SBI Life appeals against regulator's order for Rs.275 crore refund

Private life insurer SBI Life Insurance Company Ltd has appealed to the Securities Appellate Tribunal (SAT) against the sectoral regulator's orders to refund around Rs.275.29 crore to its policy holders, said a senior official in the regulator's office.

"SBI Life has preferred an appeal to SAT. SBI Life has informed of their filing appeal with SAT vide their letter dated April 6, 2015," D.D. Singh, member (Distribution) at Insurance Regulatory and Development Authority of India (IRDAI) told IANS on Wednesday.

SBI Life is a 74:26 joint venture between State Bank of India (SBI) and BNP Paribas Cardif of France.

In February 2015, IRDAI chairman T.S. Vijayan directed SBI Life to implement its March 2014 order to refund Rs.275.29 crore of excess commission to the policy holders.

The regulator directed the company to comply with its order within 45 days from the date of Vijayan's letter. The 45-day period expired this month.

When queried about the status of refund to policy holders as directed by the insurance regulator, Sangramjit Sarangi, chief financial officer (CFO) of SBI Life told IANS over phone on Wednesday: "Whatever has to be complied with has been complied with by the company."

He declined to give a specific answer when asked whether the company has appealed to SAT against IRDAI's order.

"Everything has been communicated to IRDAI," he said.

A detailed list of questions mailed to the company remained unacknowledged till the filing of this report.

Legal experts question the company's move to approach SAT.

"The regulator has rightly or wrongly ordered the insurer to refund money to its policy holders. The insurer seems to have not been properly advised to approach SAT," D. Varadarajan, Supreme Court advocate and insurance, company, competition law expert told IANS.

He said SAT had no statutory existence (to hear insurance cases) at the time of IRDAI's original order.

The recent amendment of the insurance laws has permitted SAT to hear appeals against IRDAI's orders.

However, a person with insurance knowledge to hear the insurance cases has yet to be appointed in SAT.

"The only course for the insurer is to challenge the regulator's direction through a writ in the high court," Varadarajan said.

However, he said, SBI Life's case may be the first insurance case to be heard by SAT.

In February, the regulator threw out the life insurer's contention that the regulator does not have the power to issue directions.

The IRDAI said Section 34 of the Insurance Act enables it to issue directions to any insurer to prevent actions that are detrimental to the interests of policy holders.

With regard to SBI Life's contention that the regulator's assumption that excess commission would be charged from the policy holders was erroneous, Vijayan said it lacked the logic of prudent business principles.

"It is the fundamentals of the business of life insurance that any expense/outgo would be loaded in the costs (read premiums). Therefore, the views of insurer are not acceptable," Vijayan told SBI Life's managing director and CEO Arjit Basu in the letter.

A copy of the letter was uploaded on IRDAI's website.

In March 2014, IRDAI ordered SBI Life to refund Rs.275.29 crore excess commission collected to holders of Dhanaraksha-Plus Limited Premium Paying Term policy.

SBI Life's policy in question has two premium payment options -- single-premium and two-year premium paying plan.

In the case of single-premium policy, the premium for the entire policy period is collected upfront. The commission paid on that cannot be more than two percent as per the Insurance Act.

On the other hand, the premium under the two-year premium paying plan is slightly higher and the commission rate is 40 percent on the first year premium and 7.5 percent on the second year premium.

According to IRDAI, SBI Life's corporate agents -- mostly State Bank of India and its associate banks -- did not reveal to the policy holders the availability of the single-premium option.

The corporate agents sold the two-year premium payment plans. They collected the premium for two years in advance. This is done mainly to pocket 40 percent commission on the first year premium and 7.5 percent on the second year premium.

The IRDAI found out this practice during its onsite inspection of SBI Life's books.