Insurance Regulatory and Development Authority of India
Order Ref. No: IRDAI/LIFE/ORD/MISC/210 /10/2022 | Date: 12-10-2022
ORDER in the matter of Aviva Life Insurance Company India Ltd
Background:
1. A complaint registered by M/s Dream World India (DWI) in October 2015 on IGMS with token No. 11-15-000393. Basis the complaint, a focused onsite inspection was conducted by IRDAI from 25th February 2019 to 1st March 2019. Responses of M/s Aviva Life Insurance Company India Ltd (the Insurer) on the inspection report was received on 24th June 2019. On review of the same, a Show Cause Notice (SCN) ref: IRDAI/Life/AVIVA-Life/DWI/Inspn/2019 dated 5th April 2021 was issued to the Insurer. Response of the insurer to the SCN was received on 4th May 2021.
2. As requested by the Insurer Personal Hearing was given on 25th July 2022 at 11.30 a.m. through video conference. Post the personal hearing, the insurer submitted further responses vide their letter dated 26th July 2022.
Facts of the case:
3. A complaint was registered by Dream World India (DWI) in October 2015 on IGMS, gist of the same are, as under:
a. DWI organized a nationwide Math Olympiad Exam for school going children in the year 2014 with scholarship prizes.
b. M/s Aviva Life Insurance Company India Ltd.’s (the Insurer) representatives approached them and requested to consider awarding insurance policies to the winners of the competition under which maturity value match the cash prizes.
c. In July, 2014 the Insurer logged in 35 proposals in the name of parents of students. The parents were shown as employees of DWI under Employer and Employee scheme. Thus, mis-selling took place.
d. Later in November 2014, these insurance policies were cancelled stating the reason as ‘non-submission of documents’.
e. The Insurer refunded the premium with interest to the DWI in November 2016, as full and final redressal of the complaint.
f. DWI stated that they continued to conduct scholarship exams during FY 2014-15 and had to absorb the payments of cash prizes. DWI was not satisfied with the refund amount and demanded compensation for full and final settlement for resolving the grievance.
Personal Hearing:
4. The following officials were present in the hearing on behalf of the insurer.
1. Mr. Asith Rath, MD & CEO
2. Mrs. Anupam Tyagi, Sr. VP (Operations)
3. Mrs. Vijayalakshmi Natarajan, Chief Risk and Compliance Officer
4. Mr. Joydev Sengupta, Head- Legal.
5. On behalf of IRDAI, Mrs. J. Meena Kumari-CGM (Life), Mrs. B Padmaja-GM and Mrs. M.L. Soujanya, AGM (Life) were present.
Charges in the SCN, insurer’s response thereon are as under:
Charge No.1: Violation of Regulation 3(2) and 3(3) of IRDA (Protection of Policyholder’s Interests) Regulations, 2002
6. The representatives of the insurer approached DWI and officer knowingly ‘unsuitable’ insurance policies to the winners of the competition organised by DWI in 2014. The Insurer issued 35 policies under the employer-employee platform and the lives assured in this case were parents of the students. Aviva Dhan Samruddhi, which is non-linked non-par product, UIN 122N097V02 and Aviva Freedom Life Advantage, which is linked non-par product, UIN 122L083V02, were sold as Employer-Employee scheme whereas the parents of the students were not employees of DWI. By not advising dispassionately and not providing material to enable the prospect to decide on the best cover that would be in his or her interest and not assisting in choosing the best option the insurer has violated Regulation 3 (2) and 3(3) of IRDA (Protection of Policyholders’ Interests) Regulations 2002.
Submissions of the insurer (gist)
7. ….the said 35 policies were issued in utmost good faith trusting the information provided in the proposal forms duly signed by the proposer (DWI) in the capacity of an employer and the life assured as employees….…..the company also initiated and conducted proposal stage calling and verification on the contact details specified in the proposal form. It had also shared an easy to read and understand Most Important Terms (MIT) document which was duly signed by the proposer. The customized MIT was also sent along with the Policy Schedule which highlighted the key features of the policy. ….DWI, the proposer did not object to any terms and conditions at any point of time in 33 policies where these documents were shared. At the time of sale, basis the information available.. the advice to propose an Employer-Employee sale under the referred products was appropriate as it allowed tax benefits to the Employer and convenience to the employees. However, basis the suppressed information unearthed by the company subsequently, the basic premise of an Employer-Employee relationship was found to be incorrect and hence the policies should have been cancelled.
