to pay in advance to meet other financial goals and avoid last-minute crunch. They argued that many policyholders have fluctuating income and it is convenient for them to pay premiums whenever they have cash in hand. If a policyholder insisted for advance payment for tax rebates, companies used to collect the premium up to six months ahead of the due date without giving any discount.
The regulator's circular on advance premium collection also comes after it found that SBI Life had collected second year's premium upfront, along with the first year premium, for Dhanaraksha Plus Limited Premium Paying term (LPPT) plan. “It is noticed that 93% of the second-year premiums were received in advance, along with the first-year premium in 2008-09, 94% in 2009-10 and 97% in 2010-11. Thus, the premium collected is more on lines of a single premium than two yearly premiums against the approved file-and-use features,” the Irda said in its notice to SBI Life Insurance.
The regulator found that the insurer had paid 40% of the first year premium as first-year commission to agents and another 7.5% of the second year's premium as second-year commission.
“However, had the single-premium version of the product been offered to policyholders, the actual commission payable would have been only 2%. Hence, it can be concluded that the large scale sale of LPPT as single-premium payment policy has only facilitated higher commission payments to insurance intermediaries involved who are predominantly SBI and its associate banks,” the regulator notice said.
Irda has directed the company to refund R275 crore to members of the group insurance scheme, which were wrongfully collected from 2008-09 to 2010-11. In 2010, the regulator had fined SBI Life Insurance R5 lakh for misselling its Dhanraksha Plus LPPT. The refund order by the industry is the biggest in the Indian insurance history and experts say it will send a strong signal. SBI Life Insurance, however, has said it will appeal against the order. Analysts say the regulator’s move to allow premium collection three months before the due date will be a relief to insurance companies and also benefit policyholders who are travelling or relocating abroad.