The Insurance Regulatory and Development Authority (IRDA) has penalised Shriram Life Insurance for irregularities relating to the fees paid to group companies for bringing in referral business and non-brokerage related fees paid to broking firms, among others. IRDA has charged a penalty ofRs. 2.8 million on the company.
Hyderabad-based Shriram Life gets about 80% of its business by cross selling to group company clients. The company has been charged of paying excess fees to group company Shriram Chits for bringing in referral business.
IRDA in its final order on Shriram Life said, “Payment to group companies under different heads without any proper agreements. Not adhered to arm's length transaction principle in various agreements/arrangements/payouts.”
One of the charges against Shriram Life has been that it paid Rs. 0.23 million to SMC Insurance Brokers during 2009-10 as training expenses in addition to the brokerage, which is against the insurance regulator norms.
Insurers get their business either directly or through licensed insurance brokers or agents who get paid in terms of brokerages and commissions. An alternate channel for bringing in business is the corporate agency model, where an external agency brings in business and gets paid accordingly, like bancassurance. These external agencies can sell the products of only one life and one general insurer.