Rs 1.18-cr fine on ICICI Pru for breach of agent fee norms

The insurance regulator has slapped a fine of Rs 1.18 crore on ICICI Prudential Life, India’s second-largest private life insurer, for violating norms pertaining to commissions paid to corporate agents, referral agents and brokers.

The insurer was charged on six counts after the Insurance Regulatory and Development Authority (Irda) conducted inspections between November and December 2010 for 42 possible violations.

Irda found eight instances of ICICI Prudential paying commissions beyond prescribed limits to its corporate agents, and was fined Rs 40 lakh.

The beneficiaries included India Infoline Services, Nandi Financial Services, Netambit Value First, Sharekhan Financial, Fullerton India, Soft Insurance, Yule Investments and Alacrity Financials.

Irda said it would take further action against these entities for receiving more than the permissible commission. “This is an exceedingly serious violation,” Irda said in its order.

The regulator directed ICICI Prudential Life to pay the penalty within 15 days.

The regulator also added the insurer’s contracts with its promoter, ICICI Bank, and group companies were not complete, and very large payments were made to these entities without specifying the services for which the payments were made.

“The insurer has entered into various agreements and MoUs with its group companies — ICICI Bank, ICICI Housing Finance, ICICI Securities — for utilising their network for marketing, advertisement, and other services. These agreements are incomplete…. All these companies are also acting as corporate agents or referral partners of the insurer and are receiving due commission and referral fees. By these actions, the insurer has violated Clause 21 of the Corporate Agency Guidelines,” said the Irda statement.

ICICI Prudential Life also allegedly paid administrative fee to ICICI Bank and firms such as Fullerton India for group policies, in violation of the norms.

ICICI Prudential Life spokesperson declined to comment.

Another fine of Rs 40 lakh was imposed on the insurer as it was found giving incentives to its referral partners and brokers beyond legal limits. For instance, during 2009-10, Standard Composite Insurance Brokers Ltd and Bajaj Capital Insurance Broking Ltd were paid 402 per cent and 153 per cent, respectively, above the permissible limit. The private insurer was also found violating the norms relating to the locations under specified persons. “From the inspection, it is evident that there are several similar cases where the number of specified persons is grossly disproportionate to the number of locations in which the corporate agent is functioning.” Irda said in the order and imposed a fine of Rs 11 lakh on this ground.

“This violation is a significant violation because it encourages sale of insurance by unqualified persons and opens gates to several malpractices such as mis-selling, multiple level marketing, etc. For all these reasons, Irda is satisfied that this is a grave matter and a deterrent punishment must be imposed on the insurer,” Irda said in its order.

ICICI Prudential Life managing director and CEO Sandeep Bakhshi was present during the hearing.