Suspension of license no. 380 of M/S. Jeevansuraksha Insurance Broking Ser, Jul 2011

INSURANCE REGULATORY AND DEVELOPMENT AJUTHORITY OF INDIA Title:Order Reference No.:IRDA/BRK/ORD/LS/110/05/2011 Date:12/07/2011 Suspension of license no. 380 of M/S. Jeevansuraksha Insurance Broking Services Pvt Ltd ORDER OF THE INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY UNDER REGUALTION 34 OF IRDA (INSURANCE BROKERS) REGULATIONS, 2002 In the matter of M/S. Jeevansuraksha Insurance Broking Services Pvt Ltd Direct Broker License 1. JEEVANSURAKSHA INSURANCE BROKING SERVICES PVT LTD, (hereinafter referred to as the ‘Broker’) having its Registered Office at 91, Kunj Society, Alkapuri, Vadodara, 390 007, Gujarat have been granted a license by the Insurance Regulatory and Development Authority (hereinafter referred to as the ‘Authority’) to act as a Direct Insurance Broker, vide License No. 380 on 11th day of August, 2008 pursuant to the provisions of the IRDA (Insurance Brokers) Regulations, 2002 (hereinafter referred to as the ‘Regulations’).

2. The Authority in exercise of powers granted under Regulation 29 read with Regulation 30(2) of the said Regulations appointed its officers and has undertaken inspection of the premises of the Broker on 13th & 14th May, 2010 without giving notice inter alia to ascertain its compliance with the provisions of the Insurance Act, 1938, IRDA (Insurance Brokers) Regulations, 2002 and also see how the business is carried on. 3. The findings of inspection report were communicated to the Broker vide letter dated 14th July, 2010 under Regulation 32(1) of the Regulations for his information and comments. The explanation of the Broker to the findings of inspection report has been received on 28th July, 2010 and examined. Considering the nature and the gravity of the violations revealed in the inspection report and taking into account the reply of Broker, the Authority in exercise of powers vested in it under Regulation 34(1) of said regulations issued the notice dated 14th January, 2011 to the Broker to make its written submission on the following violations and appear for personal hearing.

The Broker i.) violated the provisions of Reg. 9(3) by engaging the service providers for soliciting and procuring business and opening offices for lead generation;

ii.) violated the provisions of clause 3(b) of Reg. 21 by engaging canvassers for lead generation and procuring business;

iii.) furnished false information and failed to disclose material facts in the application submitted for obtaining a licence;

iv.) admitted that they accepted excess commission in contravention of limits prescribed in Reg. 19.

4. In response to the notice, the Broker submitted its reply vide its letter dated 25th January, 2011 and subsequently appeared for personal hearing on 4th February, 2011 represented by Mr. Hitesh Shreyaskar, CEO & Principal Officer and Mr. Dhaval B. Bhatt, Chairman and Managing Director. The minutes of personal hearing are given to the Broker.

5. Regarding contravention of Regulation 19, the explanation of Future Generali India Insurance Company Ltd and Future Generali India Life Insurance Company Ltd on payment of excess commission was sought and examined together with the clarification given by the Broker that some excess payment has been received but after reconciliation of the same by their accountant, no such excess payment was observed. The explanation of insurers and broker on the matter was accepted.

6. Upon considering the other submissions made by the Broker in writing and during the course of the personal hearing as also the facts and circumstances of the case including the material on record, the Authority have come to the conclusion that M/S. Jeevansuraksha Insurance Broking Services Pvt Ltd has violated the following Regulations and code of conduct matters. i.) The Broker violated the provisions of Reg. 9(3) by engaging the service providers for soliciting and procuring business and opening offices for lead generation. The Broker submitted that the unqualified and untrained employees only generate leads and other works like data collection, policy service, collection of documents, distribution of pamphlets, delivering renewal notices and collection of cheque. They are not involved in soliciting and procuring business. However, the following documents in the inspection report corroborate the breach of provisions of Reg. 9(3). a) The statements giving details of business procured through service providers in 2008-09 and 2009-10 with brokerage showing against their names prove they are used for soliciting and procuring business. As per the record, there are 57 service providers in 2009-10 and 33 service providers in 2008-09. b) The applications of Dipangi Jigar Mehta and Nirav Nitin Kumar Patel confirm that the Broker appointed them as service providers. The names of Dipangi Jigar Mehta and Nirav Nitin Kumar Patel appear in the list of service providers in 2009-10. c) As per the details submitted by the Principal Officer, the Broker has offices at G-2, Krishna Court, 40, Nutan Bharat Society, Alkapuri, Vadodara and 102/B, Sterling Center, Alkapuri, Vadodara with Mr. Hitesh Shreyaskar and Mr. Dilip Nirantare as trained persons. However, it is found the lease agreement copies for offices at 203,

Prerna Arcade, Opp. Doctor House, Nr. Parimal Garden, Ambawadi, Ahmedabad; (period of lease 1-12-2009 to 30-11-2012) 102/B, Sterling Center, R.C. Dutt Road, Vadodara; (period of lease commencing on 3-11-2009 up to 3 years) and Office No 601,Centre Point, Ring Road, Surat (period of lease 11-12-2009 to 10-12-2012). The ledger accounts show the details of rent paid. The list of these three offices is not provided to the Authority.

In view of the evidence in the above documents, the explanation of the Broker in personal hearing and subsequent written submissions is not accepted. ii.) The Broker violated the provisions of clause 3(b) of Reg. 21 by employing canvassers for lead generation and procuring business. The Broker submitted that they have not employed any agent or canvasser to bring in business. The persons employed are for providing various post sale services.

