Based on the
Show Cause Notice (hereinafter referred to as “SCN”) reference
No.IRDA/Enf/ SCN/2018/NL/UIIC-Insp.rpt dated 29th August, 2018 in
connection with the on-site inspection conducted by the Insurance Regulatory
and Development Authority of India (herein after referred to as ‘the Authority’
or ‘IRDAI’) during 5th to 16th October, 2015.
M/s. United India Insurance Co Ltd (hereinafter referred to as
“UIIC” or as “general insurer”) response dated 31st October, 2018 to
the aforesaid SCN.
submissions made by UIIC during the Personal Hearing held on 28th
November, 2018 at 3.00 PM, taken by the Chairman of the Authority at its
office at Hyderabad.
Further submissions/data submitted by UIIC post personal hearing vide
letter dated 14th December, 2018.
2. The IRDAI had conducted an onsite
inspection of M/s. United India Insurance Co Ltd
during 5th to 16th October,
2015. The inspection report, inter alia, revealed certain violations of
provisions of the Insurance Act, 1938, Regulations, Guidelines and various
circulars issued there under.
copy of the inspection report was forwarded to UIIC on 19th April, 2017
seeking their response. On examining the submissions made by UIIC vide letter
dated 29th May, 2017 and 7th February, 2018 ,
a SCN was issued on 29th August, 2018, which was responded to by UIIC
vide letter dated 31st October, 2018. As requested by UIIC therein,
personal hearing was granted to UIIC on 28th November, 2018.
4. Mr. Girish Radhakrishnan, CMD, Mr. S Shankar, GM, Mr.B.Rajaram, GM, Mr. R.Hariharan, DGM, Mr. K.Nanda
kumar, DGM, Ms.D
Naga Lakshmi, DGM, Ms Gauri Venkatesan, DGM & CCO and Mr Sanjay Joshi, Chief Manager were present in
the personal hearing on behalf of UIIC. On behalf of the Authority, Mr. Prabhat
Kumar Maiti, GM (Enforcement), Mr. G.R. Surya Kumar, GM (EA to Chairman) and Mr.
K.Sridhar,AGM (Enforcement) were also present.
5. The submissions
made by the UIIC in its letter dated 31st October, 2018, during the
personal hearing on 28th November, 2018 and those made post personal
hearing vide letter dated 14th December, 2018 have been considered
by the Authority and on that basis the decision on each of the charges is
given as under:
6. Violation of Para 2 (ii-c) under Schedule II-B of IRDA (Assets,
Liabilities and Solvency Margin of Insurers) Regulations, 2000; as per
for claims incurred but not reported (IBNR) shall be determined using actuarial
principles. In such determination, the appointed actuary shall follow the
Guidance Notes issued by the Actuarial Society of India, with the concurrence
of the Authority, and any directions issued by the Authority, in this behalf”.
On examining the
documents, it was observed that
in respect of Motor-Own Damage and health businesses, UIIC kept the IBNR
reserve lesser than that implied by the calculations using actuarial principles, based on paid claim Data figures
as on 31st March, 2015.
7. Summary of
The Actuary could not go by
the reserves implied by the calculations based on the claims paid data since
the same was not consistent with trends seen in earlier years.
Insurer submitted that the
procedure of estimating IBNR reserves for FY 2015-16, 2016-17 and 2017-18 was
not the same as carried out during the FY 2013-14 & 2014-15. Insurer
stated that the Appointed Actuary after the
discussions with the Management decided to keep the reserves as per
calculations based on actuarial principles during all the three FY 2015-16,
2016-17 & 2017-18.
8. Decision on
IRDAI from time
to time has clarified to all general insurers that the estimate of IBNR reserves
shall be determined using actuarial principles.
Actuary is expected to
ensure compliance to
guidelines on estimation of IBNR claims provision as prescribed at Chapter I of
circular no.11/IRDA/ACTL/ IBNR/2005-06, dated 8-6-2005.
note from the insurer submission that the Appointed Actuary has recommended the
IBNR provision exactly as estimated and also insurer made a provision as
recommended by Appointed Actuary during the three FYs 2015-16, 2016-17 and
2017-18, the charge is not pressed. The general insurer is advised to ensure
strict compliance of Para 3 & 4 under Schedule II of IRDAI (Assets,
Liabilities and Solvency Margin of General Insurance Business) Regulations,
9. Violation of
no.IRDA/NL/CIR/F&U/003/01/2011 dated 6th January, 2011, circular no.048/IRDA/De-tariff/Dec-07
dated 18th December, 2007 and Guideline
1, 3(ix), 8
& 11 of File
and Use guidelines ref.
021/IRDA/F&U/SEP-06 dated 28.09.2006 as the insurer offered
rates/discounts other than those filed & approved by IRDA. As per the
- rates proposed to be charged
shall be filed following due process
- Competition shall not lead to
unprincipled rate cutting and other improper underwriting practices.
