Motor Insurance Monopoly: IRDAI Allows SMC Insurance Brokers to Walk Away with Just Rs3 Crore Penalty Despite Serious Violations of MISP
The Insurance Regulatory and Development Authority of India (IRDAI) while trying to act tough on violations of its guidelines on Motor Insurance Service Provider (MISP) continue to allow insurance brokers with miniscule penalty. In recent order, the IRDAI has levied a penalty of just Rs3 crore on SMC Insurance Brokers Pvt Ltd and ordered no performance incentives for SMC's principal officer for one year, for serious violations of its MISP guidelines. SMC Insurance Brokers provide motor insurance for vehicle sold by Honda Cars Ltd and KIA Motors.   
 
As reported by Moneylife, the insurance regulator has been giving leeway to insurance brokers like Maruti lnsurance Brokers Pvt Ltd (penalty of Rs3 crore) Hero Insurance Brokers Pvt Ltd (penalty of Rs2 crore), and Toyota Tsusho lnsurance Broker India Pvt Ltd with a penalty of only Rs3 crore.
 
By not following the MISP guidelines, these brokers have created a monopoly and allegedly earned profits of crores of rupees. According to sources, the profit earned by these motor insurance brokers could be about 10 times the penalty levied by IRDAI.
 
In an order issued on 8 January 2020, Sujay Banarji, member for distribution at IRDAI, says, "SMC was expected to act diligently and with utmost care and responsibility giving no room for error. Unfortunately, SMC failed in complying with the MISP guidelines, which had been created to protect the interest of the policyholders and other stakeholders. This is evident from the penalties imposed for the violations of various provisions of the MISP guidelines."
 
Mr Banarji asked SMC Insurance Brokers to pay a penalty of Rs3 crore, dismantle its panel of insurers and empanel all insurers on its platform, redesign its systems of seeking consumer consent for buying motor insurance, and submit a quarterly audit report from an auditor with Diploma in Information System Audit (DISA) or Certified Information Systems Auditor (CISA).
 
IRDAI has received complaints from policyholders about MISP sponsored insurers forcing customers to buy motor insurance policies of the insurers who are on their panel, are having uniform premium rates of different insurers for same motor vehicle and are discriminating between insurance policyholder, who has bought motor insurance from that motor dealer as against who has not bought from them.
 
Some agents association also filed complaint with the insurance regulator about apparent conflict of interest in the role of MISP in selling insurance policies and servicing and repairing motor vehicles under the insurance policies sold by SMC, high claims ratio under the MISP channel, extra payments made to MISPs by insurers, and disparity of treatment to agents.
 
In its submission, the insurance broker stated that it has appointed eight general insurers out of 25 on its panel for selling motor insurance policies. SMC Insurance Brokers also stated that has achieved information technology (IT) integration with 10 insurers for 'Honda' category and with five insurers for 'other than Honda' category. 
 
IRDAI observed that "SMC has sold only six policies of Honda cars through the manual process. As against this the number of policies of insurers who are IT integrated with SMC are very high. lt proves that the insurers who do not have IT integration are excluded from selling motor insurance policies, thereby creating a panel of insurers."
 
SMC also submitted that the President's Award Guide Book is between the Honda Cars (OEM) and the dealers (MISP) and it has nothing to do with it. "It is observed that the President's Guide Book is an agreement in the form of a guide book between Honda (OEM) and the dealer (MISP) in which the MISP has agreed to perform tasks for which he is rewarded, one of which is the sale and renewal of insurance policies. Since the MISP is sponsored by SMC, it is responsible for acts of omission and commission of the MISP. The MISP guidelines do not allow OEMs to set targets or offer incentives to MISP in meeting sales targets of insurance policies. By doing so the MISP and consequently SMC, being the sponsor of the MISP, has violated the MISP guidelines," Mr Banarji observed in his order.
 
SMC also submitted that is there is agreement between the broker and KIA Motors. As advised by the insurance regulator, SMC submitted a service level agreement between itself and one of the insurers with regard to KIA motors. "The agreement is broadly in line with the conditions put in the MISP Guidelines," IRDAI said.
 
IRDAI also noted that SMC being a representative of the customer, has a responsibility to ensure that he gets the best terms, benefits, coverages and render proper advice on appropriate insurance cover and terms. By having a uniform rate across all insurers, SMC has not performed the functions of the direct broker and violated Regulation 4 of IRDAI (lnsurance Broker) Regulations 2018, it said.
 
