Insurance Regulatory and Development Authority of India
Order No: IRDAI/LIFE/ORD/MISC/209 /10/2022
Date: 12-10-2022
Background
1. A focused onsite inspection of M/s. Pramerica Life Insurance Co. Ltd., (the Insurer) was conducted from 14th October 2019 to 18th October 2019 and inspection report was shared with the insurer for their comments vide letter dated 30th December 2019. Response of the Insurer was received vide their letter dated 28th January 2020. On review of the same, a Show Cause Notice (SCN) was issued to the insurer vide IRDAI’s letter dated 25th May 2022. Response of the Insurer was submitted vide their email dated 4th June 2022.
2. As requested by the insurer, personal hearing was granted on 19th July 2022 at 3.30 PM, through video conference on Webex platform. The following were present during the hearing on behalf of the insurer:
1. Smt. Kalpana Sampat, MD & CEO
2. Shri Alok Mehrotra, CFO
3. Shri Yogesh Rohilla, CCO
3. On behalf of IRDAI, Smt. J. Meena Kumari, CGM (Life) and Smt. K.B. Aparna, Manager (Life) were present in the hearing.
Charges under the SCN and gist of insurer’s submission thereon:
Charge (1): Improper systems for identification of customers and acceptance of premium from third party without controls
4. Violation of clause 3.1.1 (i) and (ii) of Master Circular on Anti Money Laundering/ Counter Financing of Terrorism (AML/CFT) – Guidelines for Life Insurers (Ref No. IRDAI/SDD/GDL/CIR/175/09/2015 dated 28-09-2015).
5. It is observed that in 231 out of 350 sample cases, the credit card holders’ names matched with the names of insurer’s employees. Acceptance of premium from unrelated third parties is in violation of clause 3.1.1 (i) and (ii) of the IRDAI circular dated 28th September 2015. It is also in violation of the provision of Regulation 3 (d) of IRDA (Manner of Receipt of Premium) Regulation, 2002, which stipulates payment of premium may be made through “credit or debit cards held in his name”.
Summary of the submissions of the insurer:
a) The Insurer has submitted that receipt of premium from third parties is not expressly prohibited under the Master Circular on AML/CFT – Guidelines for Life Insurers. Further, section 3(f) & 3(g) of IRDA (Manner of Receipt of Premium) Regulations, 2002 allow premium payment through internet and e-transfer.
b) ..the company recognizes that payment of premium by the employees/sales executives of the company is not appropriate. Therefore, the company on a regular basis monitors third party premium payments to identify instances wherein the names given as on the credit card holder matched with the name of the employee of the Branch from where proposal was received, takes appropriate disciplinary action against the identified employees. For the instances highlighted by the Authority as part of Annexure II of the SCN, caution letter was issued in 9 instances and 2 employees had exited hence action could not be taken…The company does continuous education of employees on correct business practices to be followed by them at all times….The company also checks payment by third party on monthly basis and suitable disciplinary action is taken. In the last financial year we had only 26 cases and in all cases caution letters were issued and there were no repeat cases. …
Decision on Charge (1):
6. Based on the review of the regulatory position, I succinctly observe that premium has to be paid either by the policyholder or the proposer. Considering the submissions made by the insurer on the steps adopted to ensure compliance with the regulatory stipulations in the matter, I hereby direct the insurer to ensure strict compliance of relevant provisions of Master Circular on Anti Money Laundering/ Counter Financing of Terrorism (AML/CFT) – Guidelines for Life Insurers and Regulation 3 of IRDA (Manner of Receipt of Premium) Regulations, 2002. Further, the insurer is hereby, directed to apprise their Audit Committee in the ensuing meeting and minutes of the meeting shall be filed with the Authority within 15 days from the date of the meeting.
Charge (2) Improper KYC documentation and verification
Violations observed:
7. It is observed that the KYC documents as per the list in Annexure III are not attested by the authorized sales persons of the insurer….By not ensuring the certification of KYC documents by the Authorized person, the insurer violated the provisions of clause 3.1.1 (vi) of Master Circular on Anti Money Laundering/ Counter Financing of Terrorism (AML/CFT) – Guidelines for Life Insurers. Reference No. IRDAI/ SDD/ GDL/ CIR/ 175/ 09/ 2015 dated 28-09-2015.
