IRDAI Warns Reliance Nippon on Policy Cancellation

The Insurance Regulatory and Development Authority of India (IRDAI) issued an order following a remote inspection and subsequent Show Cause Notice to M/s Reliance Nippon Life Insurance Co. Ltd., finding the insurer in violation of Section 45(1) of the Insurance Act, 1938. The central violation involved cancelling at least twelve sample life insurance policies after the mandatory three-year period from the date of risk commencement. While the insurer argued that the cancellation process was initiated within the three-year window, IRDAI ruled that the actual date of cancellation was beyond the statutory limit, thereby contravening the policyholder protection intent of Section 45. The cancellations, based on grounds such as non-disclosure of existing insurance, misrepresentation, and non-contactability, were deemed either improperly substantiated or outside the scope of Section 45 for post-three-year policy rescission. The Authority noted that the insurer failed to provide timely evidence of communication and that belatedly acquired ‘satisfactory letters’ from policyholders lacked evidentiary value. Consequently, IRDAI issued a Warning to the Insurer for violating Section 45(1) and Corporate Governance guidelines. The company was also directed, through an Advisory, to pay interest (bank rate plus 2%) on the delayed premium refunds and to mandate an independent Chartered Accountant firm to conduct an audit of internal processes within 180 days to ensure future compliance.

Insurance Regulatory and Development Authority of India

Ref: IRDAI/E&C/ORD/MISC/100/08/2025

Order in the matter of M/s Reliance Nippon Life Insurance Co. Ltd.

1. Based on the

1.1. Show Cause Notice (“SCN”) Ref. No. IRDA / ENF / 2020 / 556 / SCN / 063 dated 08^th October, 2024 issued to M/s. Reliance Nippon Life Insurance Co. Ltd. (‘Insurer’ or ‘Company’) in connection with the remote inspection conducted by the Authority from 10^th August 2020 to 14^th August 2020.

1.2. Submissions made by the Insurer vide email dated 18^th November 2024 in response to the aforesaid SCN.

1.3. Submissions made by the Insurer during the personal hearing held on 10^th February, 2025 by a panel of two whole-time members of the Authority – Shri Rajay Kumar Sinha (Member-F&I) and Shri P K Arora (Member-Actuary).

1.4. Further submissions made by the insurer post-hearing vide email dated 24^th February 2025.

2. Background

2.1. The Authority had conducted a remote inspection on the Insurer from 10^th August 2020 to 14^th August 2020. The inspection report, inter alia, revealed certain violations of provisions of the Insurance Act, 1938 and Regulations, Guidelines and Circulars issued thereunder.

2.2. A copy of the inspection report was forwarded to the Insurer on 15^th October 2020 seeking their response and the insurer submitted their response vide letter dated 24^th November 2020.

2.3. On examining the submissions of the Insurer, an SCN was issued on 08^th October, 2024. The Insurer replied to the SCN vide email dated 18^th November, 2024. As requested for by the Insurer, a personal hearing was granted on 10^th February, 2025 by the panel of Whole Time Members of the Authority- Shri Rajay Kumar Sinha, Member (F&I) and Shri P K Arora, Member (Actuary).

2.4. On behalf of the Insurer, Shri Ashish Vohra (Chief Executive Officer), Shri Pradeep Thapiyal (Appointed Actuary), Shri Nakano (Nippon Life), Shri R Bharathwaj (Chief Risk Officer), Smt. Ekta Thakurel (Company Secretary) and Shri Rajesh Kumavat (Compliance Officer) and on behalf of the Authority, Shri R K Sharma (Chief General Manager), Shri T.Venkateswara Rao (General Manager), Shri Sanjay Kumar Verma (General Manager), Shri Atul Gupta (Assistant Manager) and Shri Monu Moar (Assistant Manager) attended the hearing.

2.5. The submissions made by the Insurer in its letter dated 24^th November 2020 and the submissions made after SCN vide email dated 18^th November, 2024, submissions during the personal hearing on 10^th February, 2025 and further submissions made post hearing vide email dated 24^th February 2025 have been carefully considered by the Authority and are summarized below:

3. Charge-1 (Inspection Observation – 2)

3.1. Violation of

• Section 45 (1) of the Insurance Act, 1938 for cancelling policies after expiry of 3 years from date of issuance.
• Clause 6 and 7.3 of the Corporate Governance for failure to detect intended frauds and misrepresentation by life assured and for failure to have proper systems and internal controls to correctly indicate the date of lapsation.
• Clause C of the circular NO. IRDA / SDD / MISC / CIR / 009 / 01 / 2013 dated 21-01-2013 on implementation of Anti-Fraud Policy.

