IRDAI Imposes Rs1 Crore Penalty on Muthoot Risk Insurance and Broking Services for Selling Insurance Through Unqualified BDMs

Insurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of Rs1 crore on Muthoot Risk Insurance and Broking Services Pvt Ltd, a sister concern of Muthoot Fincorp Ltd (MFL), for procuring business from branch network of MFL and using unqualified employees for solicitating insurance business. 

In an order, TL Alamelu, member (non-life) of IRDAI, says, "As per the records available and further submission made by the broker post personal hearing; it is observed that the broker has been engaging unlicensed individuals in the name of business development managers (BDMs) since the year 2016-17 for solicitation of life insurance business. Hence, considering that the violation continued for more than 100 days, by virtue of powers vested under Section 102 (b) of the Insurance Act, 1938, the Authority levies a penalty of Rs1 crore, which is calculated by applying the prescription 'Rs1 lakh for each day during which such failure continues or one crore rupees, whichever is less'."

"Based on the documents on record, the broker has been engaging BDMs as canvassers to solicit insurance business. The broker has failed to justify its contention that they were complying with the provisions of the regulations. On the contrary, majority of BDMs were not qualified as the time of solicitation of business," the order says.

It was alleged that Muthoot Risk Insurance and Broking Services was procuring business from the branch network of Muthoot Fincorp from states like Andhra Pradesh, Telangana, Maharashtra, West Bengal, and Odisha even though, the broker does not have any branches in any of those States. The MFL branches were acting as canvassers for insurance business. The broker gets leads from all these states and the same is mapped to its BDMs, who are posted at their branch offices at Bangalore, Chennai, and Kerala.

Further IRDAI observed that Muthoot Risk Insurance and Broking Services was paying incentives to the employees of MFL for procuring insurance business, ranging from 4% to 7% of the collected premium for FY2016-17, which was subsequently stopped. An amount of Rs33.34 lakh were paid to the employees of MFL, which is not licensed to solicit insurance business, it added.

During November 2019, IRDAI conducted on-site inspection of Muthoot Risk Insurance and Broking Services.  "From the data collected during the inspection it is evident that more than 90% of the individuals marked as BDMs are neither broker qualified persons (BQP) nor are they having license to solicit insurance business," IRDAI noted. In its submission, the broker admitted that renewal of motor insurance policies was done at the office of MFL, who are not registered to solicit insurance policy and it has stopped payment to its sister concern since 2016-17.

On solicitation of life insurance policies, the broker submitted that it sold all life policies through their BDM who are the broker trained and qualified persons. However, IRDAI says, on perusal of the document submitted by the broker on policy mapping, it is evident that several BDMs are not having license as on the date of solicitation.

IRDAI then directed Muthoot Risk Insurance and Broking Services to pay within 45 days a penalty of Rs1 crore for not following its norms. The broker is also asked by the regulator to submit within 21 days to submit compliance report and also place the IRDAI order in its upcoming board meeting and then submit copy of minutes of the meeting.