CBI probing IRDA’s 'soft' handling of Reliance General Insurance
Moneylife Digital Team 14 October 2014
CBI, which has examined IRDA’s former chairman J Hari Narayan and other officials, is looking at the circumstances under which the penalty was ‘brought down’ to Rs20 lakh from a possible Rs17,500 crore, say media reports
The Central Bureau of Investigation (CBI) has started a preliminary enquiry to probe if Insurance Regulatory and Development Authority (IRDA) favoured Anil Dhirubhai Ambani (ADA) group unit Reliance General Insurance Co, while levying a penalty of Rs20 lakh for selling a health policy without permission from the regulator.
CBI spokesperson Kanchan Prasad told the Times of India that a preliminary enquiry has been registered to probe if there was malafide intent in the decision, which was taken in July 2009. The agency said that unknown officials have been named in the preliminary enquiry, which is the first stage of investigation. CBI, which has examined former IRDA chairman J Hari Narayan and other officers of IRDA, is looking at the circumstances under which the penalty was "brought down" from a possible Rs17,500 crore, the report says.
On 23 July 2009, the IRDA penalised Reliance General Insurance for Rs20 lakh. The product filed before IRDA for which the prior clearance of the regulator was obtained was 'Reliance Health Care Policy' and instead, Reliance General Insurance introduced a product named 'Reliance HealthWise policy'. The insurer contended that the change in the name and premium of its product was followed by refund of Rs1.07 crore to various policyholders of the original product. As per the IRDA order, the refund was not supported by any documentary evidence.
As per IRDA's revised guidelines in September 2006, insurers were required to obtain fresh clearance if there is any change in the name of product. In 2008, IRDA found that Reliance General had violated its guidelines while selling insurance policy under the name of 'Reliance HealthWise Policy' when it had obtained clearance from IRDA for 'Reliance Health Care Policy'.
Speaking with Times of India, J Hari Narayana, the then chairman of IRDA, said, "When we received the reply, we realized that one of the changes had actually benefited the consumers, so we treated it as four violations. In my judgment, I had said that the company had sold close to 3.5 lakh policies, we could treat each policy as a violation and in that case the penalty would be Rs17,500 crore. Since the show cause mentioned Rs25 lakh, I couldn't have gone beyond that level while levying the final penalty."
Somewhere in July 2010, Reliance General, which till a year before had lowest premiums among competitors, increased premium for its HealthWise policy by 400% to 500%. (Read: Unhealthy rise in Reliance HealthWise premiums) When Moneylife contacted IRDA, we found that the regulator was not aware about the steep rise. According to industry sources, any increase in premium has to be supported by actuary data needed by IRDA for justifying approval. When we checked with an official from IRDA  about the same, Moneylife was told that the loading has to be specified by the insurance company in the product document that gets approved by IRDA.  
The real reason for the drastic action seems to be poor underwriting when the company started mediclaim policies in 2007 with aggressive pricing of Rs999 'Gold Plan' for Rs1 lakh sum insured for age up to 35. The intention at that time was market penetration in the younger segment with hopes of few claims. After three years of being unable to sustain low premiums, the company in 2010 jacked up premium by 400% to 500%. A hefty increase in mediclaim premium was seen to be a desperate measure from Reliance General Insurance to cover up for losses due to bad underwriting. 
In the past, there have been cases where IRDA's acceptance of group insurance loading was overruled by consumer courts.
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