Insurance regulator Irda today imposed Rs 50 lakh penalty on SKS Microfinance which collected extra funds, apart from the premium, as a corporate insurance agent without proper disclosure to policy-holders.
As per the order of Insurance Regulatory and Development Authority (Irda), a micro finance institution (MFI), which also operates as a corporate insurance agent, can't collect more amount than the premium charged for the policy on behalf of an insurance company.
SKS Microfinance acted as a corporate agent of Bajaj Allianz Life Insurance Company Ltd.
"In the instant case, the MFI has not collected any 'premium' amount from its members, however they were collecting 1 per cent of the loan amount as "Death Relief Fund" fee," said the order dated February 19.
"Presumably this fee was applied to the premium. The documents establish that the premium is only about 0.55 per cent of the loan amount and not 1 per as charged for the so called death protection fee," it said.
Thus the MFI has levied a charge more than the premium in violation of clause, it said.
"Considering the violations committed by the MFI and keeping in view the work being done by the MFI in the micro insurance sector, the authority hereby directs the MFI to remit a penalty of Rs 50 lakh...," it said.
The regulator also said that penalty should be remitted by the company within a period of 15 days from the date of receipt of this order.
The order further said the MFI is barred from collecting service charge from its members under provisions existing provisions.
"Following this spirit, it is clear that about half of the amount charged is actually service charge and was not disclosed to the members as additional cost. Hence, this is certainly a deliberate lapse on the part of the Master Policy Holder," it said.