This article analyses the two IRDAI order, passed earlier during the year, against SBI Life Insurance Company (SBI) and HDFC Insurance Company (HDFC) for violation of outsourcing activities to web aggregators and brokers.
Charges levied against HDFC:
I. Outsourced activities to web aggregators to act as their telemarketers in contravention of Insurance Web aggregators regulation.
HDFC used web aggregators for regular telemarketing services for solicitation of business without basing on the leads generated through their websites. Outsourcing services were agreed at INR 38,000. The Insurance company made payments in the name of outsourcing to the insurance web aggregators to act as their tele-marketers;
II. Outsourced activities to brokers for online sales, telemarketing and distance marketing in contravention of Insurance Brokers Regulation, 2018 and Outsourcing Regulation, 2017.
HDFC outsourced activities to Coretree, Coverfox, Invictus, etc for online sales under the head of “work station cost @ 38,000 X no of resource per month”. Payments in excess of 1crore were made to Coerfox and in respect of others less than 1 Crore.
III.HDFC made payments other than commission/renumeration to various corporate agents:
HDFC paid corporate agents for joint sales marketing and ATM maintenance activities. There was no clear basis for calculating these costs, and any cost-sharing must reflect actual expenses incurred, particularly for screen displays. There is no documentary to support calculations.
Merely agreeing to costs in an agreement does not validate the payments. Since corporate agents act as distributors for the insurer and earn commissions, such payments cannot create separate contractual obligations that contradict regulatory principles
Decision of IRDAI
HDFC was levied with a collective fine of 1 Cr for each of the violations on the following grounds:
a) Outsourcing payments made to policy bazaar were more than 50% of the premiums sourced which was extremely high. Invoices did not divulge details of expenses. It is not clear on what basis per seat/per moth was agreed upon. The payments should be reasonable and to assess reasonability, payment should be made in proportion to the volume of the transaction involved. The insurer and the web aggregators have not mentioned that volume and type of transaction for post-sale services. Outsourcing payments were not reported.
b) The insurer failed to submit transactional level data showing the nature of outsourcing services offered by brokers commensurate with payments. While broking regulations, allows outsourcing to the extant of telemarketing, brokers and insurers have revealed that they have performed that are allowed under the outsourcing regulations but not the broking regulations. Payments made to brokers on per seat basis in addition to broking commission are nothing but extra payouts by the insurer to the brokers.
c) Payouts made to Corporate Agents are excessive in the guise of cobranding agreements.
Similar charges were levied against SBI for outsourcing activities to web aggregators and were fined one crore rupees.
Conclusion:
The above charges and decision of IRDAI indicates a lack of oversight by Insurance Companies in maintaining records of the financial basis of arriving at the remuneration for web aggregators, brokers and corporate agents. At the face of it, the arrangements seem to ad-hoc.
The case also highlights the overreaching roles that web aggregators, brokers and corporate agents play in securing the business for the insurance company.
