Personal Finance   Exclusive
Birla Sun Life Insurance fined for only 2 out the 22 violations

IRDA has penalised Birla Sun Life Insurance Company a paltry Rs6 lakh for a slew of violations, some serious including using unlicensed entities to sell insurance

The Insurance Regulatory Development Authority (IRDA) had detected 22 irregularities in the functioning of Birla Sun Life Insurance Company (BSLI) but penalised it a paltry Rs6 lakh for two of the violations. What is most pertinent is that it took the regulator around a year and a half, from the date of its first inspection letter (22 November 2010), to pass the judgement (13 April 2012).

IRDA levied Rs5 lakh for a major violation of using unlicensed entities to solicit insurance business, thus violating an IRDA circular which states, “No insurer shall distribute the product through any person who is not licensed as per the provisions of the Insurance Act, 1938, for the purpose of the soliciting and procuring insurance business.”

BSLI admitted to this misdeed but was fined just Rs5 lakh for this. This is pocket money for the insurer and makes a mockery of the regulatory system. We had covered the issue of unlicensed entities way back in 2010, over here (

The second and last indictment accused the company for flouting guidelines on Group Insurance Policies dated 14 July 2005, wherein it is the insurer’s responsibility to ensure that claims payments go directly to the beneficiary, or insured. However, the company had apparently been sending cheques, in event of claims, in favour of the master policy holder (for instance, any firm which has taken insurance on behalf of its employees) instead of the beneficiary (the employee), thus putting the onus on the policy holder to settle the cheque, and absolving itself of the responsibilities. For this violation, the company was fined just Rs1 lakh.

Thus a total of Rs 6 lakh was fined by BSLI for two out of 22 violations. This isn’t the first time that Moneylife has written about selling through illegal intermediaries. Insurance companies are merrily using the illegal multi-level marketing (MLM) system to push insurance. When caught they promptly disown any linkage and promise to “take action.”

It is pertinent to note that it took as much as eight months to issue a show-cause notice (27 July 2011) after BSLI replied to IRDA’s initial observation. And after the insurer had replied to the show-cause notice on 30 August 2011, IRDA then took more time, till 1 February 2012 before calling for a personal hearing. Only then, after the hearing, the final order (13 April 2012) was passed.

We cite a few important transgressions and IRDA’s decision on each of them:

•  Violation of Section 40A of Insurance Act, 1938

(IRDA) Inspection Observation 30(d): Commission being paid to agents even when premiums are being funded by the company under premium waiver benefit.

(IRDA) Decision: Insurer has submitted that there could be policy servicing requests during the term of the policy to agent and the practice of payment of commission in such cases may motivate agents to continue promoting such waiver benefits wherever applicable which again is in the interest of policy holders. On examining the reply of the Insurer charges are not pressed. However insurer is hereby directed to stop paying the commission to agents in all such cases where premium is funded by the company as part of premium waiver benefit.

So, for the last two years, the company has been ‘motivating’ agents by paying commissions to them even though when it shouldn’t have. BSLI claims that this is in “the interest of the policy holders”. Really? Well, motivating agents to ram policies down consumers’ throats is most definitely NOT in consumers’ interests.

• Violation of Regulation 2(CC) of IRDA (Investment Regulations, 4th Amendment) 2008

Inspection Observation 2: Insurer has categorized the investments in mutual funds as “Money Market Instruments” for the purpose of public information. (Product Brochure of Titanium plus Plan)

Decision: The insurer states that BSLI invests in liquid mutual funds and they have included the mutual fund in the ‘Money Market and Cash’ segment in the product brochure to represent investments in short-term investment. The insurer has also submitted that now an alteration was made in the product brochures to show mutual fund separately.

This is a classic case of mis-selling by misrepresenting a product in flyers and brochures. Companies will window-dress their product to make it look ‘safe’.

• Violation of Section 5 of IRDA (Investment Regulations, Fourth Amendment), 2008

IRDA Inspection observation 1(d): Insurer has breached the prescribed limit of 5% of fund size while investing in Mutual Funds and categorizing them as “Approved Investments”.

IRDA Decision: The insurer has submitted that he has acted as per the directions of the authority issued vide Regulation 3 (Investments) point 3, Investment Regulation 5 and The Asset Liability and Solvency Margin of Insurers Regulations, 2000, Schedule IIA 1(c). Insurer has also confirmed that in view of the IRDA Circular IRDA/F&I/CIR/INV/173/08/2011 dated 20th July, 2011, realigned its portfolio to come in compliance with the issued circular effective 1st October, 2011. Taking into account the submissions made by the insurer, the charges are not pressed.

