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New Delhi: CBI has started a probe intoalleged undervaluation of penalty to the tune of nearly Rs17,500 crore on Reliance General Insurance Company Limited bythe officials of Insurance Regulatory and DevelopmentAuthority(IRDA) in 2009.
The agency has named Reliance General Insurance Companyin its inquiry and “unknown officials” of the Authority, CBI sources here said.
“CBI has registered a preliminary enquiry against unknownofficials of Insurance Regulatory and Development Authority and a private company on allegations that a penalty of Rs 20lakh (approximately) was imposed on the said company instead of Rs 17,500 crore for 3.5 lakh instances of violations ofIRDA guidelines,” CBI spokesperson Kanchan Prasad said.
According to IRDA penalty order in 2009, the company hadsold 3.5 lakh policies and each policy constituted a violation thereby making company liable for a penalty of Rs 17,500 crore. But only Rs 20 lakh of penalty was actually levied, it said.
The then Chairman J Hari Narayan who signed the order has already been quizzed, CBI sources said, adding that they are trying to understand if there was a mala fide or a quid pro quo in the order.
The allegations relate to Reliance Health Care policy which was sent to IRDA in 2005 for necessary clearances which was cleared in 2006.
A Reliance General Insurance spokesperson said the allegation that penalties of Rs 17,500 crore could have been imposed in this matter is baseless, unfounded and devoid of any legal foundation.
The total premium collected under the policies issued more than five years back was Rs 80 crore, against which claims of Rs 140 crore were paid, resulting in huge losses to RGCIL, the spokesperson said.
The penalty of Rs 20 lakh imposed was itself thus highly excessive and unwarranted, and the allegation that this represented a ‘favour’ to RGCIL is far-fetched and imaginary.
“We welcome any enquiry into the exercise of discretion by IRDA in this matter, which is identical to penalties imposed on all leading insurers in the country,” the spokesperson said.
Narayan is reported having said that the insinuation that he had favoured RGICL was unfounded.
In 2006, IRDA revised guidelines or ‘File and Use’ specifying various other procedural and other requirements to be followed by the insurers. “These revised guidelines required the prior approval in case change in the name or any of the terms and conditions or an increase in the price of the product,” the IRDA order had said.
The IRDA came to know in January 2008, that RGICL was selling a product “Reliance Health Wise Policy” which was “neither filed before IRDA nor approved by it.”
In its submissions before IRDA, RGICL said the product was a renamed version of the Reliance Health Care Policy cleared by the authority in 2005.
“The product Reliance Health Wise Policy was introduced in the market in conformity with the price filed for Reliance Health Care Policy but that subsequenly, in 2007, the price was revised taking into account all relevant factors and thereafter marketed at a different price starting from 1 December, 2007,” it said.
The IRDA order pointed out that the company had already sold 3.5 lakh Reliance Health without necessary clearance.
“It is considered view of the Authority that each such policy sold without the necessary clearance of the Authority constitutes an incidence of violation. On the said basis, under the provisions of Section 102(b) of the Insurers Act, 1938, the company would be liable for a penalty not exceeding
Rs 17,500 crore,” it said.
The IRDA, however, levied only Rs 20 lakh for the violations as it took into note the undertaking given by the company that it had refunded the excess premium, the order said.
The order signed by the then Chairman J Hari Narayan accepted “in good faith” the contention of the company that it refunded Rs 1.07 crore to policy holders even though there was no “documentary proof” given by the company.
PTI
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