The CBI is probing whether the former IRDA chief J Hari Narayan had misused his discretionary powers to favour Reliance General Insurance Company, which has admitted that the extra amount collected by it way of premium was not Rs 1.07 crore, as originally believed, but 20 times as much, report Paranjoy Guha Thakurta and Pranati B Mehra.
After the Central Bureau of Investigation started inquiring into whether the former chairman of the Insurance Regulatory and Development Authority J Hari Narayan favoured Reliance General Insurance Company, the company in the Anil Dhirubhai Ambani Group has acknowledged that it had collected an extra Rs 19.25 crore from its policy-holders.
The CBI's investigations, which began in September, relate to whether or not the former IRDA chief had misused his discretionary powers more than five years earlier, in July 2009, to reduce the penalty that could have been imposed on RGIC for violation of regulatory guidelines from Rs 17,500 crore to only Rs 20 lakh.
IRDA asked the company to identify all the policy-holders who had been charged extra amounts of money by way of premium and to keep this money in a separate bank account. RGIC revealed to IRDA that the total amount that would have to be refunded to policy-holders would be Rs 1.07 crore.
Documents available with the writers of this article now indicate that the total amount to be refunded is Rs 19.25 crore (Rs 192.5 million), almost 20 times what Hari Narayan had recorded in his order but which had not been challenged.
The CBI initiated a preliminary enquiry into the alleged favour shown by the former IRDA chairman in penalising RGIC in an order he had passed on July 23, 2009. The regulatory authority had earlier issued a show-cause notice to the company for violating 'File and Use Guidelines' of the IRDA in respect of issuance of new insurance products.
The company had floated a policy called Reliance Health Care Policy for which it had obtained the necessary clearances in 2006. Subsequently, RGIC changed the name of the policy to Reliance Health Wise Policy and marketed it at a different price from that approved by IRDA.
It was recorded in Hari Narayan’s order that for this violation of IRDA guidelines, the company could have been fined Rs 17,500 crore (Rs 175 billion) considering it had sold around 350,000 policies. The penalty in each instance could be Rs 500,000. The then IRDA chairman reduced this penalty to Rs 20 lakh (Rs 2 million).
In the same order, Hari Narayan recorded that RGIC has refunded Rs 1.07 crore to policy-holders which was the excess premium collected when the company changed the terms and name of the policy. The order stated: 'This refund is not supported by any documentary evidence.' Thereafter, it added: 'However, the Authority is inclined to accept their contention of having refunded Rs 1.07 crore to the various policy holders of this product on good faith.'
The basis for reposing "good faith" in RGIC was never explained by Hari Narayan. What has now become evident is that the excess amount collected by the company from policy holders is at least Rs 19.25 crore.
A letter by Yegnapriya Bharath, joint director (health), IRDA, to RGIC dated October 16, 2014 (a copy of which is available with the writers of this article) refers to a discussion and e-mail communication with officials of RGIC who acknowledge that the refund to be made to policy holders is of the order of Rs 19.25 crore.
It appears that the IRDA, after having discovered in January 2008 that the company had floated the new Reliance Health Wise Policy without clearance from the regulator, forgot about the issue after the July 2009 order of Hari Narayan.
Bharath's letter to RGIC, written more
She wrote: '… The amount of refund now indicated had never been informed to IRDA. Kindly explain. Also you are now stating that the premium of Rs 32.53 crore under Reliance Health-Wise for the year 2007-08 submitted by you at the material time was the Earned Premium and that in fact the Gross Written Premium was Rs 79 crore. This fact was not given to IRDA earlier. Please explain.'
(Gross written premium is the premium counted in a year and accounted for without reflecting deductibles like administrative charges, etc, while earned premium is the actual premium collected by the company.)
In a letter dated November 5, 2014, Rakesh Jain, executive director and CEO of Reliance General Insurance, replied to Bharath's letter. He wrote that his company made "all the effort" it could to identify policy holders who were to be refunded the excess amounts collected and that RGIC had parked Rs 19.25 crore in a separate bank account as directed by IRDA.
Explaining the methodology adopted by the company to arrive at the figures of excess premium collected, Jain said RGIC had considered the period between December 1, 2007, and November 17, 2008, to identify those policy holders who may be entitled to the refund. He added that his company will place an advertisement in the media as directed by IRDA so that more policy holders get to know the refund process.
The RGIC CEO asked the regulator to relook its direction to the company to pay two per cent extra interest (over the normal bank rate) when refunding money to policy holders. He quoted Regulation 8(5) of the IRDA Protection of Policyholders’ Interests Regulation, 2002, to argue that the extra interest was applicable only to "claim" amounts.
Jain concluded his letter by stating: 'Since the matter is very old and persons who were handling the matter at that time are no longer with the company, we can perhaps presume today that the variance in premium number was inadvertent and unintended omission. The figure of earned premium was quoted to indicate the claims ratio…'
In the list of complaints by policy holders for the year 2009-10 put out by IRDA, Reliance General Insurance tops the chart among 24 insurance companies with a total of 65,160 complaints against it. The following year's list indicates that the "subject matter" of the majority of complaints of policy holders related to the hike in the premium of Reliance Health Wise Policy.
On January 4, 2013, Justice R M Lodha (now retired) of the Supreme Court of India had remarked in a case relating to the Kolkata-based Heritage Insurance that the insurance regulator seemed to be using different yardsticks for different companies.
A report in January 5, 2013, edition of the Financial Express said: 'A bench headed by Justice R M Lodha questioned IRDA’s rationale behind not taking action against other insurers and brokers like Reliance General Insurance, Aon Global Insurance Brokers and others who have committed similar violations.'
The report added that IRDA’s argument that these violations were not as grave as those allegedly committed by Heritage Insurance, was not agreed to by the Supreme Court bench.
Our queries to the current IRDA chairman T S Vijayan and a spokesperson of Reliance General Insurance Company went unanswered.
We had broken the story on the CBI initiating investigations into the alleged favours granted by former IRDA chairman Hari Narayan to RGIC in October 2014. (See: CBI probing former Irda chairman).
The writers are independent journalists.
