Murky cover: Chain-selling of insurance products thrives despite IRDA restrictions

In the absence of any clear-cut guidelines from the regulator or the government, insurance products are being sold under MLM schemes

Insurance products are being sold under multi-level marketing (MLM) schemes by constantly luring unaware clients. However, the regulator, the Insurance Regulatory and Development Authority (IRDA), is busy fighting a turf war with market regulator Securities and Exchange Board of India (SEBI), giving a free hand to these dubious, fly-by-night operators.

In the absence of any clear-cut guidelines from the insurance regulator or the government, MLM schemes are being used to peddle insurance. IRDA, the industry association and the government don’t seem to have the time to look into these murky chain-marketing schemes.

According to Section (42) of the Insurance Act, 1938, appointing sub-agents and passing on commission or kickbacks is prohibited. In an email to Moneylife, IRDA's executive director A Giridhar said, “Selling insurance through unlicensed persons is illegal and we will act on the information provided by you.” In addition, IRDA certification is mandatory for selling insurance products.

However, peddlers of MLM schemes in insurance products are coming up with new ways to cover up their shady activities. One such company is Team Life Care Co India Pvt Ltd, a corporate agent of Bajaj Allianz Life Insurance Company Ltd. (read more

Despite clear evidence of an MLM scheme being used to sell its products, Bajaj Allianz denies the very existence of such operations. Santosh Balan, head, corporate communications, said, “Bajaj Allianz General Insurance solicits business only through approved and specified persons. All our agents are strictly advised to follow all regulations and procedures while soliciting business. If we find anyone violating any norm or regulations, we will take strict action against them."

There are two different views on using MLM to sell insurance products. While the regulator clearly says that selling insurance through unlicensed persons is illegal, the Life Insurance Council is not sure about it. Earlier, SB Mathur, secretary general of the Life Insurance Council told Moneylife, ”There are a couple of insurance companies that have a multi-level set-up, who have licensed agents and who use authorised people to sell products and some of them are doing a good job. But IRDA is quite alive to this and has recently taken some steps to ensure that MLM is not misused.”

“If there is an MLM structure where the company has a number of authorised representatives to sell insurance to people who are buying policies, then an MLM scheme could give strength of distribution. If there are no licensed representatives selling insurance, then it (the company) should be denied the right to sell. It is as simple as that,” said Mr Mathur, who is former chairman of the Life Insurance Corporation of India (LIC).

Here is seems that Mr Mathur, a veteran in insurance, is just looking at the ‘sales’ side of these MLM schemes. From his statement it appears that he may not be aware about the fraudulent ways in which an MLM scheme works. All companies in the MLM field form a pyramid structure wherein the agent, business partner, distributor or salesman, whatever you call him, gets in new recruits, who in turn also recruits new people and it goes on to form a chain. Unfortunately, this chain structure is not a straight one. The new recruits are divided into binary or spill lines. Here the whole MLM edifice can come crumbling down.{break}

For example, if you join an MLM scheme, you are required to get two more people under you. Similarly, these two people also have to recruit two people each under them and after that your structure becomes complete and you are eligible to receive some income. However, in case one person from your team fails to recruit two people under his line then your structure remains incomplete and you may not receive a single penny as income. What is stunning is that depending on the MLM scheme, people who had joined under your line may be diverted to someone else’s line, if your line remains inactive or does not recruit more people. This is why so many people have lost or are losing huge amounts of money under MLM.

Moneylife has been writing on the rampant use of MLM for selling insurance products by insurers. Insurers like LIC, Bajaj Allianz, Reliance General Insurance or their agents are running MLM schemes for selling more policies. Nevertheless, nobody except Bajaj Allianz bothered to reply to our mails until writing this story.

In addition, insurance companies are also targeting independent financial advisors (IFAs) with lucrative offers for referring their high net-worth clients for various insurance products. A few IFAs have told Moneylife that they would rather stay away from such proposals, as they value a long-term client relationship more than the prospect of a quick buck.  

