The action of Malaysian re/insurance broker Confinance in reinsurance transaction caused inconvenience to TATA-AIG in India which could have potential loss to the insurer and to policyholders. It is considered view that the action of Confinance is deliberate and harmful, said the IRDAI in its new order
Hyderabad:
Passing the final order on the Rs 300 crore fraudulent crop re/insurance deal, where Tata-AIG General Insurance was cheated by a few brokers, regulator IRDAI has banned Confinance, a Malaysian re/insurance broker, from Indian insurance market directly and indirectly for two years, with immediate effect.
Also, it has directed Indian reinsurers and its entities in overseas markets not to deal with the Malaysian broker for the next two years.
The order has been passed by SN Rajeswari, the outgoing member, Distribution, IRDAI, in the last week.
Though, the IRDAI had passed a similar order against Confinance on 8th June 2020, latter had appealed against it in the Securities Appellate Tribunal(SAT), which had directed the insurance regulator to readjudicate the case as the principle of natural justice was not followed by giving opportunity of hearing to Cofinance and its CEO Steven Chetty.
SAT had held that it would be open to the IRDAI to proceed against Cofinance and Steven in accordance with law.
Orginally, after completing its year-long investigation, the IRDAI had pronounced its verdict on 8th June, 2020 on the Rs 300 crore fraudulent crop reinsurance deal, in which TATA AIG General Insurance had dealt with multiple intermediaries including Unison Insurance Broker, an Indian composite insurance broker, Confiance, a Malaysian based broker and its Jaipur based agents in India- Global Master Consultant(GMC).
While awarding penalties in its 8th June order, the Indian insurance regulator had barred Steven Chetty, MD, Confiance from doing insurance/ reinsurance business in lndia and also dealing with any lndian re/insurers in overseas markets as he had played an active and primary role in the fraudulent deal. Mukesh Ranwan and Sachin Agarwal,directors of GMC, who are the representatives of Confiance in lndia, were also barred from doing any insurance/ reinsurance business in lndia as well as with any Indian re/insurers and its overseas offices .
IRDAI had also fined Unison Brokers, which was the primary broker for the Tata Aig General insurance in the deal, to the tune of Rs one crore.
After hearing all the parties again, the IRDA, in its new order passed on Feb 22nd , has stuck to its earlier stand saying that that going by the role of Confinance and its India representative GNC, in the chain of events and its implication in the reinsurance market in India, it is established that the cession of reinsurance premium, issuance of the forged reinsurance slip and subsequent refund of the reinsurance premium by Confinance constitute a serious and grave violation.
The action of Confinance in reinsurance transaction caused inconvenience to TATA-AIG in India which could have potential loss to the insurer and to policyholders. It is considered view that the action of Confinance is deliberate and harmful, said the IRDAI in its new order.
During the entire episode Confinance made no efforts to clarify its stance and simply returned the premium which in turn proves that Confinance has not exercised due care and diligence by not placing the risk with foreign reinsurers and issued forged reinsurance slips to Indian reinsurance broker, said the regulator.
Modus Operandi of the fraud
It all started when TATA-AIG General Insurance, which was forced to exit the crop insurance business after losing money heavily in the reinsurance deal, made a complaint to the IRDAI on Dec 21,2018,informing about a fraud committed on the company in the reinsurance placement, through Unison lnsurance Broking Services, of a Rs 300 crore crop reinsurance deal from Rajasthan cluster for Kharif 2018.
The IRDAI had received an email sent by chief risk & compliance Officer, Tata AIG General lnsurance Company on Dec 21,2018 informing the fraud committed against its company with regard to the placement of reinsurance protection through Unison lnsurance Broking Services. a Baroda based composite broker that had made Facultative reinsurance arrangements to support company’s crop reinsurance risk cover in 2018-19, through Confiance lnternational Reinsurance Broker L.L.C, a Malalaysia based broker involving their lndian representative GMC,
Steven L Chetty is the MD of Confiance in Malaysia and Mukesh Ranwan and Sachin Agarwal are the representatives of Confiance heading GMC in lndia.Confiance had provided the best terms for placement with two reinsurers- Tokio Marine Kiln Syndicate and Best Meridian lnsurance
As per market practice, the reinsurance placement was confirmed with copies of signed slips of the participating re-insurers (one slip signed and stamped by TIvIK on the letter-head of ARB lnternational and another one from BMl, US) .
ln due course, the broker remitted the reinsurance premium of Rs 1.13 crores and Rs 6.17 crores respectively to Confiance, after deducting its brokerage.
ln November 2018, it came to the knowledge of Tata AIG officials that TIVIK is not participating in the facultative placement of its crop business.
lmmediately Tata AIG contacted the General Counsel of TMK with a copy of the TMK signed Reinsurance slip provided by Confiance. After checking internally, TMK confirmed that they had not provided any support for the re-insurance and the slip purportedly signed by TMK was not issued by them,
Tata AIG contacted BMl and BMI confirmed that it is not on risk and BMI Global and its affiliates or subsidiaries have not quoted, underwritten, signed or executed any reinsurance involving Tata AlG. Blvll further informed that it is opening an investigation regarding the original source of this document and confirmed that BMI does not accept or recognize being bound to this coverage.
TATA AIG took up the matter with the broker. After examining the matter,the broker came to the conclusion that the slips provided by GMC, the lndian Representative of Confiance are fraudulent slips.
Steven, in his email to the Unison Insurance Broking Services, expressed his distress on the situation/ forged documents and informed the broker that Confiance is not aware or authorized such action. Steven further informed the broker that the funds are sitting in the accounts of Confiance, for a risk which they did not officially place. Steven arranged for transfer of funds to the broker and the broker in turn refunded the premium to Tata AIG General Insurance.
Unison lnsurance broker has lodged a complaint with the joint police commissioner,economic offences wing, Mumbai against Ranwan and Agarwal of GMC and. Steven and served a legal notice to Gtvlc and Confiance
According to the IRDAI, considering the facts stated above and the involvement of Confiance – foreign reinsurance broker in the chain of events and its implication in the reinsurance market in lndia, it is established that the cession of reinsurance premium, issuance of the forged reinsurance slip and subsequent refund of the reinsurance premium by Confiance constitutes a serious and grave olfence.
Confiance betrayed the trust of the reinsurance market and caused damage to the financial strength of TATA-AIG General Insurance in lndia, the IRDAI had said.
The IRDAI was of the firm view that the actions of Confiance were deliberate and harmful. Such actions cannot under any circumstances be tolerated as it put the existence of general insurance companies in peril.
During the entire episode Confiance made no efforts to clarify its stance and simply return the premium which in turn proves that Confiance intentionally committed this act by not placing the risk with the foreign reinsurers and issued forged reinsurance slips to the lndian reinsurance broker, the IRDAI had said.