• Violation of note 4 to Regulation 5 of IRDA (Investment Regulations, 4th Amendment) 2008

Inspection Observation 1(g): The company has taken blanket approval for raising the limit up to 15% in respect of industry/group exposure.

Decision: The insurer has submitted that the investment committee, as per the authority given to it by the board of directors, reviewed the exposure norms at group and industry level in its 41st meeting held on 28 January 2011 and has restricted the increased exposure to limited sectors only. The submissions of the insurer are taken into account. However, the delegation of authority, given to it by the board, by investment committee of the insurer is not proper and the insurer is advised to strictly follow henceforth the prescription of Note 4 to Regulation 5 of IRDA Investment Regulations. 

IRDA is being too lenient, especially concerning investments which are a crucial part of an insurance company’s functional model.

•  Violation of 4(6) of IRDA (Protection of policyholders’ interests) Regulations, 2002

Inspection Observation 16: Proper follow up is not done with the proposers to obtain pending requirements.

Decision: The insurer submitted that auto generated communication on pending requirements dispatched to proposers on the 10th, 20th, 30th and 38th day from the application receipt date with documentary proof. The insurer also informed the house that follow-up is being done through SMSs for all the pending proposals The submissions made by the insurer that proper follow up is indeed being done to obtain pending requirements from proposers is considered and the charges are not pressed.

• Violation of F&U Procedure

Inspection Observation 32: Top-up premium remitted along with the first premium was being accepted without minimum mandated additional risk coverage even when the top up premium is more than 25% of the first premium.

Decision: The insurer submitted that it has happened due to a system error which has been now rectified and assured that going forward such instances would not recur. Taking into account the submissions made by the insurer the charges are not pressed.

• Violation of provisions of Clause 27 of Licensing of Corporate Agents’ Guidelines, 14/07/2005

Inspection observation 33: It is observed that the company is not carrying out due diligence at the time of appointment of “Business Mentors”. The business mentors as mentioned in the report are working in different capacities with many insurers in contravention of the business mentor model as described by the company.

Decision: The insurer has submitted that they prohibit business mentor’s association with any other insurance company by taking self declaration on the same while recruiting. If they are found to be in association with any other life insurance company action against them is initiated. The insurer has also expressed that due to lack of central repository of corporate agents, due diligence could not be carried out while recruiting business mentors. They also submitted documentary proof of action taken on business mentors who are associated with more than one insurance company. Taking into account the submissions made by the insurer the charges are not pressed.

The remaining violations were ‘spared’ by IRDA.

Earlier, IRDA had admitted to industry-wide mis-selling ( However, if a company can violate regulations and norms and get away with a paltry fine, it would set a poor precedent.

Earlier, Sahara Life Insurance had too committed a host of violations. We had written about it here. ( Sahara, too, was let off by IRDA in a similar fashion. A few months ago, HDFC Standard Life Insurance was slapped with a fine of just Rs5 lakh, for delaying a settlement claim ( 

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    7 years ago

    The article is being too harsh on the company - pls note that IRDA has provided explanations on why the charges have been dropped. With regard to commissions being on cases where premium is waived, can you pls enlighten how many such cases have been discovered ? As I understand, BSLI has over 4 million policies and would be surprised if there are even [email protected]% of cases on waiver - so pls do not make a mountain out of a molehill. As regard investment classifications, pls note interpretation differences have known to happen in numerous cases. I am a policyholder of BSLI, but am not perturbed by the nature of violations mentioned above.

    P M Ravindran

    7 years ago

    Beware of Star Health and Allied Insurance Co Ltd also. They also default on services after selling the policy but continue to pay commission to fictitious agents even when a policy holder renews the policy without the help of an agent!


