SBI Life Insurance fined Rs 10 crore for regulatory violations; Irdai asks insurer to adhere to rules for settling death claims

The Insurance Regulatory and Development Authority of India (Irdai) has imposed a fine of Rs 1 crore on SBI Life Insurance for violating various regulations related to dealings with insurance web aggregators and outsourcing activities. The insurance regulator has also issued a warning to the life insurance company for rejecting multiple insurance claims.

SBI Life Insurance fined Rs 10 crore for violating outsourcing and web aggregation rules

According to Irdai’s order, the insurer was found to have engaged web aggregators without clearly detailing the services provided and the corresponding fees. It also failed to inform the regulator about outsourcing payments, as required.

Irdai’s inspection revealed that the insurer had worked with several web aggregators, including Policybazaar, MIC Insurance, Compare Policy, Easypolicy and Wishfin. While the insurer claimed to have outsourced after-sales activities such as premium reminders and policy servicing assistance, the agreements lacked specific details about the services provided and the basis for the per-seat-per-month payment structure.
The regulator also found that the insurer paid Rs 1.93 crore to Extent Marketing and Technologies Pvt. Ltd. during 2017-18 and 2018-19. Despite being required to report these payments, the insurer failed to do so. The provider was found to have no infrastructure of its own and was heavily reliant on outsourcing, with 95% of its revenues transferred to third parties.

Irdai concluded that the insurer’s outsourcing arrangements violated rules on conflict of interest, transparency and due diligence. The insurer was also found to have paid unreasonable fees to web aggregators.

Irdai has ordered the insurer to establish a comprehensive outsourcing policy that complies with current rules and guidelines. In addition, the insurer must submit Irdai’s order to its board of directors to review the effectiveness of its systems and processes related to outsourcing transactions and dispute resolution.

Irdai tells SBI Life Insurance that Section 45 of the Insurance Act must be complied with to settle death claims

Another matter was related to processing of death claims, where Irdai warned SBI Life Insurer to strictly follow the provisions of Section 45 of the Insurance Act, 1938. As per the observation of Irdai inspection, SBI Life Insurance was found to have repudiated 21 insurance claims on the grounds of non-disclosure or death occurring within three years of issue of policy. However, Irdai inspection revealed that the insurer had not provided sufficient evidence to support its claims. In another case, the insurer claimed that death occurred within three years of issue of policy but was reported after the three-year period. “In the case of 17 other cases, the insurer stated that it had repudiated the claims as the date of death was within three years of issue of policy,” according to Irdai order.
The insurer argued that it had followed Irdai’s circular dated October 28, 2015, “they had been following the practice of repudiating claims where fraud was established and the date of death was within 3 years of the date of commencement of risk or the date of issue of the policy or the date of the policy rider, whichever is later.”

However, Irdai found that the insurer had settled 86 claims, totalling Rs 10.21 crore (claim amount of Rs 5.78 crore and penal interest of Rs 4.43 crore).

The Irdai has directed SBI Life Insurance to adhere to the provisions of Section 45 of the Insurance Act, 1938 while settling death claims. The insurer has been directed to ensure that all future claims are settled in accordance with the law. According to Section 45 of the Insurance Act, 1938: No life insurance policy shall be called into question on any ground whatsoever after the expiry of three years from the date of the policy i.e. from the date of issue of the policy or the date of commencement of risk or the date of revival of the policy or the date of rider to the policy, whichever is later.

Irdai’s action against the insurer is an important step towards protecting the interests of policyholders and ensuring that insurers comply with the regulatory framework. This case highlights the importance of insurers providing clear and transparent explanations for claim denials.

SBI Life Insurance receives warning for selling insurance policies after withdrawing

Irdai also warned insurers for selling insurance policies after the product was withdrawn and advised them to adhere to the existing regulations in this regard. According to the order, “There were a sample of seven cases where the proposal form was filled and subsequently the policy issue of the insurance product was materialised after the date of withdrawal. Further, the proposal form for policy number 45462486210 was filled on 17th November 2017. However, the insurance product SBI Life – Smart Shield (UIN: 111N067V04) was launched on 20th November 2017. Therefore, the filling of the proposal was done before the launch of the product.

“It follows that the insurer has sold insurance products after the withdrawal date or before the launch date. In addition, the insurer has also failed to ensure adequate infrastructure requirements before the launch of new products and after the withdrawal of existing products,” the regulator said.

The insurer said that “at the time of acquisition of pension policy no. 8001898504, SBI Life Annuity Plus version (UIN – 111N083V05) was already in existence. Therefore, in order to maintain continuity from the date of acquisition of the pension policy in accordance with the approved terms and conditions of the SBI Life – Unit Plus 3 Pension product, the annuity policy had been issued under an earlier version of the product. It further stated that they have now optimised the system to prohibit data entry after termination.”