The Insurance Regulatory and Development Authority of India has imposed a fine of Rs 5 lakh on Reliance Nippon Life Insurance Co for spending above regulatory requirement and possible impact on policyholders' interests.
The IRDAI first warned Reliance Nippon on March 12, 2014, that its expenses of management (EoM) were above permissible limits at 106.54% and 143.39% for FY2011-12 and FY2012-13 respectively. The insurer was asked to bring the expenditure levels within limits by FY 2014-15.
However, for 2014-15, Reliance Nippon in contravention to IRDAI's directive reported 139.84% higher expenses (EoM). On being asked for an explanation, Reliance Nippon said in November 2015: "We are implementing strict controls and austerity measures. We have brought down the existing departmental budgets by as much as 10% in the current fiscal year."
Reliance Nippon said it was running higher costs associated with setting up a long-term agency distribution network and its acquisition of AMP Sanmar.
The IRDAI said the insurer's explanations were not entirely satisfactory. It also noted the appointed actuary had failed to certify that policyholders had been treated fairly for the period between FY 2013-14 and FY 2014-15, before it fined the insurer.
"We have carefully considered submissions of the insurer. As per the statement of expenses of management (EoM) filed with the authority for FY 2014-15, the EoM of the insurer was 139.84% in the FY 2014-15. Therefore, the insurer has not compiled with the directive issued vide letter wherein insurer was advised to bring the expenditure within the prescribed limits under rule," said the IRDAI.
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