Earlier writing in, S Ananth, who has been studying chain schemes in Andhra Pradesh, in an article titled ‘Harmless fraud’ says, “A clear-cut case of violation of the laws relates to schemes that distribute insurance policies on behalf of various private insurance companies. Any person desirous of marketing insurance policies has to pass an exam conducted by IRDA. Only corporate agents or brokers (registered with IRDA) are allowed to pay commissions.

Companies actively involved in marketing insurance schemes include TLC Insurance (India) Pvt Ltd (TLC), RMP and Amway, among others. These details indicate the nature of harmless fraud and also the frequent testing of the frontiers of economic law by such companies in order to gauge the reaction of the agencies of the State. The lack of reaction by State institutions, or even tacit approval, is likely to gradually lead to calls to formalise these activities at a future date.”

IRDA, whose job is to regulate the insurance sector, is saying that it is looking into MLM schemes used by insurance companies to promote sales. However, in practice, the regulator is turning a blind eye on MLM operators and insurance companies. Similarly, the industry association is not sure whether to call MLM unauthorised or not. Nevertheless, the way both MLM companies and insurers are operating, there are good chances that MLM in insurance may be legalised.

About a dozen countries have banned any kind of MLM scheme. However, in a country like India, in the absence of any clear policy and regulation, companies that can fix the system by roping in influential officials thrive and grow till complaints start flowing in. However, this happens only when the MLM scheme is getting ready to collapse. Whether the rampant selling of insurance through MLM will be banned or legalised in India, only time will tell.



chandan kumar

5 years ago

so much happenings in the country, then why dont govt. make some regulatory to stop luring the innocent people


6 years ago


prakash anveri

6 years ago

i requested you sir please display our policy location and chain support stage

Tapas Chakraborty

6 years ago

The is a menace that has developed due to the apathy of the regulator to restrict such business structure and none punishment of the insurance companies for patronising such schemes. The MLM schemes are rampant in the small towns, semi-urban and rural areas

Cluster development sounds good on paper, but where is the space in Mumbai?

Does Mumbai have enough space to accommodate incentive FSI development granted by the government for cluster developments? The numbers just don’t add up

The government of Maharashtra has granted different percentages of incentive floor space index (FSI) for various ranges of amalgamated plots that will be used for cluster development. Cluster development allows redevelopment of old cessed buildings which have been constructed prior to 30 September 1969 and which have a built-up area of up to 2,000 sq mt. There’s an FSI of 4 for cluster development of amalgamated plots.

According to Section 37(2) of the Maharashtra Regional & Town Planning Act, 1966, these incentive FSI numbers will be granted for cluster development for the following size of amalgamated plots:

• Where the total area of amalgamated plot is between 4,000 sq mt-8,000 sq mt, the incentive FSI admissible will be 55%
• Where the total area of amalgamated plot is between 8,001 sq mt-12,000 sq mt, the incentive FSI admissible will be 65%
• Where the total area of amalgamated plot is between 12,001 sq mt-16,000 sq mt, the incentive FSI admissible will be 70%
• Where the total area of amalgamated plot is between 16,001 sq mt-20,000 sq mt, the incentive FSI admissible will be 55%
• Where the total area of amalgamated plot is more than 20,000 sq mt, the incentive FSI admissible will be 80%.

There are 16,000 cessed buildings in Mumbai and the government is targeting 20 years to complete the re-development of these structures. “You have to develop 800 buildings per year to meet the target. Each re-development takes at least three years-four years for completion. Around 2,500 buildings have to be re-developed at one time which will create chaos,” said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.
Most of these cessed buildings which have been earmarked for re-development are located in the congested southern part of the city where there is hardly any place to park an automobile. The government has allowed incentive FSI in those areas which are already crowded—like Bhuleshwar and Kalbadevi in south Mumbai.


