Non-compliance not only risks penalties but can also erode stakeholder confidence

IRDAI plays a critical role in regulating and monitoring insurance companies to ensure adherence to statutory provisions, regulations, and customer-centric practices. A recent case involving Royal Sundaram General Insurance Co. Ltd. underscores the importance of regulatory compliance, meticulous process management, and transparent customer engagement. The IRDAI conducted an inspection of Royal Sundaram General Insurance Co. Ltd. and the inspection report revealed violations of provisions under the Insurance Act, 1938, and various regulations, guidelines, and circulars.

Key Issues

The company re-opened 53,354 claims worth ₹123.43 crore and closed 6,466 claims worth ₹34.99 crore during FY 2019-20. These included health insurance and personal accident claims. Violation of Regulation-27(v) of IRDA (Health Insurance) Regulations, 2016

Company contested that claims were reopened based on additional documentation submitted by claimants. Closure occurred when claimants failed to submit documents despite reminders. The company argued this approach was customer-friendly, as claims were reopened upon receiving necessary documentation. IRDAI noted that this practice was not fully aligned with Health Insurance Regulations, 2016, reflecting inadequate diligence in initial claims processing. Although the insurer emphasized customer-centricity, the IRDAI viewed the practice as an excuse for delays and warned the company to align its processes with regulatory norms. Recurrence of such lapses would attract stringent action.

Company made payments to vendors during FYs 2018-19 and 2019-20 which were not reported in the outsourcing returns filed with the IRDAI. Violation of Regulation-21 of IRDAI (Outsourcing of Activities by Indian Insurers) Regulations, 2017

Company contested that these payments were for specialized activities outside the purview of outsourcing regulations. They provided documents, including vendor profiles, GST details, and a vendor onboarding framework, to substantiate their claims. While the IRDAI acknowledged the insurer’s explanations and supporting documents, it emphasized the need for robust compliance with outsourcing regulations. 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’. The Authority warned the company to ensure all activities involving significant payments are reported accurately.

Company has been issued a warning for violating IRDA Health Insurance Regulations and fined Rs. 1 crore for breaching Outsourcing Rules. The penalty must be paid within 45 days, and the insurer is required to report the board meeting minutes and submit an Action Taken Report within 90 days.

Key Takeways

• Insurers must ensure their processes and practices adhere to the language and spirit of the applicable regulations.

• Insurers should prioritize customer-centric approaches that combine efficiency with fairness. Practices such as reopening claims must be handled with diligence and clear communication to avoid regulatory scrutiny.

• Accurate reporting of vendor activities and payments is essential for regulatory compliance. Insurers must have a comprehensive vendor on boarding framework and ensure all activities meet the criteria defined under outsourcing regulations.

• Insurers must maintain effective communication with customers and the regulator. Providing clear guidance on documentation requirements and responding promptly to regulatory observations can prevent adverse findings.

• Regular internal audits and process reviews can help identify and address gaps in compliance before regulatory inspections.

The IRDAI’s order serves as a reminder of the regulator’s stringent stance on non-compliance. Insurers must prioritize adherence to regulations, strengthen their operational frameworks, and foster transparency to build trust with customers and regulators alike. Non-compliance not only risks penalties but can also erode stakeholder confidence: a price far greater than the cost of compliance.