Irdai had ordered the refunds, as it felt that policyholders under the scheme should not have borne any cost arising from 20% administrative charges paid by the insurer to the Master Policy Holders or the banks that sold its home loan product, in contravention of its regulations.
In a setback to SBI Life, the Supreme Court on Monday upheld the Insurance Regulatory and Development Authority (Irdai)’s 2012 order asking the insurer to refund Rs 84 crore with interest it had collected from policyholders under the defunct Super Suraksha scheme.
Irdai had ordered the refunds, as it felt that policyholders under the scheme should not have borne any cost arising from 20% administrative charges paid by the insurer to the Master Policy Holders or the banks that sold its home loan product, in contravention of its regulations. The regulator wanted the insurer to incur the administrative expenses, and was against these being outsourced on payment.
Upholding this view, the apex court dismissed SBI Life’s appeal against the Securities Appellate Tribunal (SAT)’s April 7 order that reprimanded the insurer on the grounds that 20% administrative charges paid by it to its Master Policy Holders in relation to group assurance life products lacked authority in law and was violative of Irdai’s July 2005 Group Insurance Guidelines.
However, a Bench led by Justice RF Nariman sought response from Irdai on a separate appeal against the insurance regulator’s 2014 order that directed SBI Life to disgorge and refund over Rs 275 crore to policyholders on account of misrepresenting its group insurance product, Dhanaraksha Plus Limited Premium Paying Term plan.
Holding that the disgorgement is not a punitive direction, but a remedial direction to prevent a wrongdoer from unjust enrichment and return of the unlawful gain, SAT on Jan 29, 2020 had directed Irdai to recalculate the unlawful gains in the form of advance premium collected by SBI Life Insurance Company and pay the same to policyholders.
In March 2014, Irdai penalised the insurer for Dhanraksha policy on the grounds of misrepresentation and also to protect the policyholder’s interest. The regulator asked SBI Life to identify the beneficiaries and distribute the excess commission paid to corporate agents to such beneficiaries and complete the process within six months. It said that SBI Life had earned excess commission to the tune of Rs 275.30 crore during the financial years 2008-09, 2009-10 and 2010-11 from the policyholders of the Dhanraksha Plus Term Policy.
SBI Life in its appeals said Irdai’s directions “are analogous to disgorgement, or in any event akin to imposing a second penalty” as it was even penalized earlier under Section 102 of the Insurance Act, 1938. It stated that it had neither conducted its business in a manner that was detrimental to itself or to the interests of policyholders.
Senior counsel Harish Salve and counsel Fereshte Sethna argued that the premium was admittedly approved by Irdai and nothing beyond that was charged to policyholders. They also said there was no scope for requiring disgorgement of expense for administrative functions rendered by group administrators as disgorgement can apply to gain but nothing to expense.
Irdai had in October 2001 approved launch of ‘Super Suraksha,’ a non-linked insurance product. Its premium included 20% administrative charges, but later in July 2005, Irda introduced the group insurance guidelines that barred any administrative fees/charges, which according to the insurer, operated as an unreasonable restriction to its right to carry on business. The 2005 guidelines could not properly be applied retrospectively to a product launched in 2001, it said.