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Chairman's Order
Ref. No: Date:16-11-2010
Personal hearing in the matter of M/s Reliance Life Insurance Company Limited
Wednesday, July 28th, 2010 at 4 PM
 
The Insurance Regulatory & Development Authority, 3rd Floor, Parishram Bhavanam, Basheer Bagh, Hyderabad
 
In Chair: Sri J Hari Narayan, Chairman, IRDA
 
A personal hearing was given to M/s Reliance Life Insurance Company on July 28, 2010. Sri Malay Ghosh, President and his team were present. On behalf of IRDA, Sri G. Prabhakara, Member (Life), Sri A Giridhar, ED (Admn), Sri Kunnel Prem, CSO (Life) and Sri Satish Hegde, OSD were present.
 
The findings on the explanations offered to the issues raised in the Show Cause Notice dated 9th April, 2010 are as follows.
 
Issue No. 1:
 
It is observed by the inspection team that M/s Reliance Life Insurance Company has opened many offices without taking the approval of the authority based on the MIS submitted during inspection period.
 
M/s Reliance Life Insurance Company Ltd has denied that they have opened any office without the approval of the authority. In their reply the company has agreed that they have created different code number in their MIS. In their presentation to the authority on 28/7/2010 company informs that they have created these units to know the future potential. Once it is found that the place is potential they seek the approval of the authority and open a branch in that place on receipt of authority’s approval.
 
The company in its reply contended that they had not opened any office without the specific approval of the authority. They further state that the MIS was generated for their internal monitoring on sales units which were identified prior to opening a formal office.
 
The IRDA notes that M/s Reliance Life Insurance Company has contracted business in a unit with an identifiable code number relating to a branch for which no approval of IRDA has been accorded. Their contention that such booking of business was only for the purposes of MIS for internal monitoring is not acceptable. If the intention was to establish whether opening of a branch office would be viable at a given location, such an assessment could have been done by other means. There are several examples where branches occupy the same building and quite often the same floor of a building. However, as this is the first time such an instance has been noticed, the Authority will merely issue a warning to the company not to repeat such practice and the company is directed to abide by the provisions of Section 64VC of the Insurance Act, 1938 in letter and in spirit.
 
 
Issue No. 2:
 
The inspection team of IRDA observed that there was delay in issue of licenses. The Company has agreed that there was a delay in issue of licenses in few cases. In its reply company informs that this time lag was due to non-submission of certain requirements by the applicants. The company confirms that in more than 90 % of cases they have issued the licenses within 48 hours of the declaration of results. During their presentation to the authority, company informs that they have been awarded ISO 9001-2000 certification for their licensing process.
 
In the circumstances this issue is not pressed. However the company is directed to abide by the rules and regulations issued by the authority in this regard in future.
 
Issue No. 3:
 
It is observed by the IRDA inspection team that the M/s Reliance Life Insurance Company has out sourced key jobs related to issue of licenses and thus violated the laid down procedures.
 
M/s Reliance Life Insurance Company informs that co-sourcing of licensing process was a legacy of AMP Sanmar Life Insurance Company in the past. In its reply company informs that they have stopped the out sourcing process after it has transitioned the entire process to Mumbai and they have not outsourced any of the activities related to licensing. Hence this issue is not pressed.
 
However the insurer is cautioned not to outsource any of the activities involved in issue and renewal of licenses in future.
 
Issue No. 4:
 
It is observed that M/s Reliance Life Insurance Company has entered into referral like agreements with individuals which are in violation to the existing provisions. M/s Reliance Life Insurance Company have not denied that they had appointed “Lead Generators” but they have taken the plea that they had entered into such arrangements under Proviso (ii) to Regulation 10(1)(iv) of the IRDA Insurance Advertisement Regulations.
 
The Authority notes that there is indeed some ambiguity in the provisions and that subsequently these Regulations have been amended and a formal circular is being issued with regard to management of referral relationships. In the circumstances, this issue is not pressed.
 
However the company is directed to cancel all such agreements with immediate effect and confirm their action to the authority.
 
Issue No. 5:
 
A show cause notice was issued to M/s Reliance Life for having paid excess referral fees than envisaged in the referral guidelines. In its reply company has agreed for this lapse and informs that these fees are paid in anticipation of business volumes to be generated as per initial commitments. This is in violation of the laid down provisions of the guidelines.
 
The company is directed to pay a penalty of Rs.5 lakhs for the violation and cautioned to ensure that they adhere strictly to the guidelines in future
 
Issue No. 6:
 
The inspection revealed that the company has deviated in the F & U procedure particularly in group products in violation of circular IRDA/Cir. No. 01/IRDA/ACTL/MC/2006-07 dated 12/7/2006. The explanation provided by the Company is found to be not satisfactory. 
 
The company is directed to pay a penalty of Rs.5 lakhs for the violation and cautioned to ensure that they adhere strictly to the guidelines in future
 
 
Dated 12th August, 2010
Hyderabad 

J. Hari Narayan
Chairman
 
 
 
 
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