- Every insurer to
market the product strictly in accordance with the terms and conditions and
other features of the product as cleared by the Authority and the rates quoted
shall be within the range filed with the IRDAI.
Regulation 3(2) and 11(1) of IRDA (Protection of Policyholders’
Interests) Regulations, 2002 as the insurer provided incorrect information to
the prospect on the risk coverage and chargeable premium.
As per Regulation
3(2), “An insurer or its agent or other intermediary shall provide all
material information in respect of a proposed cover to the prospect to enable
the prospect to decide on the best cover that would be in his or her interest”.
Regulation 11(1), “The requirements of disclosure of ‘material information’
regarding a proposal or policy apply, under these regulations, both to the
insurer and insured”.
On examining the sample
policy files of UIIC, it was noted that
a) The Insurer has not recorded
justification for the “extent of discount” given to different clients. The
discount given is derived from market forces, as the insurer relies on quotes
given by other competitors. The premium rates filed
by insurer with regard to erstwhile tariff wordings of ‘Erection All Risks
policy’ under F&U guidelines is inclusive of premium for Act of God (AOG) risks. In the sample cases examined, insurer
has separated the premium into base premium + STFI premium + EQ premium and the
insurer has nowhere informed to Authority in the F&U documents about the separation
of premium. Thus insurer presented a false picture, as if it is offering a huge
discount on the base premium and charging premium
separately for AOG perils.
b) The rating of two Group
Tailor made Health policies issued to two corporate clients has been derived
from quotes taken from other insurers, without examining the viability of rates
10. Summary of submissions
a) The rates for
STFI are included in the base cover in the erstwhile tariff. Although the STFI
rates are included, the tariff does not prohibit the insurer to charge
separately for STFI. These STFI rates are printed on the face of the policy for
clarity to the insured and the intention is not to misguide the insured. As per
the common market practice, based on individual merits, discounts are offered
on basic cover excluding STFI. The percentage of discount/loading allowable for
a risk will depend on various individual risk features. Subsequently, EQ and
STFI rates are applied along with the premium for other add-on covers. STFI
rates are catastrophic perils and are not limited to a single risk, hence a
common rate is being charged for all similar risks.
submitted that it has put in place several control measures in the IT system
itself to ensure that discounts are not offered indiscriminately.
b) The insurer is continuously
analyzing the viability of Group Health policies and has already gone ahead
with course correction with regarding to pricing as warranted taking into
consideration the track record of the insured/risk factors and good features of
the risk along with some margin for expenses and IBNR. All these measures have
resulted in better claim performance subsequently and the good trend continues.
11. Decision on charge
a) As per coverage, exclusions
and memorandum 6 of erstwhile tariff wordings of Erection All Risks Policy
(EAR), coverage towards STFI perils (Storm, Tempest, Flood,
Inundation, Hurricane, Cyclone, Typhoon and Tornado) is an in-built cover and rate charged
for EAR cover is to include the cover for STFI perils.
In the two policies
examined, the general insurer
has separated total premium into base premium and STFI premium. Whereas, the
general insurer has filed a consolidated premium and has not shown any
bifurcation of rate in the rate filed under F&U guidelines towards base
rate and rate for STFI perils. In the quotations/policy schedule issued to the
prospect/insured, insurer has bifurcated the rate into base rate for EAR cover
and a separate rate for STFI perils and has allowed differential discount on
both the rates.
In the first policy, insurer has shown STFI
perils coverage as an add-on cover and similarly in the schedule of second
policy, insurer has shown STFI perils coverage as an additional cover.
By adopting the above
approach, insurer gave a misleading impression that it has given a heavy
discount on the base cover and has shown the coverage of STFI peril as an
add-on/additonal cover. The practice adopted by the insurer in the instant
cases is in deviation of the rate guide filed with the Authority, wherein a
single rate has been filed for the EAR risk which includes STFI perils
In view of the violations
observed in the two policies examined which were issued during January &
February, 2015, the Authority in exercise of the powers vested under Section
102(b) of the Insurance Act,1938 imposes a penalty of Rs.2 lakh (Rs.1
lakh for each of the two policies).
b) UIIC accepted that the
rating of two health policies referred in the observation was based on various
risk factors along with the factor of prevailing competitive quotes in order to
ensure retention of renewals.
It was observed from the
available internal office notes that the rates offered by insurer under the
referred two policies was to match competitors quotes rather than considering
them on the basis of risk factors as required under F&U guidelines. The loadings/discount structure should
be as filed by the insurer and cleared by IRDAI under F&U guidelines. By allowing discounts on unsound grounds, the insurer
has deviated from the rating structure filed with the Authority.
In view of the violations
observed in the two policies examined which were issued during August &
September, 2015, the Authority in exercise of the powers vested under Section
102(b) of the Insurance Act,1938 imposes a penalty of Rs. 2 lakh (Rs.1
lakh for each of the two policies).
12. Violation of Regulation 9
of IRDA (Protection of Policyholders’ Interests) Regulations, 2002.
