The Life Insurance Corporation of India is preparing for a second legal battle over trading in insurance policies, something the insurance behemoth says is illegal, arguing that such transactions threaten to hit at the root of the industry and expose policy buyers to losses.
India's biggest insurer is seeking to challenge legally the campaign by ACESO, a company that claims to be an asset monetiser and focused on buying up LIC policies, said officials aware of the plans. It is luring policyholders to transfer their rights to it for a consideration instead of surrendering them.
ACESO, founded by two chartered accountants - Ketan Mehta and Himanshu Ashar - is offering ALIP or Assign Your Life Insurance Policy. This it says is based on a legal contract which is permissible under the law. It brings double benefits to those involved in the insurance policy - the agents and the policyholder. When assigned, ACESO is said to be paying more than what LIC would have paid and the continuity of commissions for agents.
This carrot of continued commissions is a big draw where the agents themselves are turning against the interest of LIC which is the primary source of their income. For policyholders who get a raw deal when surrendered, in many cases, less than half the premium is paid because a big chunk of their payment goes to agents as commissions.
But LIC says the practice is illegal.
"This defeats the very purpose of insurance and is not in the interest of policyholders," said Siddharth Mohanty, managing director of LIC. "This kind of assignment is acquiring a policy..., it is not specified whether the nominee or the assignee company will receive the death benefit, which creates uncertainty. This goes against the spirit of insurance and the protection it offers to policyholders. Unregulated entities are into trading policies. In principle, we oppose the trading of policies." ..
For LIC, partial payment of the policy value leads to financial benefits and also plays the long-term liabilities it takes to insure millions.
This is a familiar territory for LIC.
Nearly two decades ago, Insure Policy Plus Services started providing similar services. It began buying up lapsed insurance policies, and policies from those who could not continue paying, revive them and claim when the time came. LIC through circulars in 2003 and 2005 declared the assignments as invalid and declined to honour the claims which were challenged by Insure Policy.
The Supreme Court ruled that LIC's actions were 'ultra vires' and i ..
Based on representations from the insurance industry which is a long-term business at times piling up liabilities for seven to eight decades, the government decided to equip them by amending Section 38 of the Insurance Act., giving them the right to decide on the assignments.
"An insurer may, may accept the transfer or assignment, or decline to act upon any endorsement made, where it has sufficient reason to believe that such a transfer or assignment is not bona fide, or is not in the int ..
"LIC believes that these products and services may pose a significant risk to policyholders' and their family's interests, and are fraught with risks and may be prone to being misused," the insurer said.
Though LIC is on a stronger wicket this time round as the law provides it sufficient muscle power to decline, ACESO claims that their trading in LIC policies is legal and could improve insurance growth. "ALIP is not a threat to LIC rather it functions as an aggregator between policyholder ..
Source Name : Economic Times