Page 22 - Insurance Times April 2019

of monetary penalty action processes that the Insurance
Regulator undertakes.

Without fair adjudication and robust appellate mechanisms,
levying penalties may not be just. SBI Life's decision to
appeal to the Securities Appellate Tribunal is noteworthy
because the order against the company was issued in May
2014. There was no immediate refund as the company had
made a representation to the insurance regulator in keeping
with the regulatory process. The representation was
rejected and the company ordered to pay.

However, subsequently the law was amended under the
Insurance Amendment Act 2014 which provided for appeals
Pursuant to Insurance Law Amendment Bill, IRDAI has to the Securities Appellate Tribunal against orders of IRDAI.
incorporated a few amendments in the guidelines on The Indian insurance market is still developing and practices
appointment of insurance agents. The IRDAI will get more are evolving. It is not possible to have huge penalties like
teeth once the insurance reforms begin to attract more in the West. It is unlikely that companies would appeal for
foreign funds in the sector. the smaller penalties. Incidentally, there is strong criticism
on questioning the regulator's decision through a Financial
The regulator, for instance, will have more powers to levy Sector Appellate Tribunal since there are three dangers -
higher penalty, impose a ceiling on expense management, undermining the very purpose of a regulator by having
and fix remuneration for agents. These moves will cheer people without capability, information or experience make
insurance agents. As per the Bill, the manner and amount judgements. Secondly, the system would invite appeals and
of remuneration, or reward, to be paid or received by way risk paralysing the system and lead to loopholes being
of commission or otherwise, to an insurance agent or an exploited.
intermediary, will be decided by the regulator.
Finally, the regulator would lose the healthy respect he
The Bill has scrapped two Sections - 40 and 40 B - where
limits can be prescribed by the IRDAI. There are countries enjoys. Regulators do need checks and balances. Actually,
which pay as high as 160% of the first year premium as IRDAI is also subject to it which happens to be the judiciary.
commission to agents, advocating that it should be left to But FSLRC wanted all financial regulators to be brought
companies to fix agency commission. Insurance companies under an appellate body with domain knowledge. That
are not allowed to repudiate claims after three policy years. makes sense. But the sequencing is important because the
The Bill has amended Section 45 to state that no policy can kind of domain knowledge needed to deal with financial
regulators is scarcely available. Moreover, anyone who has
be repudiated for any reason after three years of
followed Supreme Court judgements on key issues should
commencement of risk/date of reinstatement/date of
fear overreach.
issuance.
References:
Some experts have questioned the powers of IRDAI to levy
penalties and have said that as per the current wordings of 1. http://www.policyholder.gov.in/
the relevant sections (section 102 to 105C), only courts have warnings_and_penalties.aspx
the power under the Insurance Act to levy penalties. But 2. http://financialservices.gov.in/insurance-divisions/
no insurer seems to have legally challenged the powers of Insurance-Regulatory-&-Development-Authority
IRDAI in levying penalties. 3. https://www.irdai.gov.in/ADMINCMS/cms/
frmGeneral_NoYearList.aspx?
In any case, this reported infirmity is also sought to be 4. https://www.ibef.org/industry/insurance-sector-
addressed in the Insurance Amendment Bill that proposes india.aspx
adjudicating mechanism in IRDAI is similar to SEBI. With 5. http://www.asiantribune.com/node/88010
recent reports on levy of deterrent penalties by the IRDAI 6. IRDAI Annual Report 2016-17
on insurance companies, it is time to understand the basics 7. Newspapers & Journals.

22 The Insurance Times, April 2019