As per the Regulation:
- A general insurer has to
appoint a surveyor within 72 hours of the receipt of intimation from the
- A surveyor shall not take
more than six months from the date of his appointment to furnish his report.
- On receipt of survey report,
an insurer shall within a period of 30 days offer a settlement of claim to the
- Insurer shall pay the amount
within 7 days from the date of acceptance of the offer by the insured.
On examining the sample documents
pertaining to UIIC, it was observed that
a) There are numerous
circumstances where the surveyor has been appointed beyond 72 hours.
b) In 28 claims, the
submission of survey report has been delayed beyond six months.
c) In 33 claims
there has been a delay in settlement of claim by the insurer after the receipt
of final surveyor report.
13. Summary of submissions
a) UIIC informed that as per
data available, the delay in appointment of surveyor with regard to surveyor
appointed cases has been 25% during 2015-16, 25% during 2016-17 and 17.70%
during 2017-18. With regard to delay in appointment of surveyor, insurer
submitted that incorrect data entry in the system has contributed to the
observed delay in appointment in many cases and provided few samples wherein
such data error has occurred.
Further, UIIC submitted that
a revised Surveyor Management policy is being implemented w.e.f. 1st
April, 2019 which expressly specifies the timelines for appointment of
Surveyors, report submission and claims settlement. Checks and balances have
been introduced in the IT systems. In case of delays, the same gets escalated
to next higher authority.
b) UIIC provided claim wise data
informing where out of 28 claims referred in the charge, only in 5 claims there
was a delay in submission of surveyor report due to non submission of documents
c) UIIC submitted claim wise
data of 33 sample claims referred in the charge giving the details of date of
receipt of surveyor report, date of offer made by UIIC on receipt of surveyor
report, date of receipt of acceptance of offer by UIIC and date of claim
payment. UIIC further submitted that the operating offices and claims
servicing hubs have been sensitized to strictly adhere to turnaround times
through periodic reviews and reports designed to capture this data through the
IT system for better monitoring.
14. Decision on charge no.3
Based on the submission on data
errors which lead to presentation of data indicating delay in appointment of
surveyor, insurer is advised to ensure compliance to timelines at all times and
to track/monitor the progress on a regular basis to make sure that in no case delay
happens in appointment of surveyor.
With regard to 28 sample claim
cases referred in the inspection observation on the delay in receipt of survey
report, insurer clarified that there was a delay in receipt of survey report in
5 cases due to non receipt of documents from claimant. In this regard, the
insurer is advised to communicate clearly in writing to claimant / surveyor,
in case of a delay in receipt of any necessary documents.
On examining the data provided by insurer with regard to 33
claims on delay in claim settlement post receiving survey report, it is
observed that in case of 12 claims there has been a delay beyond 30 days in
making an offer to claimant. The delay in days beyond the stipulated period in
making an offer is in the range of 17 days to 886 days. Details as below:
Sl.no of sample
policies of annexure B to charge 3
Date of Loss
Date of receipt
of survey report
Date of offer
made by UIIC
Additional time taken
beyond 30 days after receipt of survey report
In view of the violation
observed in the 12 sample claim cases (with date of loss prior to 26th
December, 2014) on delay in making an offer by the general insurer after
receipt of surveyor report, the Authority in exercise of the powers vested
under Section 102(b) of the Insurance Act,1938 imposes a penalty of
Further, the general insurer
is directed to pay penal interest for the delayed period as per the provisions
of Regulation 9 of IRDA (Protection of policyholders’
Interests) Regulations, 2002.
Para 2 (ii-c)
under Schedule II-B of IRDA (Assets, Liabilities and Solvency Margin of
Insurers) Regulations, 2000
guidelines and IRDA (Protection of Policyholders’ Interests) Regulations, 2002
Penalty of Rs.4
Regulation 9 of IRDA
(Protection of Policyholders’ Interests) Regulations, 2002
Penalty of Rs.
conclusion, as directed under the respective charges, the total penalty
amount of Rs. 9 lakh (Rupess nine lakh only) shall be remitted by UIIC by
debiting shareholders’ account within a period of 45 days from the date of receipt
of this order through NEFT/RTGS (details for which will be communicated
separately). An intimation of remittance may be sent to Mr. Prabhat Kumar
Maiti, General Manager (Enforcement) at the Insurance Regulatory and
Development Authority of India, Survey No.115/1, Financial District,
Nanakramguda, Hyderabad 500032, email id - email@example.com.
Order shall be placed before the Board of the general insurer in the upcoming
Board Meeting and the general insurer shall provide a copy of the minutes of
general insurer shall submit an Action Taken Report to the Authority on
direction given within 90 days from the date of this Order.
UIIC feels aggrieved by this Order, an appeal may be preferred to the
Securities Appellate Tribunal as per the provisions of Section 110 of the
Insurance Act, 1938.
Place: Hyderabad (Dr.
Subhash C. Khuntia)