Conversely, the documents in inspection report proved that the services of M/s. Jeevan Suraksha Medicare Services Ltd and other service providers are employed and utilized as canvassers to bring in business. a) The copies of ledger printouts in respect of service provider fees established that Rs. 80, 55, 840/- was paid to M/s Jeevansuraksha Medicare Services Ltd in 2009-10 and the Broker spent 43.49% of income on service providers. M/s Jeevansuraksha Medicare Services Ltd collected agency application forms and generated commission statements for agents. b) The list of service providers employed and ledger accounts with details of payments made to them gives evidence of payments to service providers. The said documents on record, therefore, establish the violation of the provisions of clause 3(b) of Reg. 21 by employing canvassers for lead generation and procuring business. iii.) The Broker furnished false information and failed to disclose material facts in the application submitted for obtaining a licence which attracts provisions of Reg 34(1)(c). (a) The Broker admitted that Mr. Dhaval B. Bhatt has an individual agency license with Bajaj Allianz Life Insurance Company Ltd operational from 19.11.2004 and stated that no business under the said agency was placed from the date of grant of broker license. It explained there is a procedural lapse and now steps are taken to surrender the same. The Broker vide letter dated 25th January, 2011 enclosed the copy of request dated 21st January, 2011 for surrender of agency license submitted to Bajaj Allianz Life Insurance Co. Ltd. Whilst the Broker requested the Authority to pardon on this matter in its letter dated 12th February, 2011, it mentioned in the reply that the Authority either at the time of examining broker application or on later stage has not advised to cancel the license.

The question of advising the Broker to cancel license did not arise as the fact that Mr. Dhaval B. Bhatt who is the Director and 75% Shareholder of the company holding insurance agent license No 479 1837285 with Bajaj Allianz Life Insurance Company under Agent Code No.2000000478 has never been disclosed to the Authority in the application submitted for obtaining license.

Further, Mr. Dhaval B. Bhatt and Mr. Nilamchandra Shah as the Directors of the company submitted the declaration dated 27th February, 2006 in Form A of application for direct broker license, affirming that ``I/We declare that I/we do not possess an insurance agent license under section 42 of the Act.`` The Broker vide letter dated 6th May, 2006 confirmed that nobody associated with the company in the capacity as Directors/Shareholder/Promoter/Key management Personnel or Employees are holding any insurance agents or insurance surveyor license. This letter is also signed by Mr. Dhaval B. Bhatt. In view of the above, the explanation of the Broker is not accepted. (b) As regards the activities of Jeevan Suraksha Medicare Services Ltd, the application dated 27th February, 2006 declared it as an associate company/concern of the Directors and shareholders of the Broker. It was informed its activities are to carry on club house, conduct health check up camps, conduct blood donation camps, provide ambulance services, provide meals, food etc. In response to the Authority`s observation that Mr. Dhaval Bhat and Mr. Nilamchandra Shah representing Jeevan Suraksha Medicare Services Ltd and Jeevansuraksha Insurance Broking Services Pvt Ltd will have to take necessary steps to keep away from common directorship between two entities, the Broker vide letter dated 1st May, 2008, clarified that Jeevan Suraksha Medicare Services Ltd is not engaged in any insurance business except acting as administrator of some of group policies.

The Broker explained that there is no conflict of interest between two entities. The Broker submitted an undertaking that none of the directors/employees of the company is holding directorship/employment in or represent any other insurance related entity. On the other hand, the inspection of the Broker revealed the contra facts relating to the activities of Jeevan Suraksha Medicare Services Ltd. The Jeevan Suraksha Medicare Services Ltd appointed agents for premium collection and giving information about insurance policies to clients. The commission statements of Jeevan Suraksha Medicare Services showed the particulars of agents, premium and commission. The Jeevan Suraksha Medicare Services Ltd website claimed as an insurance consulting Company and it offered various insurance companies policies. It also gives a message that they started as insurance brokers. The chain system for agents is discussed in the message. The Directors of Jeevan Suraksha Medicare Services Ltd are shown as Mr. Dhaval B. Bhatt and Mr. Nilamchandra Shah who are the Directors of Jeevansuraksha Insurance Broking Services Pvt Ltd. The annual audited accounts of Jeevan Suraksha Medicare Services Ltd are signed by Mr. Dhaval B. Bhatt and Mr. Nilamchandra Shah and certified by the same auditors M/s. Nimesh Gandhi & Co who are statutory auditors of the Broker.

The documents of invoices raised against insurance companies and payments received by Jeevan Suraksha Medicare Services Ltd substantiates that the entity is involved in transactions with Insurance Companies and it is carrying on insurance activities. The Broker, thus, furnished wrong information on the activities of Jeevan Suraksha Medicare Services Ltd. 7. In terms of Regulation 34(1) (c) of the Regulations, the licence of an insurance broker may be cancelled or suspended after due notice and after giving him a reasonable opportunity of being heard if he furnishes wrong or false information; or conceals or fails to disclose material facts in the application submitted for obtaining a licence. 8. In consideration of the aforesaid non disclosure of material facts, furnishing wrong information explained in para 6 (iii) and violations of Regulation 9(3) and clause 3(b) of Regulation 21 committed by the Broker while carrying its business, the Authority is of the considered view that the direct broker license of the Broker shall be suspended forthwith and enquiry instituted under Regulation 36 and 37. 9. Therefore, pending enquiry, in exercise of powers granted to it under Regulation 34 of the said Regulations, the Authority suspends the license no. 380 of M/S. Jeevansuraksha Insurance Broking Services Pvt Ltd with immediate effect. Sd/- (J. Hari Narayan) Chairman Date: 6th July, 2011 Place: Hyderabad

``True Copy Forwarded By Order’’

(Suresh Mathur) Senior Joint Director