IRDA has imposed a record penalty of Rs1.18 crore on ICICI Pru Life for several serious violations including an unbelievable 11346% deviation in commission payable to India Infoline Insurance services in 2010-11

The Insurance Regulatory and Development Authority (IRDA) has imposed a record fine of Rs1.18 crore on ICICI Prudential Life Insurance (ICICI Pru Life), the country’s largest private sector insurer. IRDA, which had conducted onsite inspection of the insurer between November and December 2010 found violations regarding corporate agency guidelines, paying more than the stipulated commission to its distributors (corporate agents, referral agents), not regulating corporate agents and making huge payments to brokers.

The regulator has termed “exceedingly serious violation” with stiff penalty of Rs40 lakh for huge deviation in commission to corporate agents like India Infoline Insurance Services, Nandi Financial Services, Netambit ValueFirst services, Soft Insurance Services, Fullerton India Credit, Yule Investments, Alacrity Financials and Sharekhan Financial Services. What is astonishing is a colossal deviation of 11346% and 1559% in commissions to India Infoline Insurance Services during the year 2010-11 and 2009-10 respectively.

ICICI Pru Life had created multiple code numbers for a single corporate agent and brokers based on the location of the business procured. The insurer had not put in place any mechanism to verify that the solicitation of business was done by a specified person or a qualified person respectively in relation to the number of locations or branches. The total penalty for these violations with respect to corporate agents like Bonanza Finproducts Distributors, Fullerton India Credit, Muthoot Wealth Management Services, Pioneer Assurance Consultants is Rs11 lakh.

ICICI Pru Life was remunerating the referral partners in the name of infrastructure support. The insurer was paying exclusive infrastructure fee (upfront) and costs towards space for insurance specialists, insurance corner space, advertising, etc. There have been violations in 20 instances and hence a penalty of Rs40 lakh.

Penalty of Rs20 lakh was imposed for huge deviation in commission to insurance brokers like Anand Rathi Insurance brokers, Bajaj Capital Insurance broking, Standard Composite Insurance brokers, Artha Insurance broking, KM Dastur Reinsurance broker and Edelweiss Insurance brokers. The highest deviation was for Standard Composite Insurance brokers of 402% in 2009-10. It was followed by Bajaj Capital Insurance broking with 152% deviation in commissions for the same year.

The insurer has entered into various agreements/MOUs with its group companies like ICICI Bank, ICICI Housing Finance Co, ICICI Securities, etc. for utilizing their network for marketing, advertisement and other services. These agreements are incomplete as they do not contain the detailed scope of services and the basis of payments for the said services. All these companies are also acting as “Corporate Agents/Referral partners” of the Insurer and are receiving due commission/referral fee. By this action, the insurer has violated clause 21 of Corporate Agency Guidelines. The insurer’s submission that these expenses are for various services like banking services, web promotional space, office space for employees of the insurer, other joint sales campaigns, etc, do not relate to garnering or procuring business, is not tenable and are in violation of the Insurance Act and Regulations cited. Heavy payments are paid towards marketing or logistic support and non-competing fee which are specifically against the provisions of the Act.