Insurance
Personal Finance Exclusive
Why SBI Life is defiant on paying Rs275 crore penalty imposed by IRDAI
IRDAI has rejected SBI Life representation for a stiff penalty of Rs275 crore levied in March 2014. The order smells of SBI Life defiance about not charging more than what IRDAI approved as well as questioning the regulator’s powers to make penalty demand
 
In March 2014, Insurance Regulatory and Development Authority of India (IRDAI) had ordered SBI Life Insurance to refund Rs275.29 crore to the policyholders as the money was collected from them in violation of norms. IRDAI order specifies violations regarding misrepresenting the nature of the policy, paying excess commission to corporate agents and not providing buyers with an informed choice. In 2012, the regulator had imposed a paltry penalty of Rs5 lakh. However, with subsequent investigation to find how much the consumers paid for mis-selling the product to  earn hefty commissions, the regulator put a penalty of Rs275 crore. (Please read here )
 
Dhanaraksha Plus Limited Premium Paying Term product had two premium payment term (PPT).  Yet, in nearly 95% of the policies sold, SBI Life had collected the second year premium of its policy 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 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 everyone 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.
 
However, why did IRDAI approve this faulty product, which was cleverly designed to earn hefty commission for SBI? An approved product will be sold by the insurer to the best of their business interest irrespective of whether it is in best consumer interest or not. If IRDAI does not get it, then it is barking up a wrong tree. The latest IRDAI order harps on SBI Life giving no informed choice to customers and collecting two premiums upfront that is detrimental to the interests of the policy holders. How about IRDAI investigating the personnel and process, which approved the toxic product option of two PPT to earn hefty commission? Did IRDAI expect SBI Life to try and sell single premium option to earn paltry commission instead of the lucrative two PPT option? No wonder 99.99% of the business from this product by SBI Life was with two PPT.
 
During representation since the March 2014 order, SBI Life asserted that they neither conducted their business in a manner that is detrimental to themselves (i.e. SBI Life) nor was it detrimental to the interests of the policyholders. It is ridiculous that SBI Life has to even say that they did not do business detrimental to own interest, as no one can expect it to do so. It is arrogant to even suggest that it has done nothing wrong for the policyholder’s interest. After all, they just sold the IRDAI approved product, right? 
 
The second argument was exactly the same with the assertion that no excess commission was paid to the Corporate Agents. It is true considering that IRDAI approved the product of two PPT and allowed such hefty commissions, when compared to the single premium option. Hence, there was nothing paid more than what was allowed by the regulator. SBI Life has rightly pushed the ball back to regulators court.
 
The third argument is in the life insurer’s submissions that the receipt of advance premiums was in 93% cases in the year 2008-09, 94% in 2009-10 and 97% in 2011, while in the rest of the cases the policyholders paid premiums in two separate instalments. This is an indication of the availability of an informed choice to all the policyholders. These submissions are absurd considering that it does not substantiate why single premium cheaper option was not offered to consumer, which led to 99.99% of products sold with two PPT expensive option? SBI Life suggesting that 3% to 7% of those who opted for two PPT really paid two premiums (instead of paying full amount in advance) indicating the availability of the option, is deflecting attention from the core issue of not selling the single premium option. 
 
The biggest snub from SBI Life is telling the Authority that they do not have the powers under Section 34 (1) (b) of the Act to issue directions as the nature of directions contemplated in the section are preventive and prospective nature.
 
IRDAI is showing that it is trying to protect the consumer interest without revealing that they did blunder in approving a toxic product. SBI Life is trying to show it complied with the product and just did its business as usual. After all, they are in business to make money and selling an approved product is a given. It seems to be a futile exercise that may give no relief for consumers. We hope we are wrong on this one. 

