SBI Life Insurance Company on 12 March 2014 announced that it will appeal against the order of Insurance Regulatory and Development Authority (IRDA) to refund 275.29 crore rupees to the policy holders of Dhanaraksha Plus Limited Premium Paying Term (LPPT).
IRDA on 12 March 2014 charged SBI Life of violation of various norms by mis-selling the policy and payment of higher commission to agents. SBI Life has been asked to refund the amount within six months (i.e. September 2014).
IRDA ordered that the amount shall be debited to shareholders account. The refund amount works out to 44 per cent of the 625 crore rupees premium it had collected under the scheme.
SBI Life Insurance was fined for charging the second year premium alongwith the first year premium on its Dhanaraksha Plus Limited Premium Paying Term (LPPT).
SBI Life is a subsidiary of State Bank of India and it is a joint venture between State Bank of India and BNP Paribas Cardif. SBI holds 74 per cent stake in SBI Life while BNP Paribas Cardif has 26 per cent.
Arundhati Bhattacharya is the chairman of the insurance firm while Atanu Sen is the MD & CEO.
An Analysis of the Issue
IRDA noticed that 99.99 per cent of the total premium procured under the LPPT product was sourced by corporate agents of the life insurer belonging to SBI Group.
The insurer has paid 40 per cent of first year premium as first year commission and 7.5 per cent of second year’s premium as second year commission.
However, if the single premium version of product had been offered to the policy holders, the actual commission payable would have been only 2 per cent.
Hence it was concluded by IRDA that the large scale sale of LPPT as single premium payment policy has only facilitated higher commission payments to insurance intermediaries involved who are predominantly SBI and its associate banks.
When: 12 March 2014