IRDA should fine errant distributors: Insurance officials

The insurance regulator should not allow distributors go scot- free while insurers are penalised for paying them extra in violation of norms, life insurance officials say.

They say the regulator should also look at non-monetary penalties on the insurers.

"The life insurance industry is held to ransom by corporate agents. No other financial sector pays as high as 40 percent as commission to their intermediaries. But they demand more than that and in some cases they are paid as high as 85 percent. It is high time they are also penalised by the regulator so that violations are reduced," a senior official of a Mumbai-based life insurance company told IANS over phone, preferring anonymity.

According to him, there are two Insurance Regulatory and Development Authority (IRDA) regulated entities that are parties to the violation -- insurer and the corporate agent-- and penalising one is not just.

"In its penalty orders against insurers, IRDA has mentioned that it reserves the right to take action on the errant distributors. But till date no great action against them has been taken. Whatever action it has taken is against the distributors of non-life insurers where the payment is very minimal," said another industry official.

While IRDA has penalised several life and non-life insurers with hefty fines, it has fined only on two corporate agents - IndusInd Bank (corporate agent for Cholamandalam MS General Insurance Company) and Central Bank (corporate agent for New India Assurance Company) till date.

The IndusInd Bank was fined Rs.1.5 million last year for receiving excess payments in violation of regulations.

Interestingly one of the reasons for IRDA penalising Central Bank in 2011 as per the penalty order was for floating a tender "asking insurers to offer their bids for extra payouts in the name of Marketing Support Expenses, Manpower Support Expenses and any other support, apart from the IRDA approved commissions".

"If you look at the penalties there will be a pattern. The regulator, industry bodies- life and general insurance councils- should look at the pattern and discuss what needs to be done," Roopam Asthana, ceo and director at Liberty Videocon General Insurance, told IANS over phone from Mumbai.

Insurance industry officials told IANS that the root cause whether it is the regulations or the operational environment should be found and the problem addressed.

Not agreeing on the issue of penalities for corporate agents, a CEO of another Mumbai based life insurer told IANS: "I do not think this is required. More effective method to prevent excess payments to distributors would be non-monetary but compelling penalities like stoppage of product approvals or business for a given period."

He added: "At least I know about one senior industry person who takes monetary penalties lightly because the gains his company had due to malpractices are much higher than the penalties. Also if every insurer is fined, the penalties lose their sting and become routine."

Another senior insurance official said: "It has become a routine issue since foreign partners of many such penalised life insurers are not raising an issue with their management."

He said IRDA is right in levying penalties on insurers. The insurers and the life/general insurance councils have a lot to learn on what they need to do right for customer.

"But the issue is IRDA is doing things in a micro manner sometimes missing the big picture - development, customer and shareholder value," he said.