Summary of the submissions of the insurer on charge 2:
8. In response to the Authority’s observation on 12 cases, we wish to most humbly submit that in 10 cases, the insurance policies solicited were pursuant to a digital tablet based solicitation, wherein the physical signature of the customer under the Customer Declaration Form at the point of sale and is being counter signed by the respective sales executive, in accordance with the provisions of the IRDAI (Protection of Policyholders Interests) Regulation, 2017. The remaining 2 cases were of pure online purchase policy with OTP authentication hence physical signatures were not required…..
9. ….It is submitted that in order to encourage paperless transactions and ensuring seamless customer / policy on-boarding journey, the company has invested in a technology platform to capture all the information of the customer including the photograph in a digital and electronic form….
10. …the company has strict internal controls and processes specifically towards mandating its employees/authorised insurance agents to ensure due KYC compliances with respect to the certification of the identity and address of policyholders…The Internal Audit department of the Company in its audit program of operations/underwriting function scrutinizes these documents and thereby exercises supervisory control resulting into a strong oversight of these processes….
Decision on Charge (2):
11. Submissions of the insurer as under are considered:
a. 10 out of cited instances of sales were pursuant to digital tablet based solicitation where the physical signatures of the customer are obtained under the Customer Declaration form and are counter signed by the respective sales executive;
b. the remaining two online purchase policies with OTP authentication wherein, physical signatures are not required;
c. further the internal audit department of the company in its audit program of operations/underwriting function scrutinizes these documents.
Accordingly, the charge levelled in the show cause notice is not being pressed.
Charge (3) Non-maintenance of minimum information as per Insurance Rules:
Violations observed:
12. As per Rule 39 (3) (iii) (iv) & (v) of Insurance Rules, 1939, the insurer needs to maintain the copies of appointment letters issued to field workers and members of the staff and changes therein, a record of employees, showing names, date of appointment, salary etc., showing the business expected from and actually written by them with cross-reference to appointment letters and date of termination, if any.
13. It is observed that employees were positioned for selling insurance policies and incentives were paid to employees for the same. The insurer did not submit any evidence to suggest that these employees were eligible to solicit and act as insurance agents and the payment of incentives is in order. Therefore, it is also a violation of section 40 (1) of the Insurance Act, 1938
Summary of the submissions of the insurer:
14. …..Solicitation undertaken by the employees of the Company who are adequately trained constitutes ‘direct solicitation’ and as this does not constitute solicitation by intermediaries….. The business procured by the full time employees of the insurer is booked as direct business.
15. …we would like to respectfully state that we do maintain copies of appointment letters that have been issued to the field workers and members of the staff. We also have in place records of all employees, showing name, date of appointment, present designation and present salary.
16. In specific response to the Authority’s observation, we wish to most humbly clarify that the payments made to employees of the company as ‘sales incentives’ in the highlighted instances are performance based incentives which have been paid in accordance with the Variable Pay policy, the terms of the appointment letters issued by the Company to such employees and also in view of the satisfactory attainment of the performance benchmarks as communicated by the company to such employees from time to time.
17. ….the payments made to employees in the identified instances are not in the nature of remuneration/commission payable to insurance intermediaries/ insurance agents …..
18. …The sales incentives paid to the full time employees in the highlighted cases are based on the performance standard achieved by such employees in accordance with the variable pay policy and the contractual agreements in place….
Decision on Charge (3):
19. From the perusal of the submissions made by the insurer and other materials made available before me, it is observed that the solicitation by full time employees of the insurer is ‘direct solicitation’. It is also noted that the insurer has in place records of all employees, showing name, date of appointment, present designation and present salary. Accordingly, the charge levelled in the show cause notice is not being pressed.
20. Charge (4) Corporate governance and control shortcomings
Violations observed:
On an overall review of the inspection report, it is observed that there were many observations (including Charge no. 1 and 3 above) pertaining to poor sales practices, customer grievance resolutions mechanisms, policy administration system and product system readiness certification issues. All these are indicative of larger “governance and control” shortcomings and the company is found to be in violation of Clause 6 of Guidelines for Corporate Governance for insurers in India (Ref No: IRDA/F&A/GDL/CG/100/05/2016 dated 18.05.2016).
Summary of the submissions of the insurer:
22. ….It is submitted that the company has internal audit department apart from statutory audits and concurrent audits. It is also submitted that no lapses are observed in any of the policyholders’ related guidelines, corporate governance, and submission of reports to the regulator….
Decision on Charge (4):
23. Submissions of the insurer are considered as regards review mechanisms in place with the insurer. Accordingly, the charge levelled in the show cause notice is not being pressed.
24. 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
