Expense Account, Mint
The increasing confidence of the Insurance Regulatory and Development Authority (Irda) showed two weeks ago when it slapped a fine of Rs 1.47 crore on HDFC Standard Life for some five violations out of a list of 25 charges. Indian regulators are not known to levy large sums as fines. Probably the highest fine levied by the regulator till now, the move showcased Irda’s ability to go beyond the defunct Rs 5 lakh limit that the Insurance Act insists on. Fines and penalties are governed by the Insurance Act of 1938 that caps fines at Rs 5 lakh. Must’ve been a large amount 70 years ago, but now it does not even buy the paper that an insurance company will write its policies on. Inflation indexed at 6% a year, that limit should’ve been at Rs 3.7 crore today and this would have translated into a Rs 109 crore fine for HDFC Standard Life or almost 40% of its 2011-12 profits. Right now the fine bites less than half a percent of profits. The world has moved on from 1938 and now the limit should be reworked to a floor and not a ceiling. The stalled Insurance Bill has been frustrating not just for companies that wanted the foreign direct investment (FDI), but also for the regulator, which wants more teeth. Irda has been innovating on the fly to bite down harder on the companies. It is splitting the fine across years, across aggrieved policy holders, across any category it can find to impose the maximum fine of Rs 5 lakh in a more meaningful manner. HDFC Standard Life, for example, has been fined Rs 1.05 crore for ignoring an Irda notice to waive the 90-day waiting period in home loan-linked life insurance policies in 2003. There were 21 policy holders whose claims were rejected and apportioning Rs 5 lakh each to them, Irda has instructed the insurance company to not only pay the claim but also pay a fine.