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Friday, July 8, 2011

SBI Life Faces Regulator's Ire

IRDA, the insurance regulator, has levied a fine of Rs 70 lakhs on SBI Life Insurance company for paying commissions to a master policy holder. As per the rules in India, Insurance companies can pay commissions only to life insurance agents, corporate agents or brokers, and not to a policyholder. There were 14 instances of commissions being paid, and IRDA has levied a fee of Rs 5 lakhs per instance, totalling to Rs 70 lakhs. SBI Life is a joint venture between SBI, India's largest bank and BNP Paribas Cardif.
In all insurance companies where one of the prominent share holders is a bank, the regulator needs to watch out for this particular practice: the bank which owns the insurance company bundles an expensive insurance policy with their loans disbursed. A retail or corporate customer, seeking a loan from the bank and at a moment in time when the bank is in a position of strength, cannot refuse the insurance policy. This is especially true if there are veiled indications that the loan disbursement itself might not go through if the preferred insurance policy is not bought.

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