8. …the communication provided by ex-sales employee/agent to the prospect (DWI) and Life Assured was not part of the official documents accompanying the proposal form for underwriting the risk. The company was totally oblivious to the assurance provided by the ex-sales to DWI or the LA at the time of accepting the risk at new business stage…At the time of issuance of policies, insurer was not privy to the fraud perpetrated by its ex-employees in collusion with DWI. Its ex-employees falsely portrayed the parents of the winners of the Maths Olympiad as employees of DWI and issued the policies as ‘Employer-employee’ cases under individual cover for insurance.
9. As submitted to the Authority earlier, the fraud was self-identified through the company’s internal whistle blowing mechanism and the contract terminated ab-initio. An amount of about Rs. 44 lakh (including Rs. 35.9 lakh premium received) were refunded along with interest @9.75% p.a. Taking into consideration the active involvement of some sales employees and agents, the individuals were either terminated and blacklisted from future employment or blacklisted on IRDA Portal. A formal police compliant was also lodged against these individuals.
10. Measures taken to prevent such re-occurrence in terms of customer onboarding checks, Anti-Money Laundering checks, strengthening the policy termination communication process and the agent on-boarding processes have been detailed.
Charge 2: Violation of Regulations 3(4) read with 11(1) of IRDAI (Protection of Policyholders Interests) Regulations, 2002
11. A correction letter was attached in each and every proposal, which established that the proposal and other connected documents were not filled up by the prospect. Hence it was mandatory for the Insurer to collect and incorporate at the end of the proposal, a Certificate from the prospect that the contents of the form and documents have been explained to the proposer and that the proposer / life assured has fully understood the significance of the proposal contract. By not taking a certificate as required under this regulation, it is not in compliance with Regulation 3 (4) of IRDA (Protection of Policyholders’ Interests) Regulations 2002.
Submissions of the insurer (gist):
12. …..The company has incorporated in its sales induction and refresher training that wherever the proposal form is not filled by proposer, declaration of person filling in the form has to be mandatorily given…..wherever the company has reasons to believe that proposal forms may not have been filled by the proposer, the company accepts the cases only when proper declaration is filled by the proposer.
13. …..where either proposer or life assured signed in vernacular language, the company mandatorily accepts the cases only with the declaration of the person filling in the form and the person who has explained the contents of the form. In the 35 proposals submitted by DWI considering the profile of the proposer, live assured and signatures done in English, the Company had no reasons to believe that the proposal forms have not been filled by the proposer or the life assured and hence had not called for the said declaration, the company would also like to submit that the proposals were underwritten with the overwriting/changes in the proposal form duly countersigned by the respective proposer and life assured.
14. … the communication between its ex-employee and third party was not in the custody of the company either at new business stage or was it shared with the Company at the complaints stage. Subsequent to the mis-selling complaint lodged by the policyholder alleging signature forgery, the complaint was redressed by way of refund of all premiums in May 2014.
Charge No.3: Violation of AML Circular provisions:
15. The Insurer cancelled the policies in question due to misrepresentation, fraud and forgery in the proposal form and after it found that lives assured were not employees of DWI, but parents of its students. This shows that effective procedures were not in place to obtain requisite details for proper identification of new customers and the beneficial owners and reasonable measures not taken to verify his/her identity to establish the identity of the beneficial owner. Hence, the Insurer is non-compliant with the provisions of clause 3.1.1. (ii) and (iii) of Master Circular on AML/CFT Guidelines of 24/9/2010
Submissions of the insurer (gist)
16. The insurer obtained proper KYC documents of both proposer and Life assureds in all 35 cases and issued the policies…at the time of issuance of the said policies, the Company had assessed the proposals in good faith, verified the policy owners and beneficial owners against valid KYC documents submitted therein, but in hindsight, was very much a victim of the fraud perpetuated by its ex-sales employees in collusion with DWI. ….The relationship was clearly established basis the supporting documents provided by DWI at point of login and the company was not privy that Life Assured cited in the proposal forms were not employees of the DWI….the policies were underwritten purely on basis of the information provided in the proposal form.
