IRDA slaps Rs 1 cr fine on Cholamandalam MS General Insurance; penalty to be paid within 15 days

The IRDA has imposed a fine of Rs 1 crore on Cholamandalam MS General Insurance. The company has to pay the penalty amount of Rs 1 crore within 15 days of receiving the order, according to news reports.

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The Insurance Regulatory and Development Authority (IRDA) found after an analysis of 2016-17 financial statements and specifically, advance payments of about Rs 115 crore made by the insurer to four entities who, the regulatory authority said, were corporate agents, related parties and auto original equipment manufacturers (OEM), according to a report in The Hindu. Cholamandalam MS said that the advances were paid towards advertisements, manpower supply and risk assessment services, the report said.

The IRDA said in a statement that it framed charges against Cholamandalam MS General Insurance in a case related to the declaration of funds paid in advance to Ashok Leyland, Cholamandalam MS Risk Services and DHFL, according to a CNBC-TV18 report.

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The insurer paid about Rs 23 crore to Ashok Leyland in advance and it was adjusted towards advertising and publicity expenses against a bill raised after 21 March 2017.  A sum of Rs 9.39 crore was paid to Cholamandalam MS Risk Services in advance and the same was adjusted against advertisement expenses, it said. Cholamandalam MS General Insurance also paid a sum of about Rs 41 crore to DHFL Sales and Services despite not having expertise in this field, the report said.

Earlier too, IRDA has fined Cholamandalam MS GIC a fine of Rs 1 crore for violating health insurance regulations related to payment of commission, a PTI report said.

The matter related to insurance commission payment to intermediaries during 2015-16 in violation of the IRDA (Health Insurance) Regulations, 2013, which specifies that no commission shall be payable to any intermediary on acceptance of a ported policy, IRDA said in its order.

It was observed that the insurer paid insurance commission to intermediaries in respect of porting-in health policies, IRDA said, citing few examples based on the cases examined for financial year 2015-16.

"The detail of commission recovery has not been provided by insurer... The violation was brought to the insurer's notice during the on-site inspection, in the exit report shared with the insurer. The violation of insurer has been continued for 586 days from the date of bringing to its notice and for 2001 days from the date of notifying the Regulations, February 16, 2013 to November 1, 2018," Irda said.

In exercise of the powers vested in the Authority as per the provisions of Section 102(b) of the Insurance Act, 1938, the Authority hereby imposes a penalty of Rs 1 crore for the violation of Clause 15 of schedule I of the IRDA (Health Insurance) Regulations, 2013, which clearly specifies that no commission shall be payable to any intermediary on the acceptance of a ported policy, Irdai said.

The general insurer is also directed to ensure recovery of commission paid to intermediaries on ported policies and wherever recovery is not possible, the same shall be debited to shareholders' account, it added.

--With PTI inputs