 

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COMMENTS

Dayananda Kamath k

2 years ago

Why IRDA has not imposed a penalty on SBI which sold the policy. Long back I have made a complaint about SBI credit card debiting card insurance premiume without my consent and charging me interest for refusing to pay the same. My complaint to Banking ombudsman delhi who is more interested in protecting bankers interest than clients with his various judgements has not given any hearing or order till date may be after more than 7 years. And irda is still worst they said it comes under jurisdiction of RBI. then i have to inform them if IRDA itself is not sure of its domain How it will regulate. But still no action taken.

manoharlalsharma

2 years ago

it is a clash between Government V/S Government so nothing will come out just a PUBLIC eyewash.

manoharlalsharma

2 years ago

it is a clash between Government V/S Government so nothing will come out just a PUBLIC eyewash.

REPLY

Babubhai Vaghela

In Reply to manoharlalsharma 2 years ago

Fait Accompli may be acceptable to the people who do not wish to exercise their democratic rights; refuse to obey Constitutional Duty and treat themselves absolutely helpless.

SUNIL MORE

2 years ago

SBI LIFe names sound PSU like organisation but behaves like any PVT organisation which loots money of customer for there own corporate agent's sake
and argue like psu company where refund is like nightmare for looted money, in this IRDA role is also became suspicion after aproval of such product that if they really work in the interest of customer where the design itself look like to loot customer

Pradeep R Hattangadi

2 years ago

With both IRDA and SBI Life sticking to their respective stands it is ultimately the consumer that has lost and there seems to be no respite in this. Regulators should also be penalised for their lapses.

REPLY

Babubhai Vaghela

In Reply to Pradeep R Hattangadi 2 years ago

It is Union Minister Mr Arun Jaitley who is required to do. Filing complaint against SBI, IRDAI & Union Minister with CVC should help push the matter.

Babubhai Vaghela

2 years ago

FIR against Mrs Arundhati Bhattacharya Chairperson SBI is overdue.

Private sector will not kick-start investment cycle, says CRISIL
Promulgating ordinances, while showing the Narendra Modi government’s positive intent, are not enough for corporates and investors to commit big money, says the ratings agency
 
Debottlenecking steps taken by the new government at the Centre and tailwinds from the crash in crude oil prices have infused sanguinity into the economy, even pushing growth up mildly. In addition, with inflation hovering inside the Reserve Bank of India’s (RBI) target and current account deficit reined in, India is truly a bright spot among emerging markets. However, ratings agency CRISIL says domestic investments are not forthcoming.
 
"Without an upturn in capital investments, without job creation, without putting more money in people’s hands, and without expanding capacities to meet future demand, it is hard to see the current pace of economic growth increasing and sustaining. Promulgating ordinances, while showing the government’s positive intent, are not enough for corporates and investors to commit big money. The prognosis, thus, is clear. It is time to facilitate a revival in the investment cycle," the ratings agency said. 
 
CRISIL's survey of 192 listed, public and private sector companies -- from key sectors such as infrastructure, energy, metals, cement, auto, pharma and textiles -- showed a 4% decline in capex plans for 2015-16. Even more bothersome was an 11% year-on-year decline in the capex plans of private sector companies polled.  Notably, this will follow already subdued spending expected in 2014-15, it said in a report.
 
 
“If there is one thing corporates are looking for, it is better visibility in terms of a sharp improvement in demand. This seems to be the real reason behind the hesitation to commit larger monies,” says Prasad Koparkar, Senior Director, CRISIL Research.
 
CRISIL said its survey sample is fairly representative, as the polled companies accounted for about 45% of the capex undertaken by all National Stock Exchange-listed companies, excluding the banking, financial services and insurance sector, in 2013-14. 
 
"We believe till such time there is great improvement in demand visibility, the private sector will prefer to wait and watch than intrepidly commit more skin. In such a scenario, the ability of the government to kick-start investments through fiscal measures --especially given the additional elbow room afforded by falling crude prices – is crucial because that can initiate the demand cycle," it added.
 
Raman Uberoi, President for Ratings at CRISIL, said, “The message coming through is crystal clear: as things stand, there is only one way to kick-start the all-important investment cycle, and that is through public investment. The onus is on the government to do the initial heavy lifting.”
 