    7 years ago

    Hon sir

    Pl find the attached letter (work order) issued by Municipality balotra cease this file immediately and stop this work order urgently to reach free and fair investigation
    I am sending you this mail in the interest of PUBLIC.
    WARD NO 3
    BALOTRA 344022
    MOBILE 9214021660

    suresh kumar gupta

    7 years ago

    जोधपुर.फाइनेंस कंपनी को दिए गए ब्लैंक चेक से फर्जी हस्ताक्षर कर इंश्योरेंस पॉलिसी करने का मामला सामने आया है। लोन देने पर फाइनेंस कंपनी की ओर से लिए गए 10 खाली चेक में से एक चेक को कंपनी ने अपनी सिस्टर कन्सर्न इंश्योरेंस कंपनी को सौंप दिया। इस चेक से लोन लेने वाले की पत्नी के फर्जी हस्ताक्षर कर उसके नाम से ढाई लाख रुपए की फर्जी पॉलिसी कर दी।

    यही नहीं, इंश्योरेंस कंपनी ने ब्लैंक चेक से 25 हजार रुपए निकाल कर पॉलिसी का प्रीमियम भी वसूल लिया। पीड़ित ने अब कंपनी के खिलाफ रातानाडा पुलिस में रिपोर्ट दी है। पुलिस ने बताया कि चौपासनी हाउसिंग बोर्ड निवासी दीपचंद ने एसबीआई से 33 लाख रुपए का लोन 16 प्रतिशत की दर से लिया था।

    पीडब्ल्यूडी कॉलोनी स्थित एचडीएफसी इंश्योरेंस कंपनी के प्रतिनिधि ने दीपचंद से संपर्क कर उन्हें 13 प्रतिशत ब्याज पर लोन दिलाने की का ऑफर दिया। प्रतिनिधि ने एचडीएफसी फाइनेंस से दीपचंद को 50 लाख का लोन मंजूर करवा दिया। इसमें से उन्होंने 33 लाख रुपए एसबीआई लोन के बदले अदा कर दिए और 17 लाख रुपए खुद ले लिए। लोन लेने पर दीपचंद ने कंपनी को 10 खाली चेक दिए।

    गत दो अप्रैल को दीपचंद को बैंक से मैसेज मिला कि उनके खाते से 25 हजार रुपए निकले हैं। बैंक से जानकारी लेने पर पता चला कि किया तो एचडीएफसी लाइफ इंश्योरेंस में उनकी पत्नी राजबीरी के नाम से पॉलिसी के 25 हजार रुपए जमा किए हैं। दस्तावेज देखे तो उन पर राजबीरी के फर्जी हस्ताक्षर थे। भास्कर ने इंश्योरेंस कंपनी के ब्रांच मैनेजर अंकित शर्मा से इस बारे में बात की तो वे टालते हुए बोले कि इस बारे में वे बाद में बात करेंगे।

    मैनेजर ही बताएंगे

    राजबीरी की पॉलिसी हुई है लेकिन लोन के ब्लैंक चेक से भुगतान कैसे और क्यों हुआ, इसकी मुझे जानकारी नहीं है। इस मामले में ब्रांच मैनेजर ही कुछ बता सकते हैं।

    पीयूष कुमार, पॉलिसी फाइनेंशियल

    Personal Finance   Exclusive
    Does your car and bike insurance premium subsidise the fat cats?

    IRDA has increased premiums for automobile insurance with effect from 1 April 2012. Insurance companies have come up with a new trick of using only the engine cubic capacity. The smaller and cheaper cars and bikes are subsidising the bigger and costlier ones

    Insurance regulator, Insurance Regulatory and Development Authority (IRDA) has increased premiums for automobile insurance with effect from 1 April 2012. We see all sorts of new calculations on the scribble sheet that often accompanies the proposal which is also found on the cover note as well as the policy. The net result is that in some cases you can anticipate an increase of almost 50% over what you paid last year for the same vehicle, especially if it is a smaller car or a two-wheeler.

    Of course, another truth is that the value of your car or bike is also going to depreciate faster. So with a lower cover, the premium amount also comes down for an existing vehicle—though that is cold comfort in case anything does happen to your wheels. However, in an attempt to see that they continue to collect as much as they can from you without increasing the coverage, the insurance companies appear to have come up with a new trick.

    Take a closer look at the way the compulsory Third Party Risk and insurance premium is now calculated. Here are the details, and in all cases, taxes and other surcharges extra at actuals:

    Private Cars:

    < 1000 cc             =    Rs784.00

    1000cc - 1500cc =    Rs925.00

    >1500cc               =    Rs2,853.00

    Private two- wheelers:

    <   75cc                 =  Rs350.00

    75cc - 150cc         =  Rs 357.00

    150cc - 350cc       =  Rs355.00

    >350cc               =  Rs 680.00


    Is this fair? I discussed this with a very senior person in the insurance industry in India, who has been in the business for over three decades been working in the public sector and knows the subject. Here’s a quick re-cap:

    # There appears to be no differential rate for private cars registered and used by private individuals and private cars registered and used by government, corporates and companies. The presence on road, distance covered and therefore potential for causing damage to other road users is so much higher in these two categories, and has not been provided for.