3.2. Inspection Observation – 2

3.2.1 On examination of sample of policies cancelled during the years 2017-18, 2018-19 and 2019-20, it was observed that the insurer cancelled the policies after expiry of three years from the date of issuance / risk commencement.

3.2.2 There were 12 cases cancelled after three years out of sample 99 cases as under:

3.2.3 The cancellation was effected on grounds including, but not limited to, non­disclosure of prior insurance policies, misrepresentation or non-disclosure of occupation or professional profile, and failure to establish contact with the insured.

3.2.4 In some cases, even for the cheque bounce cases, the insurer took more than three years to withdraw / cancel the polices. There was one instance in FY 2019-20 where the policy was cancelled due to reasons “post issuance due to under-writing decisions”.

3.3. Summary of Insurer’s Submissions:

3.3.1. The insurer initially had submitted that the sample cases have been reviewed on the basis of additional information received post issuance of the policies and found to be cases of active concealment of facts related to lifestyle information, personal medical history & other related information impacting the underwriting decision which was taken on the principle of utmost good faith. All cases were reviewed well within the 3 years’ period and communication to the customers were also sent calling the policy in question and informing the cancellation of the policy in the event of failure of customer to submit the clarification. Follow up communications were also sent to the customer. The policies were finally cancelled after providing enough time to the customer/s.

3.3.2. The insurer submitted that they had issued over 75 lakh individual policies from FY10 till FY16 (the period in which these policies were issued), showcasing a broad reach and commitment to financial inclusion, particularly in underserved areas. The insurer has accepted that out of 75 Lakhs policies, only 17 were cancelled after three years due to fraud, representing a minuscule 0.00023% of total policies. These 17 policies were cancelled after three years due to fraud, in response to specific circumstances, including the receipt of a whistle-blower alert, industry notifications or customer requests for a change of Date of Birth, as applicable. The Insurer stated that in respect of 17 customers, premium of INR 12.5 lakhs has been refunded without any deduction. It is also stated that a satisfactory letter has been taken from all the 17 customers and all customers accepted the refund amount and no one has challenged company’s cancellation decision.

3.3.3. On the Authority’s concern regarding instances where certain policies related to cheque bounce cases, the insurer submitted that the Company allows for a 90-days period from the date of the cheque bounce to give the customer an opportunity to submit the premium payment and continue to avail the insurance benefits. During this period, the Company sends both written and SMS communications to the customer, informing of the premium payment and the status of the policy. These communications clearly state that the policy is not in force until payment is received. The policy is cancelled if the customer fails to respond within the above stipulated period.

3.3.4. To address the concern of IRDAI that the Insurer may have cancelled many more policies under Section 45 by initiating the process within the three-year window to avoid scrutiny for regulatory violation, the Insurer submitted a certificate dated 08/02/2025 from an Independent Chartered Accountant firm certifying compliance of RNLIC with the amended Section 45 and that RNLIC has not repudiated any claims beyond 3 years after a review which arose from the date of commencement of Amended Act provisions of Section 45 till date.

3.3.5. During personal hearing, the Insurer reiterated the submissions made in response to the SCN regarding closure of claims in line with Standard Operating Procedure (SoP). A copy of the SoP was submitted by the Insurer vide mail dated 24-02-2025 after Personal hearing.

3.3.6. The insurer emphasized that the company is fully committed to establishing effective systems and processes to detect and prevent fraud and misrepresentation. Through a combination of predictive modelling, a dedicated Fraud Control Unit, cross-departmental collaboration, and a robust investigative framework, the insurer is positioned to address the challenges posed by fraud proactively.

3.4. Decisions on Charge-1:

3.4.1. Section 45(1) of Insurance Act, 1938 makes it incumbent on the insurer to
verify all the documents and information furnished with the proposal by the life insured and to question the policy on grounds of fraud, concealment and suppression of material facts “within a period of three years”. Though the insurer submitted that the policies were taken by the policyholders by suppressing material information, concealment of facts related to life style information, personal medical history & other related information impacting their underwriting decision etc., they should have verified the authenticity of documents, statements made in the proposal forms and cancelled the policies, based on material evidence, “only within three years’ window period” provided by the Act.

