The Insurance Regulatory and Development Authority of India (IRDAI) has issued an order against Acko General Insurance Ltd., imposing a penalty of Rs. 1 Crore. This decision follows a remote inspection conducted by the IRDAI in October 2021, covering the financial years 2019-20 and 2020-21, which revealed violations of the Insurance Act, 1938, and associated regulations. The core of the violation concerns Acko’ s engagement with Ola Financial Services Private Limited (OFSPL). The IRDAI found that Acko made substantial payments to OFSPL for what appeared to be insurance policy solicitation, despite OFSPL not being legally permitted to do so at the time. Furthermore, Acko failed to file required outsourcing returns with the Authority and did not demonstrate proper due diligence or committee approvals for this arrangement, highlighting a conflict of interest. The Authority concluded that payments to OFSPL were indirect rewards for soliciting policies, circumventing regulatory norms. Acko’ s board is now directed to implement a comprehensive outsourcing policy and review the order’s observations regarding their systems and processes.
Insurance Regulatory and Development Authority of India
Ref: IRDAI/E&C/ORD/MISC/68/05/2025 Dated: 19-05-2025
Order in the matter of M/s Acko General Insurance Ltd.
1. Based on the
1.1. Show Cause Notice (“SCN”) reference No.
IRDA/Enforcernent/2023/722/SCN/LR/033 dated 10th July, 2024 issued to Acko General Insurance Ltd. (Insurer) in connection with the remote inspection conducted by the Authority.
1.2. Submissions made by the Insurer vide email dated 30th July 2024 in response to the aforesaid SCN.
1.3. Submissions made by the Insurer during the personal hearing held on 03rd October, 2024 at 2.30 PM, by the panel of two whole time members of the Authority – Shri Rajay Kumar Sinha (Member-F&I) and Shri Deepak Sood (Member-Non-Life).
1.4. Further submissions made by the Insurer vide email dated 10th October, 2024.
2. Background
2.1. The Authority conducted a remote inspection of Acko General Insurance Ltd. from 25th to 29th October 2021, covering the financial years 2019-20 and 2020 21. The inspection report, inter alia, revealed certain violations of provisions of the Insurance Act, 1938 and Regulations and Guidelines issued thereunder.
2.2. A copy of the inspection report was forwarded to the Insurer on 17th November 2021 seeking their response and response was received vide letter dated 16th December 2021.
2.3. On examining the submissions made by the Insurer, show cause notice (SCN) was issued on 10th July 2024. The Insurer replied to the SCN vide letter dated 30th
July 2024 and sought a personal hearing.
2.4. A Personal hearing was granted by the Panel of two Whole Time Members of the Authority Shri Rajay Kumar Sinha-Member (Finance & Investment) and Shri Deepak Sood-Member (Non-Life) to the insurer on 3rd October, 2024.
2.5. On behalf of the Insurer, Shri Animesh Das, MD & CEO; Smt. Karishma Desai, Chief Compliance Officer & CS and Shri Rohin Vig, CFO and on behalf of the Authority, Shri R K Sharma (CGM), Shri T.V. Rao (GM), Shri Sanjay Kumar Verma (GM), Shri Manoj Kumar Asiwal (DGM), Shri Viswanath Valmiki (Manager) and Shri Atul Gupta (Asst. Manager) attended the hearing.
2.6. The submissions made by the Insurer in its letter dated 16th December 2021, submission made after SCN vide email dated 30th July 2024 and submission made during the personal hearing on 03rd October, 2024 and those made vide email dated 10th October, 2024 have been carefully considered by the Authority.
3. Charge-1
3.1. Violations of
a) Section 40(1) of Insurance Act, 1938;
b) Regulation 15(d) of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017;
c) Regulation 21 of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017;
d) Regulation 6(c) of IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016.
3.2.Inspection Observation-7
3.2.1. Insurer engaged the services of Ola Financial Services Private Limited (hereinafter called “OFSPL”) (formerly known as Zip Cash Card Services Private Limited) and made payments to the extent of Rs. 13,32,81,382/-and Rs. 6,64,61,410/- during the financial years 2019-20 and 2020-21 respectively. The purpose of payment to OFSPL appears to be for solicitation of insurance policies which the said vendor was not legally permitted to do. Further, the Insurer did not file the outsourcing returns as per Regulation 21 of Outsourcing Regulations, 2017, while the amount paid is above the threshold limit for both the years, as prescribed under the applicable regulations.