CRISIL said it believes this is where spending on infrastructure – specifically, roads, urban infrastructure and railways – is crucial because they have a significant multiplier effect of creating demand for steel, cement, capital goods and commercial vehicles, and spurring investments in the – manufacturing space as well.
 

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Nifty, Sensex, Bank Nifty continue to remain weak– Tuesday closing report

Chances of a further fall will reduce, if Nifty closes above 8,800 and Bank Nifty above 19,200

 

We had mentioned in Monday’s closing report that NSE’s CNX Nifty may go down a bit, while Bank Nifty may weaken further. Ahead of the February futures and options expiry on Thursday and the rail budget that will be placed on the same day, the 50-share benchmark witnessed a highly volatile session on Tuesday with the index making occasional plunges in the negative. However, it finally managed to close marginally higher.
 
S&P BSE Sensex opened at 29,017 while Nifty opened at 8,773. Sensex moved in the range of 28,876 and 29,131 and closed at 29,005 (up 30 points or 0.10%). Nifty moved between 8,727 and 8,801 and closed at 8,762 (up 7 points or 0.08%). NSE recorded a volume of 89.60 crore shares. India VIX fell 0.38% to close at 21.5500. Bank Nifty fell 0.16% to close at 18,884.
 
The Economic Survey will be tabled in the Parliament on Friday. The Telecom Regulatory Authority of India (TRAI) in a notification, on Monday, slashed domestic and international termination call charges.
 
Bharatiya Janata Party (BJP) has reportedly formed a committee to seek farmers' suggestion on land acquisition bill after the Narendra Modi-led government introduced the Land Acquisition (Amendment) Bill in the Lok Sabha Tuesday amid uproar by the Opposition.
 
The Finance Commission has suggested raising share of states in central taxes to 42% from current 32%. As per the increased devolution suggested in the report of the 14th Finance Commission, the states will get Rs3.48 lakh crore in 2014-15 and Rs5.26 lakh crore in 2015-16.
 
The proceedings for the second phase of the auction of Schedule III coal blocks have been postponed till 2nd March. The auction proceedings were supposed to begin on 25th February.
 
Gold prices dipped below the Rs27,000-mark by losing another Rs100 to trade at a 10-week low of Rs26,970 per 10 gram.
 
The government is considering direct transfer of fertiliser subsidy to farmers on the lines of LPG, Chemicals and Fertilisers Minister Ananth Kumar told Parliament. He said that any issues related to distribution of fertilisers will be the responsibility of respective states.
 
The union government said that it was hopeful that the much-delayed Goods and Services Tax (GST) bill will be passed during the ongoing budget session.
 
Coming back to stock markets, Central Bank of India (8.11%) was the top gainer in ‘A’ group on the BSE.  The stock hit its 52-week high today.
 
TVS Motor (6.77%) was the top loser in ‘A’ group on the BSE. Venu Srinivasan, chairman and managing director recently sold 1.5 million shares for about Rs45 crore.
 
Hindustan Unilever (3.15%) was the top gainer in the Sensex 30 pack while Sesa Sterlite (3.49%) was the top loser in the pack.
 
US indices had a mixed closing on Monday. The market awaits US Federal Reserve Chair Janet Yellen's semi-annual monetary policy testimony to the Congress.
 
Sales of previously owned US homes fell in January as a tight supply forced up prices, showing the residential real-estate market faces an uneven recovery. Purchases slowed 4.9% to a 4.82 million annualised rate, the least since April, according to figures from the National Association of Realtors yesterday, 23 February 2015.
Except for Hang Seng (0.35%) and NZSE 50 (0.55%), all the Asian indices which were trading today closed in the green. Taiwan Weighted (1.05%) was the top gainer.
 
Markit Economics will announce Wednesday preliminary reading of China's HSBC PMI index for February 2015, indicating the health of China's manufacturing activity for that month.
 
European indices were trading in the green. US Futures too were trading marginally in the positive.
 
Greece has unveiled an outline summary of reforms demanded by eurozone leaders in order to secure a bailout extension. The list must be approved by international creditors today to secure a four-month loan extension.
 

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