Taking serious note of the affidavit submitted by principal officer of SMC, the insurance regulator says it was found to be contrary to facts. It says, "Considering the seriousness of the issue, the Authority under Guidelines 15(d)(1) of MISP Guidelines directs that SMC shall not release performance incentives to the principal officer for one year from the date of this order."
 
Here is the orders issued by IRDAI against SMC Insurance Brokers Pvt Ltd...
 
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    COMMENTS

    SAN-Geetha Raj

    6 months ago

    My concern is insurance ombudsman giving judgement based on open lied and The Ombudsman judge are corrupt,I was surprised when the judge lied even when I had submitted the documents,the judge saw signatures where there there no signature ,the judge saw non existent KYC also ,the judge ignored all violations of rule .we should remove ombudsman .consumer courts are only option .difficult to write in few sentences but our law and government is failing .

    Crop Insurance Fraud: Tata AIG Duped in Re-insurance; IRDAI Bans Malaysian Confiance Brokers and GMC
    The Insurance Regulatory and Development Authority of India (IRDAI) has penalised Unison Insurance Broking Services, and barred from Indian insurance and re-insurance market, Malaysian Confiance International Reinsurance Brokers LLC and Jaipur-based Global Master Consultant (GMC) for their involvement in a fraudulent crop re-insurance deal with Tata AIG General Insurance Co Ltd.  
     
    In two separate orders issued last week, Sujay Banarji, member (distribution) of IRDAI barred Malaysia-based Confiance International Reinsurance Brokers, its managing director Steven Chetty, as well as Dr Mukesh Ranwan and Sachin Agarwal, both directors of GMC, which is the official representative of Confiance, from doing any insurance or re-insurance business in India. Mr Banarji also levied a penalty of Rs1 crore on Unison Insurance Broking for its failure to verify re-insurance slips provided by Confiance and GMC. 
     
    Coming down heavily on the Malaysian re-insurance broker, IRDAI observed that "Confiance betrayed the trust of the re-insurance market and caused damage to the financial strength of Tata-AIG in India, which cannot be ignored by the IRDAI. The IRDAI is of the firm view that the actions of Confiance were deliberate and harmful. Such actions cannot under any circumstances be tolerated as it put the existence of general insurance companies in peril. During the entire episode, Confiance made no efforts to clarify its stance and simply return the premium, which in turn proves that Confiance intentionally committed this act by not placing the risk with the foreign reinsurers and issued forged re-insurance slips to the Indian re-insurance broker."
     
    Insurance or re-insurance business is based on trust. A cedant (a party in an insurance contract that passes financial obligation for certain potential losses to the insurer) relies on the re-insurance slip submitted by the re-insurance broker to assume that the risk is placed and there is no gap in re-insurance protection. lf the re-insurance protection is found to be non-existent, the entire risk that was supposed to be passed on to the reinsurer falls into the lap of the direct insurer who is obliged to make good the loss, as he has issued an insurance policy to the policyholder. It is because of this important nature of transaction that utmost care has to be exercised by the insurer and the insurance broker. Any shortcomings can have very serious consequences even to the extent of a failure of an insurance company.
     
    The regulator found that the Malaysian re-insurance broker has cheated Unison Insurance Broking Services as well. It says, "The actions of Unison put Tata-AIG in a difficult position. They suffered a loss because they did not have adequate re-insurance protection as a result of which their financials were impacted. However, given the documents shared by Unison with the Authority, it appears that Unison were themselves cheated by Confiance. Confiance who could not place re-insurance for crop insurance, forged the re-insurance slip and submitted as original to Unison."
     
    During FY18-19, Unison lnsurance Broker made facultative re-insurance arrangements to support crop re-insurance risk cover of Tata AIG through Confiance International involving its Indian representative GMC. In two emails, Confiance gave Tata AIG, terms for placement with two reinsurers, Tokio Marine Kiln Syndicate 510 (TMK) and US-based Best Meridian lnsurance Co (BMI). 
     
    The re-insurance placement was confirmed with copies of signed slips of the participating re-insurers, one slip signed and stamped by TMK on the letter-head of ARB International and another one from BMl. Unison then remitted re-insurance premium of Rs1.13 crore and Rs6.17 crore to Confiance after deducting its brokerage in two transactions in September and October 2018.
     
