Source: TH
Context:
The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a ₹1 crore penalty on Reliance General Insurance Company for violations related to commission payments, outsourcing norms and corporate governance guidelines.
Key Findings by IRDAI
- The action followed a remote inspection conducted in 2021.
- IRDAI examined four charges under provisions of the Insurance Act, 1938 and related regulations.
Sections & Norms Violated
Insurance Act, 1938
Section 40 – Limits on Commission
- What it says: Regulates and caps commissions/remuneration payable to insurance agents and intermediaries.
- Violation:
- Payments were routed as marketing, advertising, and customer/market awareness programmes.
- IRDAI held these to be disguised / overriding commissions, meant to circumvent Section 40.
Section 102(b) – Penalty for Contravention
- What it says: Provides for penalties if an insurer contravenes provisions of the Act or regulations issued under it.
- Application:
- IRDAI invoked this section to levy the ₹1 crore monetary penalty.
IRDAI (Outsourcing of Activities by Indian Insurers) Regulations
- Key requirement:
- Outsourcing must be transparent, justified, arm’s-length, and not conflict with regulatory intent.
- Violation:
- Reliance General Insurance engaged an individual agent of another insurer for advertising/publishing services.
- There was no transparent selection process or clear rationale, breaching outsourcing norms.
IRDAI Corporate Governance Guidelines
- Key principles:
- Strong internal controls
- Transparency in payments
- Board and senior management oversight
- Violation:
- Large payments were made without adequate governance checks.
- Failure to ensure compliance with commission and outsourcing regulations indicated weak internal controls.
IRDAI (Payment of Commission) Regulations
- Key requirement:
- Insurers must strictly adhere to prescribed commission structures.
- Violation:
- Payments labelled as awareness or marketing initiatives were found to be commission in substance, violating commission norms.
