IRDAI decision against Sahara India Life raises several questions

The IRDAI`s latest order against private life insurer Sahara India Life Insurance Company Ltd., which in effect shuts down the company`s business, has raised many questions for which there are not many answers, say senior industry officials and experts.

The Insurance Regulatory and Development Authority of India (IRDAI) in its July 28 order has said: "The promoters of the company (Sahara India Life) are no more fit and proper; a sum of Rs.78 crore has already been siphoned off in name of the security deposits; the shareholders and Board of Directors are not keen in recovery plan; the company is mainly surviving on the release of reserves. However the situation may not continue for long as the new premium of the company has come down significantly."

On the insurance regulator`s serious charge that Rs 78 crore has been siphoned off, industry officials ask what action have the IRDAI or the administrator appointed by it in June 2017 taken in that regard.

"It is not clear who has siphoned off the money. If it is fraudulent diversion of funds, it is a criminal act that will have to be taken cognizance of by the police and criminal court. It is not clear if IRDAI has lodged a criminal complaint," K.K. Srinivasan, former member of the IRDAI, told IANS.

"If it (IRDAI) has not done so far, it is perhaps duty bound to lodge a criminal complaint without further delay," Srinivasan added.

The IRDAI`s July 28 order is silent on how and by whom Rs 78 crore were siphoned off.

However, information gleaned from the IRDAI order dated June 12 shows that Sahara India Life had paid a little less than Rs 80 crore as rental deposits towards opening of 646 pan-India branches to a group company.

Curiously, the IRDAI has not permitted Sahara India Life to expand its branch network.

According to the IRDAI, its July 28 order is based on the June 22 report by the administrator appointed by it. The insurance regulator has not made the administrator`s report public.

"The siphoning charge also brings into picture the role of professionals like auditors -- external and internal -- appointed actuary. Did not the statutory auditors detect siphoning of funds?" a senior industry official asked.

He also said the appointed actuary is a representative of the insurance regulator and he/she submits two major reports about the company detailing the financial position and the actuarial reserves. The company also submits several returns to the regulator.

Srinivasan said as per the IRDA Act, the regulator is vested with the responsibility to protect policy holder`s interests and ensure orderly growth of the industry.

"Hence the decision of IRDAI to transfer the assets and policy holder`s liabilities of Sahara Life to ICICI Prudential Insurance under Section 52 B (2) of the Insurance Act seems appropriate," Srinivasan added.

Another industry expert not wanting to be named told IANS that the IRDAI has not explained in detail the reasons for appointing an administrator to run the affairs of Sahara India Life and then ordering the transfer of all its polices to ICICI Prudential Life Insurance.

"If IRDAI`s decision is to protect the interests of policyholders, there were no major complaints against Sahara India Life of not settling valid claims. Further, there were no questions of the insurer falling back in its solvency margin. The company`s solvency margin is much higher than others," the industry expert said.

Officials said there are insurers who have earned several crore of rupees of undue income from policyholders but the regulator has not taken such a punitive action against them as he has done in the case of Sahara India Life.

Industry officials also question the IRDAI`s move to appoint its General Manager R.K. Sharma as the administrator of Sahara India Life.

"Earlier, the power to appoint an administrator was with the central government and the regulator had only a recommendatory power. After the amendment of insurance laws a couple years ago, the power to appoint the administrator was given to the insurance regulator," an official said.

"Normally, the government will not appoint its own official as an administrator or liquidator of a company. It would appoint a retired official or a professional. But in the case of Sahara India Life, an employee of IRDAI has been appointed as an administrator," the official said.

Industry officials told IANS that the IRDAI should look at the larger picture while regulating the industry than getting bogged down with minor aspects like filing of returns by the insurers.

"The regulator should give the comfort of confidentiality to the whistle-blowers. But that comfort is not there now," a senior industry official told IANS.

Several attempts to contact IRDAI officials by IANS for clarifications did not succeed.