corporate law

Regulatory Action Against UIB Insurance Brokers: Penalties and Compliance Issues

Overview of the Regulatory Actions Against UIB Insurance Brokers Pvt. Ltd.

In June 2022, the Insurance Regulatory and Development Authority of India (IRDAI) inspected UIB Insurance Brokers Pvt. Ltd., uncovering several violations of the Insurance Act, 1938, and associated regulations. A Show Cause Notice (SCN) was issued on July 4, 2024, regarding these issues, followed by a personal hearing on October 10, 2024. The IRDAI found significant delays in remitting reinsurance premiums, some spanning from 36 to 1151 days, with a total overdue amount of ₹1.62 crore, which included ₹73.44 lakh still outstanding at the time of inspection.

Despite UIB's defense that procedural complexities were the cause of these delays and alleging no profit was made, IRDAI concluded that the company did not obtain the mandatory written consents for these delays. Furthermore, previous advisories on this issue had failed to bring about compliance. Due to the recurring nature of the violation, IRDAI imposed a penalty of ₹1 crore, instructing UIB to review all outstanding remittances, bolster its internal controls, and submit an action plan by December 2024. The penalty must be settled within 45 days.

Details of Inspection Findings and Proceedings

1. Basis for Action

The subsequent actions taken against UIB are based on:

  • Inspection Report: Conducted from June 13 to June 17, 2022, revealing multiple violations.
  • Show Cause Notice: Issued on July 4, 2024, referencing specific infractions.
  • Broker’s Submissions: Responses received on August 2, 2024, and during the personal hearing involved key stakeholders from UIB and IRDAI.

2. Background Context

The on-site inspection by the IRDAI highlighted violations of the Insurance Act, 1938, and its regulations. The Report was sent to UIB on September 29, 2022, requesting a response, which was received on October 19, 2022. Following an examination, advisories were issued concerning six of the nine observations, allowing UIB the opportunity for compliance correction, while dropping two observations. The remaining issue, under scrutiny, involved persistent violations already flagged in a previous advisory (July 2, 2020).

3. Key Violations Identified

The violations of UIB involved significant delays in premium remittances to cedants, reinsurers, and brokers, as highlighted in the following observations:

3.1 Delayed Remittances:

  • Out of 53 instances reviewed, delays ranged from 36 days to as much as 1151 days.
  • Overdue amount: ₹1,62,70,784.
  • Specific pending amount at the time of the inspection: ₹73,44,640 across 14 cases.

3.2 Broker’s Arguments:

  • The company attributed these delays to complex documentation requirements and claimed that they retained no unfair profits, stating funds were held in zero-interest accounts.
  • UIB reported a decrease in delayed remittances following previous advisories, showcasing improvements over the years.

3.3 Authority’s Conclusion:

  • UIB failed to provide adequate evidence of written consents for remittance delays.
  • The comparative analysis of the documents indicated procedural inadequacies and suggested an absence of proactive compliance mechanisms.
  • The lack of timely remittances poses risks to the broader insurance ecosystem.

4. Orders and Recommendations

In light of these findings:

  • Penalty Imposed: ₹1 crore for violations of Schedule II-Form U(f) of the IRDAI (Insurance Brokers) Regulations, 2018.
  • Action Items for UIB:
    • Conduct a comprehensive review of pending remittances.
    • Develop and present an internal review action plan to rectify identified deficiencies focused on achieving regulatory compliance by December 31, 2024.

Conclusion

Ultimately, the IRDAI’s decision underscores the importance of compliance with regulatory frameworks and the need for brokers to maintain diligent operational standards. Failure to adhere not only incurs penalties but also challenges the integrity of the entire insurance landscape. UIB is expected to act upon the recommendations to prevent future occurrences of similar infractions.