Irdai Fines ICICI Lombard Rs 1 Crore Over Outsourcing And Governance Lapses

The Insurance Regulatory and Development Authority of India (Irdai) has imposed a penalty of Rs 1 crore on ICICI Lombard General Insurance Company for lapses involving outsourced activities, vendor management and corporate governance.

The order followed an onsite inspection conducted between September 16 and September 27, 2019. Irdai subsequently issued a show-cause notice in July 2024 and a supplementary notice in December that year. The insurer submitted its responses and appeared at two personal hearings before the regulator.

Why The Penalty Was Imposed

During financial year 2018-19, ICICI Lombard spent Rs 709.57 crore under “sales marketing and business support”. A review of selected invoices and agreements showed that the insurer had engaged individual agents associated with other insurers for event-management services.

These services included organising conferences, seminars, training programmes, customer-connect events and public campaigns. ICICI Lombard acknowledged that about Rs 35-37 crore of the total expenditure had been paid to agents of other insurers.

Irdai found that some invoices did not have adequate supporting records, such as event approvals, agendas, attendee details, speakers’ information, travel bills, hotel bills and catering bills. The regulator said this made it difficult to verify the nature and genuineness of the payments.

The insurer maintained that event management was an ancillary activity and did not fall within the scope of outsourcing regulations. It also said vendors were selected after verifying their identity, Permanent Account Number and bank details.

Irdai rejected this argument. It held that customer programmes, seminars and public campaigns affected policyholder engagement, brand reputation and compliance communication. They, therefore, came within the regulatory framework governing outsourcing.

The regulator also found shortcomings in vendor due diligence, cost-benefit analysis, record maintenance and internal controls. It said the insurer did not have a Board-approved vendor-management policy covering the selection and assessment of third-party service providers.

Unallocated Premiums And Refund Delays Flagged

The inspection separately found unallocated premium balances of Rs 443 crore and Rs 277 crore as of March 31, 2019 and March 31, 2018, respectively. Around Rs 10 crore in the sample examined had not been allocated, while several small proposal balances awaiting refunds remained in the fund.

ICICI Lombard told Irdai that it had taken corrective steps and was clearing or transferring eligible balances to the prescribed accounts. The regulator took these submissions on record and issued an advisory.

Irdai also examined 14 free-look cancellation requests that had not been refunded within 15 days. The insurer attributed delays in 11 cases to a technical error and said the affected premiums were subsequently refunded. The regulator issued another advisory, warning that any recurrence could invite stringent action.

ICICI Lombard must pay the penalty from shareholders’ funds within 45 days, place the order before its Board, and submit an action-taken report to Irdai within 90 days.

FAQs

1. Why did Irdai fine ICICI Lombard Rs 1 crore?
Irdai found lapses in outsourcing, vendor due diligence, record maintenance, internal controls and corporate governance.

2. What other compliance issues did Irdai flag?
The regulator found unallocated premium balances and delays in processing free-look cancellation refunds, for which it issued advisories.

3. What must ICICI Lombard do after the order?
It must pay the penalty within 45 days, place the order before its Board and submit an action-taken report within 90 days.