Irda accused of viewing same offence with different lenses

By Subir Ghosh and Paranjoy Guha Thakurta

The Insurance Regulatory and Development Authority (Irda) apparently believes in different strokes for different folks. The regulator has been adopting different yardsticks for penalising different insurance companies for the same purported offence.

Earlier this year, the public sector United India Insurance Company was fined Rs 5 lakh under the provisions of section 64 of the Insurance Act, 1938, for opening 35 new branches across the country without its prior permission.

The Irda, however, fined Bajaj Allianz Life Insurance Company the same amount for opening 582 offices without its prior permission. The fine was imposed on Bajaj Allianz under the same provisions which had been invoked in the case of United India Insurance.

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According to an order dated 14 March 2011, it was observed that United India Insurance had opened 35 “new places of business” in 2009 and 2010. The insurer was issued a show-cause notice on 27 December 2010. United India Insurance contended that the error had been “inadvertent” and that such future action would be undertaken only with prior approval of the Authority.

[caption id=“attachment_193277” align=“alignleft” width=“380” caption=“Controversies have dogged India’s insurance regulatory authority in recent times for its “discretionary powers” as well as for soft-pedalling penal action against private insurance companies. Reuters”]  [/caption]

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Irda said in its order that United India Insurance was well aware of the requirements and asked the company to remit the fine of Rs 5 lakh within 15 days of the order.

The Authority had issued a similar show-cause against Bajaj Allianz Life Insurance in 2007 over what it called “alleged” violation of the Insurance Act, 1938, by opening 582 branches across the country with only the approval of its own board, and not that of the Irda.

The same order had pointed out that the company had been issued a show-cause notice earlier as well in 2006 for opening 28 branches and 189 satellite offices without the prior sanction of the regulator. The insurer was subsequently fined the same amount of Rs 5 lakh for opening 15 times the number of branches that United India Insurance had!

Controversies have dogged the insurance regulatory authority in recent times for its “discretionary powers” as well as for soft-pedalling penal action against private insurance companies.

Irda was accused of allowing Berkshire Hathaway, one of the largest insurance companies in the world, to enter the Indian market through the backdoor by propping up Berkshire India Pvt Ltd, which began operations earlier this year as a corporate agent of Bajaj Allianz General Insurance.

Moreover, a complaint filed with Irda had alleged that an official held positions in both Bajaj Allianz General Insurance and Berkshire India Pvt Ltd when the latter was approved as a licensed corporate agent of the former in February 2011. The complaint was filed by Lucknow-based Dhruv Kumar, an insurance activist, who had alleged that Kamesh Goyal was Chief Executive Officer (CEO) of Bajaj Allianz General Insurance while at the same time serving as promoter director in Berkshire India at the time of the approval of the latter as a corporate agent.

Irda also let off Reliance General Insurance Company very lightly for a grave offence in 2009 - the private insurer was charged with selling a product which had neither been filed before Irda nor been approved by it. (See “Reliance Insurance: Rs 17,500 cr potential fine is finally Rs 20 lakh”, published in _Firstpost_ , 13 December 2011.)

According to Irda’s own measure, the Anil Ambani group company was to have been fined Rs 17,500 crore under the provisions of section 102 (b) of the Insurance Act, 1938, for selling 3.5 lakh policies of the Reliance Health Wise plan. However, the penalty was brought down to just Rs 20 lakh by the “the judicious exercise and discretion vested with the Authority” under section 14 of IRDA Act, 1999 , read with 102(b) of Insurance Act, 1938.

On 28 November 2011, The Economic Times reported that public sector insurers had complained to the finance ministry that Irda was biased against state-owned general insurance companies and in favour of privately-owned ones because the Authority was considering a move to disband the third-party motor insurance pool. The move would enable private firms to opt out of the industry’s loss-making third-party motor insurance pool, placing the burden entirely on public sector insurers.

Irda Chairman J Hari Narayan denied that the Authority would initiate any move that could destabilise the industry and the market.