It has come to the IRDAI's notice that some of the insurers are offering commission or remuneration to the bankers that is more than the maximum stipulated levels under the norms, a senior regulatory official said.
"The interest forgone on such large balance is counted towards the compensation banks are to receive for the sale of insurance products. Due to this practice, the interest of policy holders is at stake as these funds earn zero returns," the official said.
Such practices are in gross violation of the IRDAI's norms for bancassurance industry and standard corporate governance norms.
The regulator has flagged some illegal practices in the bancassurance channels to the government and has got a g0-ahead to act against errant entities, the official said.
According to IRDAI's corporate agency regulations, if a bank and an insurance company enters into an agreement for selling insurance products, then that bank is not eligible for any payout other than commission.
IRDAI has also noticed that insurance companies and their promoter organisations have engineered rates to pay excess commission or remuneration to their bancassurance partners through "seemingly" legitimate banking transactions.
"For instance, forex rates offered by a bank and its promoter group companies are higher than fair market rates," he said.
The difference between the fair market rates and the actual rate paid is counted towards the "illicit fee" payable for sale of insurance products, he said.
Sometimes, insurance companies make up for marketing expenses incurred by lenders to compensate for a bank's sale incentives towards insurance products.
"This is done by way of offering heavy discounts to banks on co-branded outdoor hoardings, which is ultimately charged (to) the policy holders," he said.
Many insurance companies pay a fee to the banks to advertise on/ in their ATMs whereas the responsibility of bearing this fee is on the bank itself and should not be charged to the insurer.
The ultimate incidence of this fee is borne by the policy holder which is illegitimate, the official added.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)