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Tuesday, October 16, 2012

IRDA frowns on camouflaging additional remuneration to master policyholders

Master policyholders must not be enticed with reimbursement of expenses apart from the promised commission, says the insurance watchdog IRDA in its circular of October 5.

First, the IRDA (Insurance Regulatory and Development Authority) had imposed a hefty penalty of Rs 70 lakh on July 8, 2011, on SBI Life Insurance Company Ltd for remunerating the master policyholders, bulk of whom were its own banking brethren belonging to the larger SBI group such as State Bank of Hyderabad, State Bank of Indore, and so on with payments towards management expenses, documentation expenses, profit commission, bulk discount or payment of similar descriptions, in addition to a 20 per cent commission on premiums.

Now, as a sequel to that order, it has now asked these master policyholders to give the extra amount thus earned to the group insurance policyholders, who bought the policies from them, on an equitable basis.

The IRDA has opined that but for these extra payments, the premiums could have been lowered pro tanto and hence, this order.

Management expenses, documentation expenses, etc., are in any case the responsibility of the master policyholders which they must defray from out of the commission they receive.

(The author is a New Delhi-based chartered accountant.)


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