Pyramid schemes run riot under insurance regulator’s nose
Ravi Samlad  and  Aaron Rodrigues 06 April 2010

The insurance watchdog does not seem to have any regulation in its arsenal to crack down on multi-level marketing schemes which are being peddled by corporate agents

A life insurance policy is being openly peddled as a marketing tool under the eyes of the Insurance Regulatory and Development Authority (IRDA). Corporate agents of State-run behemoth Life Insurance Corporation of India (LIC) are running a pyramid scheme in one of its life insurance schemes.

Swarg (which is a corporate agent for LIC), is running a multi-level marketing scheme in LIC’s ‘Jeevan Saral Policy’.

Swarg states in its website that it has its headquarters at Dadar, central Mumbai. It claims that it has 45 showrooms selling jewellery and gems. According to its portal, Swarg is “planning another 1,000 showrooms as soon as possible.”

The company claims that it has “various concepts and insurance plans for you, which will give you tremendous attractive features like security, investments, tax benefits and above all an additional income source. With our membership, you can promote our insurance plans and earn a sizeable income which might be comparatively higher than the salary drawn by you.”

The plan works in the following way—in the company’s own words—“We have launched a scheme through which by taking a Jeevan Saral Policy from our company of yearly premium of Rs6,005 you can earn an extra income up to Rs4,46,976 approximately within 2 years period.” (These are the exact words of the company as they appear on the website; no grammatical changes have been done).

Three additional members have to be roped in at the first stage, after you cough up the initial premium of Rs6,005 for the Jeevan Saral Policy. Apparently, Swarg’s telemarketing team will then get into the act and then convince these three members to go in for the same policy. That’s when you will start to ‘benefit.’

As any typical pyramid scheme operates, these three new members will have to rope in three additional members each, thereby attracting a net total of nine members (we are at the second stage of the pyramid now).

And so it goes on and on, and at the eighth stage, if Lady Luck favours you and everything falls into place, you’ll have a total of 6,561 members—and your promised ‘net rewards’ work out to Rs4,00,937. There is a caveat, though. Each member has to rope in three more members within three months for the whole multi-level marketing scheme to remain operational. 

When Moneylife contacted the company to ask whether it is mandatory to get more clients if one buys a policy, the sales executive said, “It’s not mandatory but it’s for your benefit. It’s good if you can get clients directly but if you are not able to do it then we would help you to convince your friends or relatives.”

“We don’t encourage multi-level marketing,” said a senior official from IRDA, preferring anonymity. The official also admitted that there are no rules to regulate such schemes and also said that he had no knowledge as to when such rules to curb multi-level marketing schemes will come about.

This seems odd, because a few weeks back, IRDA member S Kannan said that the insurance regulator is planning to introduce regulations to crack down on pyramid schemes.

“Multi-level marketing is not allowed for selling life insurance. If anyone is doing it, action will be initiated. It is not permissible,” said another LIC official.
Moneylife tried calling both LIC and Swarg, but no replies were forthcoming. Emails sent to both these entities remained unanswered at the time of writing this story.

M R Borkar
1 decade ago
There is no dearth of "HELGIKARS". and there are ample people/goats ready for sacrifice at the altar of their
own sweet will. We can only try to educate them and try to prevent some from falling prey n of course there are regulators, law enforcement agencies
but they will come only when the perpators have vanished. Only Thing to do is to educate the people which we are doing. Borkar
1 decade ago
I had preferred a complaint to IRDA and then followed it up with an RTI application listing 40 different sites that indulge in insurance MLM.

In their partial reply, the IRDA has said that MLM is not a permitted form of selling insurance, but remained evasive on the action taken by them to stop this practice.

According to some estimates, the money collected through this channel of MLM is to the tune of Rs 5000 crores annually.

IRDA is fully aware of what is going on. But their unwillingness to initiate any tough action suggests either they are in the payoff of these entities or the entire operation is controlled by political bigwigs, or probably both. It is nothing but swindling the public.
sanjay bafna
Replied to Ganpat comment 1 decade ago
pls give list me of 40 co.
Krishna Gopal Gupta
1 decade ago
Ethics are meant only for IFAs and not for the employees of the insurance who are encouraging replacements day in & day out. Their operations staff are engaged in selling ULIPs than focussing on services to be provided. Datas are being passed on to the Corporate agents who are closely related to top management. High profile customers are being encouraged to become IFAs. All this at the cost of genuine & bonafide IFAs.
Pradeep B
1 decade ago
Its not only LIC thats into MLM, but a whole lot of companies like; Bajaj Allianz, Max, etc are into similar network marketing and passing out open rebates by way of incentives.. Its practically impossible that IRDA may not be aware of such open amrketing practices.

While it wants an agent to go for training and passing the exam. these marketing companies do not care for training. they show only money that can be earned by intorducing people and enlarging the chaimn even by illitereates..
1 decade ago
It is done by all the insureres since long time it is open secrate they have done mlm way without any traning license all the worst. After looting every thing irda want to stop. It was in press since long time ,noticed now ,are they sleeping till day?
1 decade ago
Good. Duniay Zukati Hai,
Zukanewala Chahiye.

1 decade ago
Good. Duniay Zukati Hai,
Zukanewala Chahiye.

dillip swain
1 decade ago
dear sir,
who is responsible? i hope irda chairman is not an undermatriculate.if irda chairman is a retired ias/ips,first govt. should transefer/stepped down the post.because he should learn knowledge
1 decade ago
Whole insurance industry goes on a drive to get business at any cost. There is no reason to explain who loses at the end. These schemes are existing from ages in India. I was called for one such meeting. When I asked whether they are IRDA agents to sell the policies the truth came out. At the end after much arguments the guy told me its time to make money so use the opportunity.
The guys who sit on top posts in these insurance companies know about these. But still they dont speak as they are remunerated for their targets not for the ethics. Poor people get cheated. People need to get present to reality and should stop thinking about doubling money or unimaginable returns which is used by such companies to lure them.
However it clearly shows the state of affairs at IRDA. As an financial advisor ,its better that zero commission comes fast in to Insurance. All these cheaters will leave the business. Hope someone is awake in IRDA, SEBI and Financial ministry to take control and stop this daylight robbery.
Akshay Sanghvi
1 decade ago
It is very shocking that a corporate agent is offering bogus return of Rs.4,00,000 against lic premia of Rs.6,000 in LIC jivan saral policy.
and still insurance regulatory authority and RBI not taking action against such co.
whether this is collective investment scheme which can be prosecuted by sebi.
amarish shah
1 decade ago
multi level marketing is no future.
there were so many multi mkting cos came and become dead after sometimes.the channel is not working as specified by anyone
1 decade ago
@Srivathsan...Welcome to the world of realty. It seems that you have accessed Moneylife for the first time, otherwise you would have known that it is the only media that has been writing on the mis-selling of MF, insurance companies etc. First enlighten yourself and then comment.
1 decade ago
I find that many other private insurance companies are also conniving to their corporate agents and brokers doing it. While is moneylife silent on them? The measured silence provokes the thought if it is a paid article
R Balakrishnan
1 decade ago
Pyramid schemes, whether they are run by Amway salesmen or by agents of God who run conversion rackets, will always flourish. Indian law is very easy and soft on these guys. No point moaning about it. In fact, IRDA would be happy that this is being done to promote its cause.
1 decade ago
this is a clear cut Ponzi scheme. Just hope that Swarg doesn't turn out to be NARAK for policy holders. It's high time IRDA cracks down on the concerned - it has to advertise this also in all dailies.
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