3.4.2. Section 45 is sacrosanct provision aimed at policyholder protection and to hold the life insurers accountable to their promise once the period of three years from the date of issuance, commencement of risk, revival of the policy, or the date of any rider to the policy, whichever is later, is over. The date of initiation of the process of reviewing the policies and calling for the requirements has no relevance as per the provisions of Section 45 of Insurance Act, 1938. The actual date of cancellation as observed in these 12 cases is beyond three years. Hence the cancellations made were in violation of Section 45(1) of Insurance Act, 1938.

3.4.3. Further, section 45(2) empowers the insurer to cancel the policy within three years from the date of issuance, commencement of risk, revival of the policy, or the date of any rider to the policy, whichever is later, on the ground of fraud but not on any ground whatsoever which suits the insurer’s whims and caprice.

3.4.4. The insurer had also cancelled the policies after three years on the grounds such as cheque dishonour, non-disclosures of existing insurance detail, non-contactability of life assured which neither amount to frauds or mis-statement or material suppression in terms of Section 45. It is also noticed that the Insurer had cancelled the policy citing reasons which were outside the scope of Section 45(2). Policy No. 19693548 was cancelled on the ground of wrongful mention of the occupation and non-disclosure of diabetes. However, the documents submitted by the Insurer are examined and it is noticed that the medical investigation report of the life assured nowhere mentions that the life assured was in fact diabetic. All the readings of blood glucose levels as well as H1bAC are found to be in normal ranges.

3.4.5. Clause 5.3-Treatment of Section 45- Cancellations SoP as submitted by the Insurer provides that if the policyholder is found to have committed fraud or intentionally misrepresented material facts, the insurer may reject the claim or rescind the policy within the first three years. However, in the case cited supra, the Insurer has failed to comply with their own SoP since there is a wrongful determination of pre-existing disease (diabetes) as suggested by the medical investigation report thereby neither fraud nor misrepresentation is established by the insurer. Thus, it is concluded that evidence in this instance does not establish suppression of material fact.

3.4.6. Similarly, in case of Policy No. 51129808, the policy was cancelled on the ground of “non-disclosure of existing insurance details”, the insurer failed to offer any comment/s as to how the Insurer determined such non-disclosure as material and/or akin to fraud. The SoP submitted by the insurer do not specify that non-disclosure, cheque dishonour etc. are the valid ground for cancellation of policies. Despite of the same, many policies were cancelled after three years on these grounds. Therefore, it is concluded that cancellation of these policies are not only in contravention of section 45(1) of Insurance Act 1938 but also of their own SoP.

3.4.7. Even for the repudiations arising out of the reasons such as misstatement of facts, the burden to establish such misstatement on account of the policyholder rests with the insurer. It is also incumbent upon the life insurer to prove that had they known such mis-statement, they would not have issued the policy. Each and every non-disclosure cannot be treated as material even within three years of the policy.

3.4.8. Arguendo, even if the insurer’s submission that the process of cancellation was initiated within three years is accepted, it is observed that the Insurer has failed to provide the evidence for the same. Attention is drawn to policy Nos.18026269, 18707078, 19693548, 51081304, 51129808, 51139996, 51391704, 51545082, 52417660, 52799334 where the Insurer has failed to provide any email / letter indicating that any attempt was made to cancel the policy within three years.

3.4.9. The Insurer had submitted in their response to the inspection report that all 99 cases of cancellation were within three years as per Section 45 and relevant communications were sent to the Policyholders which were attached as Annexure 2.C.1. However, on scrutiny of the annexure 2C.1, it was found that the said annexure was merely an xl file having details of the policies cancelled with most of the policies not having any date of communication of the intent of the insurer to cancel the policies. The insurer has failed to provide the actual communication letters / emails in respect of twelve cases which has led the Authority to believe that no communication was issued within three years and the cancellation was done after the expiry of three years in flagrant violation of section 45(1) of Insurance Act 1938.

