SAT directs Irdai to recalculate unlawful gains in SBI Life Insurance case

The Securities Appellate Tribunal (SAT) has directed insurance regulator Irdai to recalculate the unlawful gains in the form of advance premium collected by SBI Life Insurance Company and pay the same to the policyholders.

The move comes following an appeal filed by SBI Life against an order passed by the Insurance Regulatory and Development Authority of India (Irdai), which had directed the insurer to disgorge and refund over Rs 275 crore to policyholders.

In an order passed on Wednesday, the tribunal said Irdai did not calculate the disgorgement amount correctly and, therefore, directed the insurance regulator to recalculate and recover the unlawful gains.

"We are therefore of the opinion that the amount of Rs 275 crore has wrongly been calculated by the respondent (Irdai). The appeal is partly allowed. The matter is remitted to Irdai to recalculate the unlawful gain, namely, the interest earned on advance premium collected and recover the same accordingly and pay it to the policyholders," the tribunal noted.

In March 2014, Irdai had directed SBI Life to identify the beneficiaries and distribute the excess commission paid to corporate agents to such beneficiaries and complete the process within six months.

It was alleged that SBI Life had earned excess commission to the tune of Rs 275.30 crore during the financial years 2008-09, 2009-10 and 2010-11 from the policyholders of the Dhanraksha Plus Term Policy.

Dhanraksha Plus was launched in three formats -- single premium; limited premium-paying term (LPPT), which was a two-year limited premium paying group term; and regular premium.

In a single premium policy, the premium for the entire policy is collected in advance and agents can get a commission of 2 per cent under the plan.

Under the two-year premium-paying plan, the first year premium was very high with a commission rate of 40 per cent, and 7.5 per cent in the second year.

It was alleged that SBI Life's corporate agents did not inform policyholders about the single premium-paying plan, and maximum number of LPPT policy was sold by taking advance instead of selling the single premium policy which was far more beneficial to the policyholders.