Decision on Charge 1 to 3:
17. The following submissions of the insurer are considered:
a. The fraud committed by the ex-employees of the insurer and the agents was self-identified through the company’s internal whistle blowing mechanism and the contract terminated ab-initio.
b. An amount of about Rs. 44 lakh (including Rs. 35.9 lakh premium received) were refunded along with interest @9.75% p.a.
c. Taking into consideration the active involvement of some sales employees and agents, the individuals were either terminated and blacklisted from future employment or blacklisted on IRDA Portal.
d. A formal police compliant was also lodged against these individuals.
e. Measures taken to prevent such re-occurrence in terms of customer onboarding checks, Anti-Money Laundering checks, strengthening the policy termination communication process and the agent on-boarding processes have been strengthened.
18. In the light of the submissions made by the insurer on the steps adopted in the wake of the incidents cited in the SCN, charges 1 to 3 levelled in the matter are not being pressed.
Charge No.4: Violation of provisions of approval under File and Use Circular and Sec 45 for cancellation:
19. The Insurer issued 35 individual policies though the pre-sales/on-board process was through employer-employee platform. These policies were cancelled for the reason ‘non submission of documents’ and not at the option or choice of the Insured. This act of issuance and cancellations of policies are in non-compliance with the terms and conditions of the approved product under the provisions of Circular ref. No: IRDA/ACTL/FUP/VER 2.0/ DEC 2001 dated 12-12-2001 on File and Use Procedures. Further, as against the provisions of Section 45 of Insurance Act, 1938, the Insurer cancelled the policies for non-submission of required documents.
Submissions of the insurer (gist)
20. …..on the basis of self-initiated investigation, the said 35 proposals were cancelled due to misrepresentation, fraud and forgery in the proposal form and after it found that lives assured were not employees of DWI, but parents of its students…the company has also taken action against perpetrators of the fraud. …it would be perversion of justice to treat this cancellation, being in violation of the F&U circular and section 45 of the Insurance Act.
21. …due to inadvertent clerical error, incorrect letter citing ‘non-submission of documents’ for cancellation was sent to the proposer instead of ‘mis-representation of material facts’. ….we have strengthened the process of policy termination and rights to terminate the policy have been given to restricted users only who are authorized to take system action only post approval from appropriate authorities on case specific basis in line with Sec 45 provisions..….Basis the learning from DWI case, red flags at new business stage stand strengthened to tag clients and sourcing sales from various touch points such as claims etc.
Decision on Charge No.4:
22. Considering the submissions of the insurer as above, the charge is not being pressed. The insurer is however, advised to strengthen the internal checks and balances to avoid re-occurrence of clerical errors going forward.
Charge No.5: Violation of clause 6 of the Corporate Governance Guidelines vide circular no. IRDA/F&A/CIR/025/2009-10 dtd 05.08.2009
23. Pre-verification calls for policies issued were made by the insurer through the un-registered number and not from the registered numbers being used for verification. Script used by the tele callers was not as per the script provided by the Insurer for making post service calls. These lapses indicate absence of internal controls is therefore in non-compliance with Clause 6 of the Corporate Governance Guidelines Circular No. IRDA/F&A/CIR/025/2009-10 dated 05-Aug-2009.
Submissions of the insurer (gist)
24. ….the case under reference being Employer-Employee life insurance, the Post Service call was done with the proposer who was the employer (DWI) and the calls were made at the number provided by proposer in the proposal form and the script was adhered to as per normal process. The sourcing agent/ex-employee, who had committed fraud in respect of 3 individual policies issued in January 2014 was not the sourcing agent of group policy / employer-employee policy (35 policies) issued in May 2014. Since, the sourcing sales was different in two cases, the insurer could not identify the anomaly.
25. …Pre issuance verification Calling process has been strengthened and continues to be revisited on an ongoing basis… strengthened on-boarding processes for ex-employees opting for agency and on-boarding is considered only with proper checking of records and clearance from People Function Team.
26. ….In addition to case specific checks by the processing teams, the Company has put a Central Monitoring system where an investigative approach is undertaken to identify and review instances from fraud perspective by analysing the data for business sourced, agents and employees recruited.
Decision on Charge 5:
27. Considering the above submissions of the insurer that provide for mitigating factors to the charge levelled above, the charge is not pressed. However, the insurer is directed to continue having in place specific checks to identify such instances.
28. If the insurer is aggrieved by this Order, an appeal may be preferred to the Securities Appellate Tribunal as per the provisions of Section 110 of the Insurance Act, 1938.
Place: Hyderabad
Date: 10.10.2022 Chairman
