In an order passed by two members of the IRDAI- Rajay Kumar Sinha,(F&I) and Deepak Sood,(Non-Life), the insurance regulator has said that the payments made by RSGI during 2018-19 and 2019-20 to vendors in excess of Rs1 crore were not reported in the outsourcing returns filed with the authority
Hyderabad: The Insurance Regulatory and Development Authority has found fault with Chennai based Royal Sundaram General Insurance (RSGI) for violating a few provisions of existing regulations and has imposed a fine of Rs 1crore against the insurer for not complying with the Outsourcing norms.
The IRDAI had conducted a remote inspection on the insurer from 14th September 2020 to 25th September 2020. The inspection report, among other issues , revealed that the insurer had violated several regulations, guidelines including provisions of the Insurance Act, 1938.
In an order passed by two members of the IRDAI- Rajay Kumar Sinha,(F&I) and Deepak Sood,(Non-Life), the Indian insurance regulator has said that the payments made by RSGI during 2018-19 and 2019-20 to vendors in excess of Rs1 crore were not reported in the outsourcing returns filed with the authority.
“Insurer failed to submit the explanation / information sought by the inspection team during the inspection period. A bare perusal of outsourcing returns filed by the insurer indicates that the insurer does not have a clear understanding of the services to be treated as ‘outsourcing,” said IRDAI order.
According to the IRDAI order, insurer did not properly classify and disclose its activities as outsourcing, which goes against regulations then in force. This shows a lack of responsibility and commitment to following the rules regarding outsourcing.
Although the insurer made substantial payments of over Rs 50 crore to some vendors for FY 2019-20, they did not report these to the IRDAI under Regulation 21 of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017 due to the erroneous classification of such activities as not outsourcing. The insurer’s failure to report such payments for outsourced financial commitments violates disclosure requirements and may indicate an attempt to evade regulatory scrutiny.
This lack of transparency raises concerns about the governance gaps, while also limiting the IRDAI’s capacity to evaluate outsourcing risks. As a result, this situation increases both operational and reputational risks, indicating that the insurer lacks the necessary systems and controls to meet regulatory standards, observed the IRDAI.
In another issue, while examining the incurred but not reported(IBNR) calculation sheets for FY 2019- 20, it was observed that the insurer had closed the health insurance claims in previous year/current financial year and re-opened the same in current/next financial year and settling the claims, said IRDAI.
The IRDAI has observed that the insurer re-opened around 53354 claims amounting to Rs.123.43 crore in Personal Accident, Health, Individual and Group Schemes.
Similarly, the insurer closed around 6466 claims amounting to Rs.34.99 crore. The claims were initially closed due to non-submission of required documents by the claimant, despite multiple reminders. However, they reopen the files and process payments once the documents are received.
The insurer admitted that only 76 claims were initially closed due to missing documents, despite repeated reminders, and were subsequently reopened, paid, and settled as a first payment transaction once the customers submitted the required documents.
The insurer also had acknowledged before the IRDAI that their processes were not fully aligned with the Health Regulations, 2016 in terms of language.
Although the insurer asserted that it followed a customer-friendly approach, this seemed to be a mere excuse for the delays.
A genuinely customer centric approach would focus on the timely resolution of claims and maintain transparent communication during the entire claims process, commented the IRDAI.
“This decision to close claims diminishes the gravity of the policyholders’ concerns. The policyholders could feel that their claims were not handled appropriately initially, resulting in dissatisfaction and distrust in the insurer’s claims handling process,” cautioned the IRDAI while issuing just `Warning & Advisory’ to RSGI on the issue.
Sir highly appreciated for taking action and also soliciting action on my pending complaint with IRDAI. You have sent six reminders but they have not responded nor resolved the complaint. Action should be taken on priority.
The IRDAI must prescribe certain time limit, say at least three months, to close a claim on the ground of non-submission of documents by the claimants or of no response for any clarification sought by the Insurer. Merely closing/repudiating the claims just because the claimants do not respond should be discouraged.