3.3. Summary of Insurer’s Submissions:
3.3.1. From FY 2018-19 to January 2021, OFSPL was neither a corporate agent nor an intermediary of the Company. OFSPL became a corporate agent of the Company only in January, 2021. OFSPL was purely a service provider of the Company appointed for technology and marketing services.
3.3.2. Advertisement agreement, API agreement and the corporate agency agreement are separate and independent of each other and have no correlation in any manner whatsoever.
3.3.3. Insurer submitted that technology services and the advertisement services being rendered by OFSPL is not normally undertaken by insurance companies and hence does not fall under the ambit of outsourcing arrangement. And therefore, the requirement of obtaining the approval from the outsourcing committee and reporting the same to the Authority was not applicable for the company in the given case.
3.4. Decision on Charge- 1
3.4.1. From the agreements dated 14th November 2018, 24th July 2019 and 10th December 2019, it is evident that OFSPL is an entity authorized by the Reserve Bank of India to issue prepaid payment instruments under the Payments and Settlements Act, 2007. Therefore, it is very much clear that they don’t have required expertise in providing any infrastructural services for issuance of insurance policies by API or providing advertisement services.
3.4.2. As per Regulation 8(iii) of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017, the Outsourcing Committee constituted by the Board of insurer is responsible for the examining the scope of services within the objects’ clause of the Deed of constitution of the outsourced service provider. In the case of the extant vendor, the insurer has not shown any evidence to that effect specially since the vendor is a financial company authorised by RBI and not engaged in the business of delivering technology or API services. The Insurer has failed to demonstrate that any due diligence was carried out before selecting the vendor or that their outsourcing committee deliberated on the need to engage the said vendor given their expertise in these services. Hence, the insurer’s argument that OFSPL demonstrated their capability in building technology infrastructure does not hold ground. Moreover, insurer failed to submit any documentary evidences to support their argument that OFSPL conducted online advertising and branding for them.
3.4.3. As per the vendor performance evaluation of Acko Technology & Services Private Limited for the period January 2018 to December 2018, it was categorically stated that Acko Technology & Services Private Limited was providing the software solutions for issuance of policies. In this document OFSPL was considered as their partner i.e. distributor of their policies. In the said document, the insurer found that the performance of Acko Technology & Services Private Limited is satisfactory and the only area highlighted by the insurer which needs improvement is “system uptime” from 99.88% to 99.95%.
3.4.4. All the above point to the fact that the Acko Technology & Services Private Limited was delivering services to the satisfaction of the insurer. However, insurer still decided to enter into an API agreement with OFSPL for the similar services without any justification or deliberation by the outsourcing committee. Therefore, it is concluded that the insurer has entered into this arrangement just to pass on excess payments to OFSPL under the guise of API agreement, which is not otherwise permitted by the regulations.
3.4.5. Though, the insurer entered into an advertisement agreement with OFSPL on 14th November, 2018, they started making payments under this head prior to the agreement. As per the invoices ranging from the month of April 2018 to September 2018, insurer paid Rs 3,60,00,000 (excluding of taxes) to OFSPL. Therefore, insurer started availing the advertisement services without having an underlying agreement to that effect for which no explanation/clarification was furnished by the insurer.
3.4.6. The submission that the insurer terminated the agreement relating to advertisement/web branding with effect from 31st December, 2020 is also not tenable. Though, they have terminated the agreement with effect from 31st December, 2020, their holding company Acko Technology & Services Private Limited has entered into an agreement with OFSPL for the same services with effect from 1st January, 2021, which confirms that the agreement is still in existence in one way or the other.
3.4.7. Therefore, it is concluded that the payments made to OFSPL are in the nature of making payments to the entity in lieu of commission/remuneration and rewards. By making these payments insurer tried to solicit insurance policies by flouting the regulatory norms. The action of the insurer by making payments in the guise of advertisement and API infrastructure services is in violation of section 40(1) of the Insurance Act, 1938.