    However, during November, officials of Tata AIG found that TMK was not participating in facultative placement of its crop business. When asked about this, TMK told Tata AIG that it has not provided any support for re-insurance and the slip was not issued by them. Similarly, the official of BMI also denied issuing any slip for the crop re-insurance of Tata AIG.
     
    Tata AIG later found that the fraudulent slips were provided by GMC, the Indian representative of Confiance. It filed a complaint to IRDAI against Unison lnsurance Broker on 21 December 2018 alleging fraud in re-insurance placement pertaining to crop insurance in Rajasthan cluster for Kharif 2018. 
     
    Unison Insurance Broker informed Confiance about the fraud. Mr Chetty, MD of Confiance, accepted full responsibility for the fraud and on 26 November 2018 refunded the re-insurance premium paid. 
     
    Unison lnsurance Broker also filed a first information report (FIR) against Confiance and its Indian representative GMC in the economic offences wing (EOW) of Mumbai police. The case is under investigation.
     
    Here are the orders passed by IRDAI…
     
     
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    COMMENTS

    m.prabhu.shankar

    5 months ago

    When an Insurance company itself can be duped by another Insurance company think about the status of Ordinary Citizen customers like us. Regulators should be more punitive when such cases come up so that rest of them fear to even think about such malpractices.

    Meenal Mamdani

    6 months ago

    It is wrong of IRDAI to blame Confinance as they themselves were duped by GMC who are based in Jaipur. Confinance paid up the amount when presented with proof of the fraud.
    I hope now that it is easier to keep track of such scamsters, GMC will be barred from the insurance field. Also the individuals in GMC who perpetrated this fraud should be tagged as well so that they do not join another insurance company and continue their devious dealings in another firm.

    B. Yerram Raju

    6 months ago

    IRDAI deserves congratulations for the way the issue has been dealt with giving full opportunity for the reinsurer to explain its stand. The order is very comprehensive.

    Jeevan Saral: LIC Pays Up Rs26.67 Lakh After Chairman is Summoned by Consumer Commission
    In a major breakthrough for consumers, the insurance behemoth, Life Insurance Corp of India (LIC), paid up Rs26.67 lakhs, which was the entire money owned to a Jeevan Saral policy holder, when the Maharashtra State Consumer Commission issued a summons to its chairman. 
     
    Noted consumer activist and columnist Jehangir Gai fought this case and helped Deepak Rajmal Kothari to get entire maturity value as mentioned on the policy, loyalty bonus and 9% interest. 
     
    Mumbai-based Deepak Rajmal Kothari had taken LIC's Jeevan Saral Policy (with profits). The policy mentioned the maturity value as Rs25 lakh, death benefit as Rs3,94,900, and accident benefit as Rs15 lakh. For the 11 year term, Mr Kothari paid total premium of Rs13.65 lakh to LIC. 
     
    However, after maturity LIC offered to pay just Rs3.94 lakh plus Rs1.68 lakh as profit or loyalty addition. When Mr Kothari contested, LIC told him that due to typographical error, the maturity and death benefit values had got interchanged in his Jeevan Saral policy. 
     
    Thousands of policy holders feel badly cheated by the Jeevan Saral policy and it is an issue that Moneylife Foundation had taken to the Supreme Court. However, consumer courts have proved the better forum because LIC has not succeeded at the national commission and has avoided going back to the Supreme Court. 
     
    LIC's Jeevan Saral, which used to be a hot-selling insurance product for agents, until it was withdrawn, is a controversial product. In fact, Jeevan Saral was a traditional product that could make the entire premium (money paid) disappear! This can happen in many policies during surrender or making it ‘paid-up’, but, in the case of Jeevan Saral, it has happened even at policy maturity.
     
    Responding to an application filed under right to information (RTI) act, LIC had admitted that during 4 February 2004 to 30 September 2017, total number of policies completed under its Jeevan Saral plan are 4,97,45,861 (4.97 crore).
     
    Moneylife Foundation sent a memorandum to IRDAI on 18 August 2018, pointing out that Jeevan Saral (with profit), a traditional policy, has caused senior citizens to lose as much as 65% to 70% loss of the money invested over 10 years.
     
    Coming back to the big success at the State Commission, Mr Gai says, "LIC had approached the National Consumer Disputes Redressal Commission (NCDRC) against the decision from Maharashtra State Consumer Redressal Commission. However, LIC's appeal was dismissed by the NCDRC. Finally, we initiated execution proceedings for holding the chairman and managing director of LIC criminally liable for wilful disobedience of the order. And as soon the summons were served through the police, LIC complied and paid up the entire amount."
     