OVL, IOC and OIL sign agreement for Venezuelan oilfield

OVL will hold 11% stake while IOC and OIL will each have 3.5% interest in the joint venture firm

India’s flagship overseas explorer ONGC Videsh Ltd (OVL) and its partners have signed an agreement to develop a $20 billion oil project in Venezuela that will give energy-deficient India 3.6 million tonnes a year of crude, reports PTI.

On May 12, OVL and its partners inked an agreement with Venezuelan national oil firm Petroleos de Venezuela SA (PdV) for the development and production of hydrocarbons from the Carabobo project in the Orinoco region of Venezuela.

The joint venture agreement was signed in Caracas at a ceremony attended by the President of Venezuela, Hugo Chavez Frias, a statement by Indian Oil Corporation (IOC), a member of the consortium said.

Spain's Repsol-YPF SA, Petroliam Nasional Bhd (Petronas) of Malaysia and OVL, the overseas investment arm of state-run Oil and Natural Gas Corporation (ONGC), each hold an 11% stake in the consortium that will produce 400,000 barrels of oil per day.

IOC and Oil India (OIL) will each have 3.5% interest in the joint venture firm to develop the Carabobo 1 Norte and Carabobo 1 Centro blocks (collectively called Carabobo-1), located in the Orinoco Heavy Oil Belt.

The Corporacion Venezolana del Petroleo (CVP), a unit of PdV, Venezuela's state oil company, will hold the remaining 60% equity. About half of the production from the joint venture, called PetroCarabobo SA, will be upgraded into light crude oil for export.

"The project costs are estimated at $15-$20 billion and is one of India's major investments in Latin America," the statement said. The joint venture company has a licence term of 25 years, with the potential for a further 15-year extension, to extract oil.

After the signing ceremony, India’s oil minister Murli Deora met Chavez to explore the possibility of sourcing Venezuelan crude for new refinery capacities coming up in India.

"Discussions were also held on the possibility of award of the Junin Norte block, where new oil reserves are being certified by OVL (to Indian firms)," the statement said.

The Indian firms will together invest $2.181 billion in the 400,000 bpd project between 2010 and 2015. Of this, OVL will invest $1.333 billion, while IOC and OIL will invest $454 million each.

Early output of at least 50,000 bpd is slated to start in 2012-13, before rising to its peak in 2016.

The project cost includes $12.8 billion for constructing a heavy crude upgrader that can turn Orinoco's tar-like oil into valuable synthetic crude. The 200,000-bpd upgrader may be built at Soledad, in Anzoategui state, to make synthetic crude of 32 degree API or higher by 2015-16.

Venezuela had offered seven blocks in the Carabobo area, with combined oil-in-place estimated at around 128 billion barrels. The blocks were grouped into three projects, with each project expected to produce a plateau of 400,000 barrels of 8 degree API oil per day for 40 years.

Of the three projects put up for auction, bids were received for only two—one by the consortium led by the Indians and the other by Chevron Corp of US.

The companies were required to pay a minimum signing bonus of $500 million to access the reserves and provide a $1 billion loan to PdV to begin operations.

In February, the Indian trio won the right to develop the Carabobo-1 project along with Repsol-YPF and Petronas after committing themselves to pay a signing amount of $1.05 billion and making an equivalent amount available to Venezuela's state-run PdV as a loan.

The Carabobo projects, along with similar ventures with Italy's Eni SpA, China National Petroleum Corp and a group of Russian companies in the neighbouring Junin field, are central to Venezuela's plans to boost waning oil output by 2.9 million barrels a day by 2017.

Financing for the blocks will be covered 30% through international loans, 40% from the minority partners and the remaining 30% from initial output.

The Carabobo area, located in the eastern section of the Faja, has a massive resource potential and is part of an extensive reserve certification process led by PDVSA. The US Geological Survey, in a recent report, has estimated the mean volume of recoverable heavy oil in Faja to be as high as 513 billion barrels, which is one of the few global opportunities open to private investment.


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