Irdai Slaps Rs 1 Crore Penalty On Reliance General Over Outsourcing Lapses

Reliance General Insurance Company has been fined Rs 1 crore by the insurance regulator for a series of violations linked to outsourcing practices, commission-related payments, and weaknesses in corporate governance, according to a recent Insurance Regulatory and Development Authority of India (Irdai) statement.

The penalty follows a regulatory inspection that examined the insurer’s operations for the period between December 27 and 31, 2021. After reviewing the inspection findings, submissions made by the company, and arguments presented during a personal hearing, the regulator concluded that several payments made by the insurer breached the Insurance Act, 1938, as well as multiple Irdai regulations.

Regulator Questions Nature Of Vendor Payments

At the centre of the order are payments made by Reliance General to a range of entities for activities described as marketing, advertising, and consumer awareness. Irdai, however, found that these arrangements went far beyond routine promotional work and amounted to unauthorised or disguised commissions.

The regulator flagged payments made to the parent company of an insurance broker, noting that such transactions raised clear conflict-of-interest concerns. Under existing rules, insurers are expected to avoid engaging related parties of intermediaries for outsourced work unless there is no alternative and full safeguards are in place. In this case, Irdai observed that the insurer failed to show that such safeguards, including arm’s-length pricing and due diligence, were followed.

Payments made to an individual who was an agent of another insurer also drew regulatory scrutiny. Irdai noted that branding material and event-related activities associated with the arrangement gave the impression that the agent was soliciting business for Reliance General, despite not being authorised to do so. Similar concerns were raised in connection with payments to an unlicensed entity that appeared to be involved in insurance-related services without regulatory approval.

Outsourcing Rules Not Followed, Says Irdai

Beyond the question of who was paid, the regulator also took a dim view of how these arrangements were handled internally. According to the order, Reliance General did not classify several of these engagements as outsourcing, even though they involved activities that insurers are ordinarily expected to carry out themselves.

As a result, the company failed to place these arrangements before its outsourcing committee, did not conduct mandatory cost-benefit or risk assessments, and did not report the payments in its outsourcing disclosures. Irdai pointed out that this effectively kept the transactions outside the regulatory lens, despite the amounts involved crossing prescribed thresholds.

The order also highlights violations linked to payments made to certain corporate agents. In these cases, the regulator found that the agents were not eligible to receive rewards or remuneration beyond permitted commission limits, given the composition of their overall business income.

Penalty, Compliance Directions And Next Steps

Taking all violations together, Irdai imposed a consolidated penalty of Rs 1 crore under Section 102 of the Insurance Act, 1938. The insurer has been directed to pay the amount from its shareholders’ account within 45 days of receiving the order.

In addition, Reliance General has been asked to place the order before its board and submit an action taken report within 90 days, outlining the corrective steps taken to address the regulator’s concerns. The company has the option to challenge the decision before the Securities Appellate Tribunal, as provided under the law.

The order serves as a reminder that activities labelled as marketing or awareness programmes are not automatically outside the scope of outsourcing rules, and that insurers remain responsible for ensuring transparency, oversight, and regulatory compliance in all third-party engagements.