium option was available? Approving a toxic product can remind one of ULIPs before September 2013 which even had high upfront charges of up to 70% and mind-boggling surrender charges.
Getting a loan application approved itself is a task and the customer is at mercy of the bank which ensures that the customer accepts whatever loan and property insurance is offered. Any resentment from the consumer can even be deal breaker for loan application. It can be seen from the fact that 93% of second year premiums were received in advance along with first year premiums in the year 2008-09, 94% in the year 2009-10 and 97% in 2010-11. Thus the premium collected is more on lines of a single premium than two yearly regular premiums against the approved File and Use features.
Making the two PPT product work as single premium by taking the second year premium upfront is a violation of approved File and Use features, but the insurer may argue that paying second year premium in advance was allowed by IRDA till 2013. But, SBI Life cannot be exonerated from its culpability to offer toxic insurance product; it casts a shadow over other life insurance products offered by the insurer.
IRDA order states the following issues (a) Dhanaraksha Plus Limited Premium Paying Term product was sold as single premium policy in violation of approved File and Use features, (b) Paying excess commission to Corporate Agents over and above the eligible 2% commission they would have been otherwise eligible had the single premium version of the policy been offered. (c) No informed choice given to the members of these group insurance policies as envisaged under Regulation 3(2) and 3(3) of IRDA (Protection of Policyholders’ Interests) Regulations, 2002. Thus it is concluded that these violations were detrimental to the interests of members of group insurance schemes of the concerned master policyholders.
SBI Life will be appealing against the IRDA order as per the recourse available to them.
Voters should involve more in the electoral process right from the selection of candidates by political parties to make the need to use NOTA button redundant
The promise to raise health spend to 3% of gross domestic product (GDP) from the present low of 1.2%, which is a likely priority in the Congress manifesto should be welcomed. However, an offer coming from a political party that was at the helm for over 65 years, during which period, the record of steps taken to apply the Directive Principles of State Policy enshrined in the Constitution (Articles 36 to 51), including Article 47 relating to ‘raising the level of nutrition and the standard of living and to improve public health’ will undergo credibility-test at the hustings (political campaigns).
The impact on the aam aadmi such offers will have, encouraging him to improve his awareness about his rights and government’s duties, may, itself work as a change agent. Viewed from this perspective, other political parties should follow Congress in selective highlighting of citizen’s rights and duties. After all, like Directive Principles, as of now, election promises are also ‘not enforceable by any court’.
By creating more awareness among people about expectations of the authors of Indian Constitution, from the governments, political parties will be doing a great service to themselves and the country. Such a shift in the thematic content of election campaign will make Elections 2014 different from the previous ones. Who knows, it may even pave the way for a national consensus on crucial issues making the kind of the unhappy scenes the closing ceremonies of last Lok Sabha telecast to the world viewers a thing of the past.
This discussion can be taken further. In my article How much of Indian Constitution is for ‘We, the people’? I had quoted Arvind Kejriwal saying: “There are some fundamental issues which we are committed to and are non-negotiable- secularism, equality and non-violence. All that has been written in the preamble of the Constitution that is our basic agenda.”
Time is opportune to recall this and see what thoughts should prevail upon the Indian voter before exercising his franchise in Elections 2014, even if, in certain situations he may opt for the last option, namely, pressing the none of the above (NOTA) button.
That takes us back to the pre-election propaganda and manifestos of political parties. The churning in the political scenario, partly caused by the Aam Aadmi Party (AAP) rise, is forcing the Indian voter think more seriously about his rights and government’s responsibilities.
True, this country’s problems, from day one, post-independence, can be sourced to centralisation of power and resources. It does not start or end with government or governance.
Our Constitution gives enough flexibility in governance and the clarity of guidance for handling almost everything coming under the broad responsibilities of legislature, executive and judiciary is perhaps unique to the Indian Constitution. Perhaps, if the political leadership in whose hands the responsibility of administering the Constitution vests revisit the Constitution with the promises made by several candidates who fought past elections and their achievements as also the possible realignment of priorities in promises needed in the context of the recent political developments, it may still be possible to bring some clarity in the minds of the bewildered voters.
The issues covered in entire chapter on Directive Principles, mutatis mutandis, are suggested for acceptance for inclusion in election speeches/manifestos.
Several areas of social justice such as gender equality, right to an adequate means of livelihood, distributive justice, healthcare, avoidance of child labour, protection for vulnerable sections of society against exploitation and abandonment, equal justice, free legal aid for the needy, organisation of village panchayats, right to work, right to education, public assistance in cases of unemployment, old age, sickness and disablement, just and humane conditions of work and maternity relief, living wage and decent standard of life for workers, promotion of cottage industries, workers’ participation in management, uniform civil code for the citizens, provision for childhood care and education to children below six years, support to scheduled castes and scheduled tribes and weaker sections of society, raising the level of nutrition and the standard of living of the people, improvement in public health, modernising agriculture and animal husbandry, protecting environment, protection for monuments and places and objects of national importance, separation of judiciary and executive and promotion of international peace and security are all covered under directive principles of state policy.
(Articles-39 to 51).
Preamble of the Constitution reads:
“WE THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a sovereign socialist secular democratic republic and to secure to all its citizens:
JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and worship;
EQUALITY of status and of opportunity;
And to promote among them all
FRATERNITY assuring the dignity of the individual and the unity and integrity of the nation;
IN OUR CONSTITUENT ASSEMBLY this twenty-sixth day of November, 1949, do HEREBY ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION”
This has placed the responsibility of ensuring that right choices are made when the right to vote is exercised squarely on the citizen. Thus, voters should involve more in the electoral process right from the selection of candidates by political parties, making the need to use NOTA button redundant!
(MG Warrier is former general manager of Reserve Bank of India.)
Over the past 10 years, Maharashtra and Mumbai police never applied for any permission from the Speaker to prosecute any MLAs for any offence, reveals an RTI
Investigative agencies in Maharashtra have to seek permission of the Speaker if it wants to prosecute any member of Legislative Assembly (MLA) for an offence. It has come to notice now that over the past 10 years, neither Maharashtra nor Mumbai police have ever applied for permission from the Speaker to prosecute an MLA! This information has been revealed in a reply to a query filed by Right to Information (RTI) activist Anil Galgali.
As per media reports, former commissioner Dr Satyapal Singh had announced that the Mumbai Police has sought permission from the Speaker to prosecute MLA and former minister of state for home, Kripashankar Singh in a disproportionate assets case filed some time back. However, according to the RTI reply, received by Galgali, there was no such correspondence in this case.
Galgali said many times, police claims that they are waiting for a reply from the Speaker on their application and once it is received, they would proceed with prosecution of public representatives.
In his RTI application, Galgali requested the Speaker’s office to provide info about the number of cases in which the police has sought permission to prosecute a public representative.
In the reply to the query, Umesh Shinde, desk officer at the Maharashtra Legislative Secretariat informed that – “Nil - Permissions were sought.” Galgali also sought to know what kind of proposals for sanctions to prosecute are needed to be sent to the Speaker, and which cases do not require permission of Speaker to prosecute any MLA. In the reply to this query also was given as “Nil.”
This is contrary to claims often made by police about prosecuting MLAs.
Anil Galgali had sought information on the same subject from Mumbai and Maharashtra Police also. In reply to the query, ACP (Coordination), Mumbai Police said that they have transferred and referred the query to Maharashtra Legislative Secretariat. On behalf of Maharashtra Police, its Public Information Officer DD Phadke replied that they have no records of the information sought. It is significant to note here that as per a survey by an NGO almost 146 MLA's & 26 MP's have criminal records in Maharashtra.
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