IRDAI imposed penalty of Rs.1 crore on SBI Life Insurance, Know reason

The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a ₹1 crore fine on SBI Life Insurance for violating regulations related to outsourcing and dealings with web aggregators. In addition to the penalty, IRDAI issued an advisory to the insurer regarding the handling of multiple insurance claim denials.

Violations Related to Outsourcing and Web Aggregators

SBI Life Insurance was found to have engaged with various web aggregators, such as Policybazaar, MIC Insurance, Compare Policy, Easypolicy, and Wishfin, without clearly outlining the services they provided or the fees involved. According to IRDAI’s findings, the agreements with these web aggregators lacked transparency, especially in defining services and the basis for payments.

Additionally, SBI Life failed to report payments made for outsourcing services to the regulator, which is a requirement. For example, the company paid ₹1.93 crore to Extent Marketing and Technologies Pvt. Ltd. over two years (2017-18 and 2018-19), but did not report these payments. It was found that Extent Marketing itself relied heavily on outsourcing, passing on 95% of its revenue to third parties, which raised concerns about conflict of interest and transparency.

IRDAI’s Action and Directives

The IRDAI found that SBI Life’s outsourcing arrangements violated key regulations, including those related to conflict of interest, transparency, and due diligence. As a result, the insurance company has been instructed to establish a proper outsourcing policy that complies with the latest regulations. Additionally, the company’s board has been directed to review its internal processes and systems related to outsourcing and ensure compliance with all regulatory guidelines moving forward.

Issues with Claim Processing

Apart from outsourcing violations, the IRDAI also raised concerns about SBI Life’s handling of insurance claims, specifically death claims. During the inspection, it was found that the company had denied 21 claims based on non-disclosure or death occurring within three years of the policy issuance. However, the regulator noted that SBI Life did not provide sufficient evidence to support these claim rejections.

The IRDAI emphasized the importance of following Section 45 of the Insurance Act, 1938, which states that no life insurance policy can be questioned on any grounds after three years from the date of issuance, commencement of risk, or policy revival. SBI Life had argued that it was following a 2015 IRDAI circular that allowed claim repudiation if fraud was established within three years of policy issuance. Despite this, the regulator found that the insurer had settled 86 claims worth ₹10.21 crore, including ₹5.78 crore in claim amounts and ₹4.43 crore in penal interest.

The IRDAI has now directed SBI Life to ensure that all future claims adhere strictly to the provisions of Section 45, ensuring fair treatment of policyholders.

Selling Insurance After Withdrawal of Products

Another issue identified by IRDAI was related to the sale of insurance products after they had been withdrawn or before they were officially launched. There were instances where SBI Life sold policies like “SBI Life — Smart Shield” after the product’s withdrawal or before its official launch date. The IRDAI concluded that the insurer had not ensured the proper infrastructure to handle these transitions, which led to regulatory non-compliance.

SBI Life has since responded by streamlining its systems to prevent any further data entry or policy issuance after a product’s withdrawal date.

Conclusion: A Wake-Up Call for Insurers

The IRDAI’s action against SBI Life serves as a reminder for all insurers to adhere strictly to regulatory frameworks, ensure transparency in their dealings with third-party service providers, and handle policyholder claims fairly. This case underscores the importance of maintaining clear agreements, reporting payments accurately, and following due diligence when outsourcing services. The IRDAI’s firm stance also highlights the need for insurers to treat policyholders fairly, especially when processing claims.

By taking these corrective actions, SBI Life is expected to improve its internal processes and align better with regulatory expectations, ultimately benefiting its customers.