    On 27 July 2015, LIC also issued a circular asking all its offices to retrospectively correct all the Jeevan Saral Policies issued from 2003 onwards. 
     
    Mr Gai says the state consumer commission rejected LIC's contention and asked the insurer to pay Rs26.67 lakh with an interest of 9% per annum from the date of maturity of the policy (28 March 2015) and additional Rs50,000 as costs towards litigation and compensation for mental pain and agony. 
     
    LIC, however, contested the state commission order before the NCDRC and contended that its Jeevan Saral policy was issued in accordance with table 165.
     
     The counsel for LIC argued that otherwise also, the death claim amount should be much more as compared to the maturity amount. "Actually, in the policy these amounts have been inadvertently interchanged and the complainant is trying to take the advantage of this typing error," the counsel submitted.
     
    Prem Narain, presiding member of NCDRC, in an order issued on 11 December 2018, observed that it may be true that the policy is issued under table 165 of the LIC, however, it has been admitted that the table was not supplied along with the policy document and therefore the insured may not be having any inkling that he may not get the amount mentioned in the policy. 
     
    "There was no communication made during the policy period by the insurance company mentioning the mistake in the policy document. It is only after the policy has matured and question of payment of maturity amount cropped up, the insurance company has raised the issue of typing error in the policy document. If any typing error is brought to the notice of the other party by any party before the claim becomes due, it can definitely be considered with the consent of both the parties," the NCDRC said.
     
    The bench also noted that the typographical mistake cannot be justified on the basis of table 165 of LIC. It says, "It is seen that this table was not part of the policy and was not supplied along with the policy document, therefore, the complainant may not be bound by this table, and rather, the complainant and the insurance company both are bound by the written contract of the policy as mentioned in the policy document."
     
    The NCDRC also cited some judgements from the Supreme Court, which clearly stated that the terms and conditions of the policy cannot be changed or interpreted differently by any forum and particularly when there is no obvious reason for accepting the alleged typographical error in the policy.
     
    Mr Gai says, after the NCDRC order, LIC constituted a high power committee to decide on what ought to be done. "We also waited for over six months to see if LIC would approach the Supreme Court, but it did not file any special leave petition (SLP). Also there was no communication regarding the high power committee. This is when we decided to initiate execution proceedings under section 27 of the Act, holding the LIC's chairman and MD criminally liable for wilful disobedience of the NCDRC order."
     
    "As soon the summons were served through the police, LIC complied and paid up the entire amount (to Mr Kothari)," Mr Gai added.
     
    As Moneylife reported, following a public interest litigation (PIL) filed by Moneylife Foundation in the Supreme Court, LIC on 9 July 2019 issued a circular asking all its offices to take on a war footing , a verification drive for correcting "printing" mistakes in maturity sum assured (MSA) under its Jeevan Saral policy. 
     
    LIC says in the circular that its software development centre (SDC) has devised a program to identity Jeevan Saral policy bonds wherever printing mistake had occurred in matured sum assured-MSA. "The program has been designed to extract all Jeevan Saral policies of the division, with status 21 (in force) and 31 (reduced paid up) where MSA is less than death sum assured (DSA). The initial step is to run extraction option. This one time job is to be done immediately, after office hours," the circular says. (Read: Jeevan Saral: LIC Wants to Know How Many Policies Are Flawed. Asks Officers to Finish the Task Before 31st July)
     
    As highlighted by Moneylife, LIC's Jeevan Saral, which used to be a hot-selling insurance product for agents, until it was withdrawn, is a controversial product. In fact, Jeevan Saral was a traditional product that could make your premium (money paid) disappear! This can happen in many policies during surrender or making it ‘paid-up’, but, in the case of Jeevan Saral, it has happened even at policy maturity. (Read: Life Insurance: LIC Jeevan Saral: A Toxic Product)
     
    NOTE for AGGRIVED POLICY HOLDERS of LIC JEEVAN SARAL
     
     
    Many LIC consumers have written to us asking about the next course of action. The big victory secured by Jehangir Gai, a well-known consumer activist who appears before the State and National Consumer Commissions, seems the best option for investors and Jeevan Saral policy holders. 
     
    Those who want to seek Mr Gai’s help on a professional basis can write to [email protected] for his contact details. Moneylife Foundation is also exploring the option of joining the petition and working to create a class- action. 
     
