BackIrda pulls up SBI Life, asks it to refund policyholders
Irda has given SBI Life six months to refund the money
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The Insurance Regulatory and Development Authority (Irda) has asked SBI Life Insurance Co. Ltd to refund policyholders money on account of misrepresenting its group insurance product, Dhanaraksha Plus Limited Premium Paying Term plan.
Dhanaraksha Plus is a decreasing term cover that customers buy along with loans in order to insure them. Being a limited premium pay policy, it asks for premium instalments over two years, but the corporate agents of the insurer, mainly the State Bank of India and its subsidiaries, sold this policy largely as a single premium policy by collecting both the first-year and second-year premiums upfront.
According to Irda, this is wrong on two fronts: it means more commissions to the corporate agents, and no informed choice being given to the policyholders since those willing to pay a single premium could have opted for the single premium version of this policy directly.
According to the Irda circular, since these plans were sold as regular premium ones, the corporate agents took 40% of the first-year premium and an additional 7.5% of the second-year premium as commissions. If the insurer had sold the single-premium version of this plan, the commission would have been restricted to 2% of the one premium.
The circular also said that 93% of second-year premiums were received in advance along with first-year premiums in FY09; it increased to 94% in FY10 and 97% in FY11. The circular also states that 99.99% of the total premium procured under the Dhanaraksha Plus Limited Premium product was sourced by corporate agents of the insurer belonging to SBI group.
Irda had penalized the insurer with ₹ 5 lakh in 2012 as well, but now it has asked SBI Life to identify the policyholders and reimburse the extra cost that the insurer would have deducted on account of extra commissions. According to the circular, around ₹ 275 crore is considered as refundable to the policyholders. But SBI Life is of the view that the circular does not reflect the complete truth. “This is a directive and it can be appealed against. We appreciate Irda’s concerns but we will make an appeal. We will explain our side of the story," said Atanu Sen, managing director and chief executive officer, SBI Life Insurance Co Ltd. Irda has given SBI Life six months to refund the money.
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