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Market Conduct examination - A Case Study on Key Man Insurance Policies

Market Conduct examination - A Case Study on Key Man Insurance Policies. Conference on Regulatory Issues for Sr Officers of Insurance Regulatory Agencies, Hyderabad. 15 th November, 2005. Underwriting Standards. Distribution Channels. Market Conduct Exams. Grievance Redressal.

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Market Conduct examination - A Case Study on Key Man Insurance Policies

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  1. Market Conduct examination - A Case Study onKey Man Insurance Policies Conference on Regulatory Issues for Sr Officers of Insurance Regulatory Agencies, Hyderabad. 15th November, 2005

  2. Underwriting Standards Distribution Channels Market Conduct Exams Grievance Redressal File & Use Adherence Policy Services, Claims Settlement

  3. Market Conduct • Off site Monitoring • On site Examination (Target Exam)

  4. Off Site Monitoring – Key Man Insurance Policies • New Business Analysis • Analysis of Premium Income • Spurt in the Premium Income • Higher Average Premium Income • Market Intelligence • Feedback from industry • Media reports

  5. Off site monitoring • Noticing the Aberrations • Detailed Target Exams • Self Regulatory measure • Deliberations in Life Council • Recommendations to IRDA • Restrictions on type of Key Man Policies

  6. What is Key Man Insurance? • Meets the business needs of a business concern. • Definition of Key Man: • Key man is an employee who contributes significantly to the business of the firm.

  7. Objectives – Key Man Insurance • Indemnify the loss of business earnings • Meet the costs of replacements • Time to fill the vacuum – cover the monitory losses • Premiums paid allowable business expenses U/S 37 (1) of I T Act.

  8. Tax Implications • Insurance Premiums are allowed Business Expenditures • Proceeds received by the employer taxed as business profits • If assigned to key man proceeds considered as Income in his hands.

  9. Onsite Examination - Methodology Examine • List of High worth Policies Issued • List of Single Premium Policies • List of Key Man Insurance Policies • Details of Assignment Register Contd..

  10. Methodology Examine • List of Policy Withdrawals • List of Policy Loans • List of Policy Surrenders • Source of First Premium deposited

  11. Onsite Examination - Observations • Higher proportion of Key Man Policies amongst Single Premiums • Major % of Premium in the last quarter • More Plans of Flexible Nature

  12. Assignment - Observations • Simultaneous assignment in favour of Life Assured • Alternate way of Deferred Compensation (?) • Assignment in favour of Banks • A lead to verify the source of Finance • In consideration of the Corporate Loan • Policy as Security where Surrender Value is zero • Assignments defeating the Objective

  13. Other Observations • No evidence of Direct Finance by Bank • Withdrawal option exercised by Banks being absolute assignees • Endorsement on Policies for surrendering by employer or assigning to Key Man in case of Key man's exit from the company

  14. Concomitant Observations • Deviations from the File & Use Norms • Higher allocations tantamount to rebating under ULIPs • Errors in levying the charges under ULIPs

  15. Thank you D V S Ramesh Assistant Director IRDA Hyderabad

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