    However, as of now, based on the success in the earlier case, consumers would be best guided if they seek professional help. 
     
    About Mr Jehangir Gai
     
    Mr Gai has been actively associated with various consumer organizations since 1984-85 and has been fighting for consumer causes even before the Consumer Protection Act was passed. 
     
    He has appeared before the district, state and national consumer commission on numerous occasions. 
     
    He has also filed several Writ Petitions in the Bombay High Court regarding the problems faced litigants in consumer courts as well as the non-functional State Consumer Protection Council with positive results.
     
    In recognition of his contribution to the consumer movement, he was awarded the Government of India's National Youth Award for Consumer Protection 1993.   
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    COMMENTS

    Sitaram Goyal

    5 months ago

    It’s greatest helps to sufferers,thanks to moneylife

    Anil Patel

    6 months ago

    I feel better now, its a positive msg for all costumers who taken j.saral....most agents are also facing belonging this problem, how to face with our custs with this matter....thxs to all them, who were involved in this case....they fought for ordinary peoples.....

    Anil Kumar

    6 months ago

    Great work Moneylife. Thank you.

    SAN-Geetha Raj

    6 months ago

    Even the ombudsman judgement is sold out to insurance agencies.I was shocked to see the rewards by ombudsman based on white lies even when customers had submitted documentation proof .The ombudsman was able to see non existent signatures and KYC even when it did not exist on paper of customers copy .who will bell ombudsman? If courts are only option why have ombudsman?

    Newme

    6 months ago

    Commendable work ML.

    Satish Mathew

    6 months ago

    I appreciate monylife's efforts and your organisation is the last refuge for ordinary people. Congrats.👍

    m.prabhu.shankar

    6 months ago

    May God Bless Mr Jehangir Gai with Good Health and Long and Successful Life

    BR

    6 months ago

    Thank you Moneylife. I request that the CauseTitle, Case no. ,nmaes of Court, Parties, Lawyers &Judges are given in future as it is useful to search for case details in website or in courts. Instead of asking parties in or lawyer for the case, as it is not easy to contact them & they may not respond.

    Sandeep More

    6 months ago

    We remain indebted to Money Life and Mr Gai for their valuable assistance in getting us justice and saving us from getting defrauded.

    gcmbinty

    6 months ago

    Great work done, both by Moneylife Foundation and Jehangir Gai. Congratulations

    Balaji Birajdar

    6 months ago

    Buy a term policy worth 10 to 20 thousand and get covered for 50 laks to 1 crore a year. Rest , invest in NPS according to your capacity and get assured pension from the govt. Do not go for LIC.... Never ever LIC

    REPLY

    Krishna Dhule

    In Reply to Balaji Birajdar 6 months ago

    Hi Mr balaji , there are certain policies of Lic which gives more then NPS like jeevan shree , akshaya1, and many which given and still giving return around 10-13% yearly , just for one bad policy you cannot say never to Lic , every person has different requirements , may be your requirements not sutaible to Lic .
    Lic is good and strongest company of India

    Emrose Chellappan

    In Reply to Krishna Dhule 6 months ago

    Hi mr.Krishna Dhule you yourself telling jeevan saral is bad pl
    olicy . nobody claiming Lic money the policy holder's paid up money of senior citizens is in question

    Arvind V

    In Reply to Krishna Dhule 6 months ago

    LIC was a good & strong company, in the past.

    After being made to invest in toxic assets of ILFS & IDBI, it's no longer strong/ good.

    It's a warning note for policy holders', when their money is used for bailing out zombie companies.

    Niranjan Mushahary

    In Reply to Krishna Dhule 6 months ago

    No more LIC... or after 10 years they will say typo error..

    Adhikrao Mane

    In Reply to Krishna Dhule 6 months ago

    Purpose of saving in insurance products is long term security say for 20-30 years. For those who are not competent enough to monitor growth regularly, savings through insurance is good option. Obviously as security of funds is top priority than returns it gives much less returns than other products, and rightly so. To avoid uncomfortable questions from prospects about low returns agents tends to show more returns by juggalary of words. But now insurance companies now indulging in this type of tactics to garner premium to retain market share. Lic is in the forefront to misled prospects, who still trust Lic. Lic's ill informed field staff and ill informed officers instead of preparing themselves for competition and more aware people are relying on lies to sell the products, for so many years now. In today's market conditions no traditional insurance product will give more than 5% of returns. All others will be lies or unsustainable.

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