3.4.10. It is noteworthy that the insurer followed a consistent pattern, wherein it was communicated that there was no response from the policyholder to the first notice of cancellation issued 30 days following the call-out notice. This non-response was interpreted as implied consent for the cancellation of the policy. The delay in issuing the formal communication of cancellation confirmation, final notice or refund, however, raises questions regarding the insurer’s compliance with the regulatory framework governing the cancellation of policies. The details furnished by insurer are tabulated as under:

3.4.11. Further, as submitted by the insurer, the formal communication named as final notice was sent well beyond three years from the date of the risk in respect of twelve cases mentioned in observation. Though, their inspection reports, call-out notice, and confirmation of cancellation were issued within three years from the date of commencement of risk but the final decision to cancel these policies was taken beyond three years which was in contravention to Section 45.

3.4.12. Cancelling the policy beyond three years, casts serious doubts on the commitment of the insurer to serve the policyholders in fair and transparent manner. The Insurer has failed to clarify as to how non-contactability itself can typically be a direct reason for claim repudiation under Section 45. There is a serious concern on determination of a fact as material and the kind of propositions set out by the SOP of Insurer for cancellations.

3.4.13. During the hearing, the insurer, as a part of the presentation made, shown a certificate dated 07/02/2025 from a CA firm certifying that the insurer has not repudiated any claim after the expiry of three years as mentioned under Section 45 of the Insurance Act 1938 for the period from 01-04-2015 to 31-12­2024. It further certifies that the company did not cancel any policy after the expiry of three years as mentioned under section 45 of Insurance Act,1938 for the period from 01-10-2020 to 31-12-2024.

3.4.14. The insurer submitted ‘satisfactory letters’ from 12 policyholders whose policies were cancelled in contravention of Section 45 of the Insurance Act, 1938, after the lapse of three years. Upon review, it was noted that these letters were procured subsequent to the issuance of the Show Cause Notice (SCN), and after more than four to seven years after the date of cancellation. Consequently, the belated procurement of these letters does not hold evidentiary value or serve the intended purpose.

3.4.15. Therefore, it is concluded that the Insurer has cancelled the policies beyond the time limit of three years in contravention of section 45 of the Insurance Act, 1938. The formal communication of cancellation was always beyond three years as per the table below para 3.4.10 and thus, the insurer lost the right to call in question on any ground whatsoever as the ground of fraud could not be proven following due process and written communications as per proviso to section 45(4).

3.4.16. The insurer has also violated Clauses 6 and 7.3 of the Corporate Governance Guidelines issued vide ref. no. IRDA / F&A / GDL / CG / 100 / 05 / 2015 dated 18th May, 2016 as the insurer has failed to institute systems and processes to detect the intended frauds and mis-representation by the life assured / policyholders so that the regulatory intent of Section 45 of Insurance Act is upheld.

3.4.17. Section 45 is sacrosanct provision aimed at policyholder protection and to hold the life insurers accountable to their promise once the period of three years from the date of issuance, commencement of risk, revival of the policy, or the date of any rider to the policy, whichever is later, is over. The actual date of cancellation as observed in these 12 cases is beyond three years. Hence the cancellations made are in violation of Section 45 of Insurance Act, 1938 but the insurer’s submission that there was no claim incident in the said 12 policies which were cancelled by the insurer is taken on record by the Authority. Further, the insurer has refunded the premium paid under these policies. It is also taken on record that the insurer has not cancelled any policy after the expiry of three years as mentioned under Section 45 for the period from 1/10/2020 to 31/12/2024

3.4.18. In view of the above, the Insurer is hereby warned for the violation of Section 45 (1) of the Insurance Act, 1938 and Clause 6 and 7.3 of the Corporate Governance Guidelines issued vide ref. no. IRDA / F&A / GDL / CG / 100 / 05 / 2015 dated 18th May, 2016. Any repetition of the violation in future shall be viewed seriously.

3.4.19. Further, the insurer is advised as under:

i. To pay interest at bank rate plus 2 percent on the refunded premium from the date of cancellation of the policies to the date of refund of the premium.

ii. To cause an audit of internal processes to identify gaps so as to ensure compliance of Section 45 in letter and spirit.

iii. Such Audit shall be carried out by a Chartered Accountant Firm (CA Firm) complying with the eligibility criteria specified by the Authority for appointment of the Auditor.

iv. The audit referred herein shall be completed within 180 days from the date of receipt of this Order.

4. Summary of Decisions:

5. 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.

6. 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 Act, 1938.

Rajay Kumar Sinha
Member (F&I)

P K Arora
Member (Actuary)

Place: Hyderabad
Dated: 17-10-2025