IRDAI cautions Reliance Nippon Life on expense management

-According to the IRDAI rulings on Friday , the insurer has neither furnished the Certificate from the appointed actuary nor demonstrated that the interest of the policyholders was not affected due to the excess of expenses over the prescribed limits.  -The insurer is found to have contravened provisions of section 40B of the Insurance Act, 1938 with respect to non-compliance of the limits prescribed for expenses of management, said IRDAI. 

 

Hyderabad:

The insurance regulator IRDAI has reprimanded the Reliance Nippon Life Insurance Company,  for failing to comply with regulations on expense management.


According to the IRDAI rulings on Friday , the insurer has neither furnished the Certificate from the appointed actuary nor demonstrated that the interest of the policyholders was not affected due to the excess of expenses over the prescribed limits. 
 

The insurer is found to have contravened provisions of section 40B of the Insurance Act, 1938 with respect to non-compliance of the limits prescribed for expenses of management, said IRDAI. 
 

``The Insurer is hereby warned u/s 64K (2) of the Insurance Act, 1938, with an advice to comply with the expenses of management limits in future,’’ said IRDA .
 

Despite repeated requirement of ‘Certificate’ from the appointed actuary of the insurer  on protection of policyholders’ interest and compliance with product Regulations and F&U guidelines, the insurer claims to have submitted a detailed response to the queries sought.  
 

However the IRDAI has pointed out that iIn their submissions till date, insurer has not provided the required certificate but claims that while acquisition expenses were higher than that used in pricing of the products, they have not impacted bonus declaration of newly launched and sold products. There is no confirmation on protection of existing policyholders.
 

The insurer is further advised that within a period of seven years, if two warnings have been given u/s 64 (K) (2) and such warnings are disregarded by the insurer, the Authority may cause investigation and valuation pursuant to Section 64K(3) of the Insurance Act, 1938.
Every insurer transacting life insurance business in India is required to furnish to the Authority, a statement of Expenses of Management (EoM) along with the Financial statements within 15 days from the date of adoption of accounts by the Board. 

 

The Insurer submitted their statement of EoM for the financial year 2015-16, vide their email dated 19th August, 2016.
 

On perusal of the statement, it was observed that the insurer’s actual expenses of management were Rs 1632.24 crore as against allowable expense limit of  Rs 1069.20 crore. 
 

The percentage of Expenses of Management was 153 per cent of allowable limits under Rule 17D of the Insurance Rules, 1939. The insurer was found non-compliant with the requirements of Section 40B of the Insurance Act, 1938 read with Rule 17D of Insurance Rules 1939.   

 

As, the expenses incurred in the PAR segment are within the allowable limits, it is not pressed to debit the excess of expenses over the prescribed limits to the shareholders, as in other segments profits or losses anyway belong to shareholders, added IRDAI. 

 

 If the insurer feels aggrieved by any of the decisions in this Order, an appeal may be preferred to the Securities Appellate Tribunal as per Section 110 of the Insurance Act, 1938, said IRDAI.

 


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