'ËĘ ÁflÁŸĸĘ∑§ •ı⁄U Áfl∑§Ę‚ Ž˝ĘÁœ∑§⁄UáĘ - IRDA

in the airirda journal October 2012Charge No 7: Violation of the provisionsas mentioned in 8 (3) of Protection ofPolicyholders’ Interests Regulations2002Inspection Observation No 30: It is noticedthat there is a delay of more than 30 daysin settlement of annuities.Decision: Insurer submitted that themain reason for the delay is the nonreceiptof exercised option from thecustomer due to limited availability ofimmediate annuity plans in the marketcoupled with the fact that the annuity payouts in such cases are less than Rs.400 permonth. The insurer confirmed that thereare only 10 cases which are unpaid havingmaturity pay outs of less than Rs.50000/-each. Taking into account the submissionsmade by the Insurer, the Charges are notpressed.Charge No 8: Violation of the provisionsas mentioned in Regulation 6(2) ofProtection of Policyholders’ Interests,Regulations, 2002Inspection Observation No 31 (b) & (c): It isobserved that the insurer has allowedFree look cancellations for personalreasons, financial problems, buyingproperty, fund transfer etc. Further it isalso observed that free look option is usedfor cancellation of policies within ULIP lockin period there by circumventing the lockinperiod stipulated for ULIPs.Decision: Insurer submitted that as apolicy, they allow free look cancellation tothe customers within the free look periodirrespective of reasons (including notagreeing to terms and conditions underthe policy). The 111 cases cited in thereport translate to 1% of the totalcancellations of 10087 UL policies duringthe year 2009-10. From the submissions itappears that the cancellations have beendone on the insistence of thepolicyholders and to mitigate theconcerns posed by policyholders. Takinginto account the submissions made by theInsurer, the Charges are not pressed.However, Insurer is advised to applyprudence while considering Free LookCancellations on exceptional groundsand comply the provisions ofRegulation (6) (2) of IRDA (Protection ofPolicyholders’ Interests) Regulations.Charge No 9: Violations of theprovisions as mentioned in ULIPGuidelines, issued vide Cir no.032/IRDA/ACTL/ Dec, 2005 dated21/12/2005Inspection Observation No 6: It isobserved that while computing NAVInsurer isa) Using fixed transaction cost factor andweighted average cost of equity anddebt portfolio instead of expensesincurred on any particular day.b) No regular reviews of the transactioncosts so assumed.c) Calculating 2 NAVs, one withexpropriation and appropriation andthe other without the same –publishing the former in Newspaperand using the latter for actualaccounting of unit transactions.Decision: Insurer submitted that themethod followed by their company is inline with regulation stating that now theircompany is following the instructionsissued vide CircularIRDA/F&I/CIR/INV/187/08/201 datedAugust 17, 2011 in which theappropriation / expropriation NAV iswithdrawn and hence requested theauthority not press charges. Taking intoaccount the submissions made by theInsurer, the Charges are not pressed.However, the procedure followed bythe Insurer in calculating two NAVs;disclosing one in Newspapers andunitising the other is not in order.Insurer is warned for these practicesand advised to adopt the best businesspractices while making publicdisclosures.Charge No 10: Violation of theprovisions as mentioned under Clause -2&3ofpart 1 of Schedule A of IRDA(Preparation of Financial Statementsand Auditor’s report of InsuranceCompanies) Regulations, 2002Inspection Observation No 12 ( c ): It isobserved that the insurer has set off theprofit commissions which were in arrearsfrom the financial year 2002-03 (which issettled during the year 2009-10), on reinsurancearrangements with RGA againstthe premiums payable to RGA.Decision: Insurer submitted that theamount of Rs. 4.04 cr. being profitcommission cannot be accounted aspremium and the profit commission is notan acquisition cost but a benefit whichcontractually flows back in thesubsequent period depending uponfavourable claims experience. It can onlybe computed with a lag as per the agreedmethodology. Insurer further submittedthat as a note under the Schedule 2 that“The Profit / Commission , if any, are to becombined with the reinsurance acceptedor reinsurance ceded figures. Thecompany has strictly followed this and hascombined the profit commission of Rs4.04 Crs. with the “Commission onReinsurance ceded” and arrived at thebalance figure of Rs. 6.10 Crs. for the year2009-10. Insurer further submits that outof the total amount of Rs.4 Crs. receivable,Rs.1.93 Crs. was for the year 2009-10 andthe balance related to the immediatelypreceding years. Taking into account thesubmissions made by the Insurer, theCharges are not pressed.Charge No 11: Violation of theprovisions as mentioned in the clause7.1 of Corporate Governance GuidelinesInspection Observation No 12 (d): It isobserved that the fact of not calculatingand reporting the group credit businessre-insurance premiums has neither beenbrought out in the Audit Reports of thecompany nor it was reported to the AuditCommittee of the company.Decision: Insurer has denied that therehas been violation to clause 7.1 of theCorporate Governance norms. Insurersubmitted that the issue being referred towas in respect of Group single premiumcredit policy. The method was changed8