The Insurance Regulatory and Development Authority of India (IRDAI) recently imposed a hefty fine of ₹1 crore on Royal Sundaram General Insurance (RSGI), a Chennai-based insurance company, for failing to comply with outsourcing norms during the financial years 2018-19 and 2019-20. The decision was based on findings from a remote inspection conducted by IRDAI between September 14 and September 25, 2020.
The inspection report pointed out significant violations, including the non-disclosure of payments exceeding ₹1 crore to vendors in the outsourcing returns submitted to IRDAI. Such lapses highlight a lack of transparency and raise concerns about governance in the insurance sector.
How Did RSGI Violate Outsourcing Norms?
During the inspection, IRDAI found that RSGI made payments exceeding ₹50 crore to vendors in FY 2019-20 but failed to disclose these transactions under Regulation 21 of the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017. By misclassifying these activities as non-outsourcing, RSGI violated mandatory disclosure rules.
This regulatory oversight not only breached IRDAI’s guidelines but also brought to light issues of governance and compliance within the organization.
What Were the Other Key Findings of IRDAI’s Inspection?
1. Lack of Transparency
The inspection revealed that RSGI failed to provide the inspection team with the necessary information, showcasing weak internal systems and controls. This lack of transparency limited IRDAI’s ability to assess outsourcing risks, exposing the insurer to operational and reputational vulnerabilities.
2. Issues in Claims Management
A review of Incurred But Not Reported (IBNR) calculation sheets for FY 2019-20 showed irregularities in RSGI’s claims management. Key findings include:
- Reopening of 53,354 claims worth ₹123.43 crore.
- Closure of 6,466 claims amounting to ₹34.99 crore due to document non-submission.
While these claims were eventually settled, the delays and lack of compliance with Health Regulations, 2016, raised serious concerns.
3. Questionable Customer-Centric Approach
Despite RSGI’s claim of having a customer-friendly approach, IRDAI noted significant delays in claim resolution and a lack of transparent communication. The regulator emphasized that a truly customer-centric approach requires timely resolutions and proactive communication.
What Actions Did IRDAI Take?
IRDAI issued a strong warning to RSGI, highlighting how its practices could erode policyholders’ trust. The regulator also advised the insurer to strengthen its governance systems and avoid further lapses in compliance.
This penalty serves as a reminder of the importance of adhering to outsourcing regulations and maintaining transparency in the insurance sector to ensure policyholder confidence.
FAQs
What is IRDAI, and what role does it play?
IRDAI (Insurance Regulatory and Development Authority of India) oversees and regulates India’s insurance industry, ensuring transparency, governance, and compliance among insurers.
Why was Royal Sundaram General Insurance penalized?
RSGI was fined ₹1 crore for outsourcing regulation violations, including non-disclosure of vendor payments and lapses in claims management.
What are the outsourcing norms for Indian insurers?
Insurers must disclose payments exceeding ₹1 crore to vendors under the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017.
What were the key claims management issues in this case?
RSGI delayed the resolution of over 50,000 claims and closed claims prematurely due to document non-submission, which raised compliance concerns.
How does this penalty impact policyholders?
The penalty highlights the need for insurers to maintain transparency and compliance to uphold policyholder trust and ensure fair practices.
What steps has IRDAI taken against RSGI?
IRDAI issued a warning, advisory, and imposed a ₹1 crore fine, urging RSGI to strengthen its governance systems.
Why is transparency important in the insurance sector?
Transparency ensures fair practices, regulatory compliance, and policyholder confidence in the insurance ecosystem.
What lessons can insurers learn from this case?
This case underscores the critical need for robust governance systems, regulatory adherence, and timely claim resolutions in the insurance industry.
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