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LIC gets Show-Cause Notice from Irda for ‘Misleading’ Ads

January 13, 2014

Regulator against attempts to hardsell earlier products before the Dec 31 deadline

Life Insurance Corporation of India has been slapped with a show-cause notice by the insurance regulator for allegedly misleading the public through advertisement.

Insurance Regulatory & Development Authority (Irda) has put a question mark on certain LIC advertisements that had the catch line — ‘last time to buy your favourite product’. The advertisements released in December preceded the withdrawal of as many as 34 LIC products, including ‘Jeevan Tarang’, ‘Jeevan Anand’ and ‘Bima Bachat’, from January 1. New rules announced by Irda on traditional products drove most insurance companies to pull back many of their existing offerings.

Irda, which perceives that the new products are more customer-friendly, objected to the insurer’s attempt to hardsell earlier products before the December 31 deadline. According to the regulator, since the new products were more favourable to investors, LIC should have refrained from describing earlier insurance plans as “favourite products”. LIC, the country’s largest insurer and the most prominent domestic institutional investor, has sought a month’s time to respond to the show-cause notice.

“We have sent the show-cause notice to LIC for misleading people through its advertisement,” a senior Irda official told ET. “There is another show-cause notice sent on the Cobrapost expose,” said the person. A report by Cobrapost, a news website, has alleged misselling and money laundering by LIC employees and agents. Rules Okayed in Feb 2013.

Since January 1, the guidelines for traditional insurance products have been changed to offer policyholders guaranteed surrender value and lower commission charges. Traditional policies are debt-oriented products in which bulk of underlying investment is in government and corporate bonds, with a maximum of 15% being deployed in equities.

The new rules, approved in February 2013, were originally scheduled to become effective from October 1. But the launch date for new products was pushed back to January 1 following representations from life insurers.

Taking advantage of the threemonth window, all life insurance companies pushed their agents to maximise sale during the third quarter of the current financial year. One of the selling points of LIC agents was that customers would have to bear the service tax on the new products. LIC hires more than 11 lakh agents.

The Union Budget for 2013-14 had almost doubled the service tax to 3.09% on traditional life insurance policies from 1.55%. While all private sector insurance companies levied service tax upfront, LIC absorbed the service tax on behalf of policyholders. On a premium of Rs 1 lakh, policyholders are now paying Rs 3,000 as service tax. LIC has collected Rs 37,906 crore in the April-September period, up 7.25% from the yearago period.

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