3.4.8. The submission of the insurer that OFSPL received corporate agency license in January 2021 is not correct. As per the records of IRDAI, OFSPL, has been issued certificate of registration no. CA0682, which is effective from 11th September, 2019 to 10th September, 2022. OFSPL after obtaining certificate of registration as Corporate Agent on 11th September, 2019 is not entitled for rewards. Advertisement and API charges paid to OFSPL are in the nature of rewards which they are not entitled to.
3.4.9. The insurer has also violated Regulation 6(c) of IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016, as the insurer and the holding company of the insurer entered into an agreement for advertisement with the corporate agent for API and marketing activities and paid amounts are certainly more than the limits prescribed and, therefore, it is concluded that these payments are in the nature of indirectly paying rewards for solicitation of insurance policies to avoid the regulatory scrutiny.
3.4.10. Insurers must avoid or mitigate any conflicts of interest while outsourcing. It is to be noted that even where outsourcing is given to an intermediary, the insurer retains the responsibility for all regulatory obligations and proper due diligence and monitoring of the outsourced service provider and the services provided. Adequate systems, policies and procedures to address potential conflicts of interest and compliance with the provisions of Companies Act, 2013 and the corporate governance guidelines of the Authority need to be established by the insurers. These include Board level review of key transactions, disclosure of any conflicts of interest to manage and control such issues. However, the insurer failed to submit any documents pertaining to the approval process followed by them for engaging the services of OFSPL. Therefore, the above arrangement is a clear case of conflict of interest as the whole arrangement is to create a revenue generation opportunity for the corporate agent.
3.4.11. The Insurer has not filed the outsourcing returns with respect to OFSPL with the Authority under Regulation 21 of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 thus avoided the regulatory scrutiny.
3.4.12. Further, the insurer has failed to establish that the arrangements with OFSPL were evaluated by the Outsourcing Committee and that the decision to engage with such entities were based on sound business practices taking into account the cost and potential benefits of outsourcing against the risk that may arise in accordance with Regulation 8(iv) of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017.
3.4.13. Insurer has failed to showcase that any approval process was followed to engage the said entity. The insurer has failed to establish that their outsourcing committee deliberated upon the cost-benefit analysis of such arrangements. Even the approval from the outsourcing committee was not sought which is in violation of Regulation 15(d) of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017.
3.4.14. In view of the above, in exercise of the powers vested under Section 102 of the Insurance Act, 1938, the Authority hereby imposes a penalty of Rs. One Crore for the violation of Section 40(1) of Insurance Act, 1938; Regulation 15(d) of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017; Regulation 21 of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 and Regulation 6(c) of IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016.
3.4.15. Further, taking into account the above observations, the Board of the Insurer is advised to –
i. put in place a Comprehensive Policy on Outsourcing in accordance with the extant Regulations/instructions of the Authority; and
ii. place before the Board, the Authority’s order for review of the
observations made on the effectiveness of systems and processes put in place for outsourcing transactions and to address conflict of interest.
4. Summary of Decisions:
| Charge. No. |
Violation of Provisions | Decision |
| 1 | i. Section 40(1) of Insurance Act, 1938;
ii. Regulation 15(d) of IRDAI (Outsourcing of iii. Regulation 21 of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017; iv. Regulation 6(c) of IRDAI (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016 |
Penalty of Rs. One Crore and Advisory |
5. The penalty amount of Rs. 1 Crore (One Crore) shall be remitted by the Insurer by debiting the Shareholders’ Account within a period of forty-five days from the date of receipt of this order through NEFT / RTGS (details for which will be communicated separately). An intimation of remittance may be sent to
Shri T. Venkateswara Rao, General Manager (Enforcement & Compliance) at the Insurance Regulatory and Development Authority of India, Survey No. 115/1, Financial District, Nanakramguda, Hyderabad 500032, email id enforcementirdai.gov.in.
6. Further,
a) The Order shall be placed before the Board of the Insurer in the upcoming Board Meeting and the Insurer shall provide a copy of the minutes of the discussion.
b) The Insurer shall submit an Action Taken Report to the Authority on direction given within 90 days from the date of this Order.
7. If the Insurer feels aggrieved by this Order, an appeal may be preferred to the Securities Appellate Tribunal as per the provisions of Section-110 of the Insurance
