The insurance regulator's direction to HDFC Standard Life Insurance Company Tuesday to reopen all the settled death claims and pay an increased amount under two of its polices and also to raise the sum assured for other policyholders has evoked mixed response in the insurance sector.
While a majority of those to whom IANS spoke welcomed the Insurance Regulatory and Development Authority's (IRDA) move, there were some who said the regulator could have taken a lenient view as the private life insurer violated the norms in the interest of policyholders.
They also said the IRDA should not discriminate between violators as there might be others who might have done what HDFC Standard Life did.
"The direction is a wake-up call given to the potential offenders, so that the 'file and use' mechanism as carved out by the IRDA should not degenerate into 'file and mis-use'," D. Varadarajan, a Supreme Court lawyer who specialises in company and insurance laws, told IANS.
"This regulatory initiative of the IRDA cannot be faulted with, for a change, both on law and equity. There cannot be hostile discrimination among the policyholders of the same class, although separated by time, as regards the scope of cover, and contrary to the 'file and use' approval," he added.
The IRDA found HDFC Standard Life discriminating between two sets of policyholders - those who had bought the HDFC Life Sampoornam Samridhi Plan and HDFC Classic Assure Plan before March 31, 2012, and those who bought the policy after April 1, 2012.
According to the regulator, the private life insurer had offered higher benefit to those who had bought the two policies after April 1, 2012 while the premium outgo for both remained the same.
The IRDA said HDFC Standard Life altered the insurance value through an endorsement assuring additional death benefits which is equivalent to higher of 10 times annualised premium or the death benefit as defined in the policy under two of its products for those who bought the policies on or after April 1, 2012.
For those who bought the products prior to that date, the death benefits payable were the basic sum assured, reversionary bonus plus interim and terminal bonuses, if any.
The company debited to its shareholders' account the additional premium amount for the higher cover for those who bought the policies on or after April 1, 2012.
The IRDA did not agree with the insurer's contention that the additional benefit was offered to those who bought the policies on or after April 1, 2012, as the rules relating to tax exemption were changed.
Terming the insurer's action as discriminatory between the two sets of policyholders, the IRDA directed the company to reopen claims on policies prior to April 1, 2012, (from the date of launch of two policies) and settle the additional amount within 60 days of the order.
"The only business of a life insurer is to transact life insurance business as per rules and not turn into a tax consultant," Varadarajan added.
"The IRDA carries out inspections on insurers and orders corrective action. The direction to HDFC Standard Life is one such order," V. Manickam, secretary general, Life Insurance Council, told IANS.
Reiterating the rationale for IRDA's decision its Chairman T.S. Vijayan told IANS: "All the life insurers faced the same problem. However, nobody had a similar issue except HDFC Standard Life. The company violated the regulations and the direction was accordingly given."
An official of a private life insurer told IANS on the condition of anonymity: "The union budget and the finance bill is presented in February. The bill becomes a law sometime around June/July. The 2012 Finance Bill altered provisions relating to tax exemptions for life insurance premium."
"But insurers have to run their business continuously. Selling an old policy after changes in the tax laws will affect the policyholders. Perhaps IRDA could have been a bit proactive in issuing a circular on the steps to be taken in the interests of policyholders," he said.
Meanwhile, HDFC Standard Life declined to answer IANS questions on the financial impact of the IRDA's direction and said the company would comply with the order.
This was the second time in two years that HDFC Standard Life was found violating the norms.
In July 2012, the IRDA levied a penalty of Rs.1.05 crore on HDFC Standard Life's shareholders for rejecting 21 death claims.
