IRDAI warns Reliance Nippon Life over expenditure surging past limit

Reliance Nippon Life Insurance (RNLIC) has been rapped by the Insurance Regulatory and Development Authority of India (IRDAI) for excessive expenses — nearly ₹600 crore above the prescribed limit —, a copy of the insurance regulator’s order issued in July shows.

IRDAI let off RNLIC with a warning as it was observed that the expenses had not affected policy holders, the order says. The regulator said that in seven years if RNLIC received two warnings, it would lead to an investigation and valuation of funds and expenses under applicable provisions.

IRDAI said it had observed that RNLIC incurred management expenses to the tune of ₹1,632 crore against the allowable limit of ₹1,069 crore and an explanation was sought from the company. It had observed that the insurer had been non-compliant with the expense on management (EoM) limit in six out of eight years, between financial year 2008-09 and 2015-16.

IRDA said that from this it can be gauged that the business model of the insurer had not succeeded in reining in its EoM. The regulator had asked RNLIC to furnish a certificate from an “actuary of the insurer” with regard to the fact that its policy holders or their interest were not impacted and there was compliance with product regulations.

“After examining the statement of EoM of the insurer, the explanation of the insurer and further submissions of the appointed actuary, it was observed that the insurer had not complied with Section 408 of the Insurance Act, 1938, read with Rule 17D of the Insurance Rules 1939, in FY 2015-16,” the order said. “Further, there is no certification from the appointed actuary. On the contrary, the appointed actuary has admitted that the acquisition expenses are still higher than that used in pricing/benefit illustration and further indicated that the Par fund may have impacted in short term,” the IRDAI order added.

Thus a show-cause notice was issued to RNLIC in November 2018, and a reply was submitted by the company in January 2019. RNLIC is said to have responded saying regulatory changes affected its new business owing to attrition of advisors, consequent to a reduction in commissions. Due to commissions being unviable, over one lakh advisors left and this, it said, resulted in it having to hire more advisors. “Therefore, company had to incur more cost in recruitment training and development.”

This is a key reason cited by RNLIC, along with a few others, for the increase in expenses. When contacted, a group spokesperson said the company did not want to comment on the matter but had explained the reasons for the surge in expenses to IRDAI. Another source close to RNLIC said the matter was from a few years ago and expenses shot up as they were expanding into smaller towns and cities. There were no recent complaints of overshooting expenses, the source said.

Source: Business Line