Fraud Alert
IRDAI Slaps Rs 1 Crore Penalty on Insurance Company for Outsourcing Norms Violation
HYDERABAD: The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a Rs 1 crore fine on Chennai-based Royal Sundaram General Insurance (RSGI) for non-compliance with outsourcing regulations during the financial years 2018-19 and 2019-20.
The penalty follows findings from a remote inspection conducted by IRDAI between September 14 and September 25, 2020.
The inspection report highlighted several regulatory violations, including non-disclosure of payments exceeding Rs 1 crore to vendors in the outsourcing returns submitted to IRDAI. The order, issued by IRDAI members Rajay Kumar Sinha (Finance & Investments) and Deepak Sood (Non-Life), stated that RSGI failed to classify and report its outsourcing activities accurately.
Key Findings from IRDAI’s Inspection
1. Non-Compliance with Outsourcing Norms
RSGI was found to have made payments exceeding Rs 50 crore to vendors in FY 2019-20 but failed to disclose these under Regulation 21 of the IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017. This misclassification of activities as non-outsourcing violated mandatory disclosure requirements, raising concerns about governance and regulatory compliance.
2. Lack of Transparency
The insurer’s failure to provide the inspection team with requested information and its unclear understanding of outsourcing activities indicated significant gaps in internal systems and controls. These lapses limited IRDAI’s ability to assess outsourcing risks and increased operational and reputational vulnerabilities.
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3. Issues with Claims Management
During the review of Incurred But Not Reported (IBNR) calculation sheets for FY 2019-20, IRDAI observed irregularities in RSGI’s claims handling processes. The insurer reopened 53,354 claims amounting to Rs 123.43 crore and closed 6,466 claims worth Rs 34.99 crore. Many claims were initially closed due to the non-submission of required documents despite repeated reminders.
While the insurer eventually reopened and settled these claims after receiving the necessary documents, IRDAI criticized the delays and lack of alignment with Health Regulations, 2016.
4. Customer-Centric Approach Questioned
RSGI’s assertion of following a customer-friendly approach was dismissed by IRDAI as an excuse for delays in claims processing. The regulator emphasized that a truly customer-centric approach requires timely resolution of claims and transparent communication throughout the process.
IRDAI’s Observations and Warnings
IRDAI expressed concerns that RSGI’s practices undermined policyholders’ trust and highlighted governance deficiencies. The regulator issued a warning and advisory to the insurer, cautioning against further lapses in claims handling and regulatory compliance.
This case underscores the critical importance of transparency, adherence to regulations, and robust governance systems in the insurance sector to ensure policyholder confidence and regulatory integrity.