    # Third Party risk is basis the damage your vehicle can cause. A more powerful vehicle shall cause more damage and the premium should be much higher—preferably in terms of a composite of horsepower generated, maximum all-up gross weight and value. Using only the engine cubic capacity alone is a flawed method.

    # As a result of using only the engine cubic capacity, it is clear that the smaller and cheaper cars and bikes are subsidising the bigger and costlier ones. A typical < 1000cc car would cost around Rs3-Rs4 lakh while the price of a >1500cc car would range from Rs8-Rs10 lakh all the way up to Rs3-Rs5 crore. That huge Audi Q7 or Mercedes Benz E Class or BMW 5 series will cost only 4-5 times more to insure for Third Party insurance while costing 50 times or more—and let’s not even talk about the Rolls Royce or Bentley or Aston Martin which would cost 200 times more than the Tata Nano.

    # Goods vehicles are categorised and charged as per their maximum gross vehicle weight, which is also not totally correct, but is a far better way than going only by cubic capacity. Likewise, cars, three-wheelers and bikes used for carrying passengers have another formula, which also brings in the number of passengers to be carried and therefore covered.

    The best co-relation that this person from the insurance industry gave went something like this: An additional cost of Rs5 is levied on the pao-vade that people eat at Dadar for Rs10, so that the person eating a full meal at a 5-star hotel has to pay only Rs50 for the Rs2000 bill—and entry to the 5-star is permitted only to those who drive up in a car costing over Rs20 lakh.

    (Veeresh Malik had a long career in the Merchant Navy, which he left in 1983. He has qualifications in ship-broking and chartering, loves to travel, and has been in print and electronic media for over two decades. After starting and selling a couple of companies, is now back to his first love—writing.)


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    7 years ago

    this just exposes our incompetence in the actuarial science field. god bless our education system & our financial industry.

    i have an old contessa with 1800cc. is it possible for me to downgrade the engine capacity to avoid the penalty???



    In Reply to param 7 years ago

    Dear Param - it is much deeper than actuarial science, it is a complete scam to promote the reduction of running costs for expensive vehicles.

    On your Contessa with the 1800cc Isuzu engine (I presume), if you don't use it for long out-station runs, you may wish to consider converting it to battery driven, since this is one of the few cars left with a ladder chassis that will take the weight and other aspects. This is going to require technical skill-sets which are still not easily available, so may not be feasible right now. You can then park a genset in the boot, declare the vehicle as a zero-cc electric engine, and see what the insurance companies have to say.

    But on a more serious current time line basis, yes Sir, it does appear to me that with a street value of around 30-50k, your 3rd party insurance on engine cc basis alone will be close to 3000/oo rupees. Which is the same amount as is paid by a person who owns a brand new super car costing 3 crores. Your car provides yet another classic example of the way the odds are being stacked against the aspiring middle class.



    In Reply to malq 7 years ago

    Thanks Veeresh. A mechanic has suggested converting to LPG, but I don't feel safe yet. Will have to ask about the electric conversion, I had thought the weight is too much to handle that. I have noted that in such cases, insurance companies put you in 'difficult customer' category & simply don't give you a quote...

    finally, the 3rd party insurance is to cover the damage you may inflict on others. i don't understand how it related to CC or cost of the car. the most important factor is the driver knowledge, experience, how much one drives, where one drives, etc. unfortunately slicing/dicing on these needs good actuarial skills, which we are happy to avoid & go for simple maths. why pay for underwriters at all?

    Religare Health Insurance gets R2 approval from IRDA

    R2 approval is an important step in the process of acquiring the license from IRDA

    Mumbai: Religare Health Insurance Company Limited (RHICL) has received the R2 license from the Insurance Regulatory Development Authority (IRDA), according to a release from the insurance company.  The R2 approval is an important step in the process of acquiring the license from IRDA and to commence operations as a health insurance company.

    Commenting on the development, Anuj Gulati, managing director and chief executive, Religare Health Insurance said, “We are pleased to move a step closer to launching our operations, and are in a complete state of preparedness for the same.”

    RHICL is a joint venture between Religare Enterprises Ltd, state-run Union Bank of India and Corporation Bank.

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