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Sahara Life is dying. What happens next?

LiveMint logoLiveMint 05-07-2017 Deepti Bhaskaran

The policyholders of Sahara India Life Insurance Co. Ltd (Sahara Life) may soon be dealing with a new insurer—ICICI Prudential Life Insurance Co. Ltd (ICICI Pru Life), which has expressed interest to take over the life insurance business of Sahara Life. Around 3 weeks ago, the Insurance Regulatory and Development Authority of India (Irdai), for the first time in its existence, took over the administration of a life insurance company.

Irdai believed that Sahara Life was acting against policyholders’ interests. Subsequently, it offered six insurers—namely: Life Insurance Corporation of India, ICICI Pru Life, HDFC Standard Life Insurance Co. Ltd, Bajaj Allianz Life Insurance Co. Ltd, Kotak Mahindra Old Mutual Life Insurance Co. Ltd and SBI Life Insurance Co. Ltd—a chance to take over Sahara Life’s insurance business and directed the company to not issue new policies. 

In a letter dated 23 June, Irdai directed the insurer to close its business with immediate effect and inform its intermediaries to not issue any fresh policies. The insurer, however, will continue to collect renewal premium and service the existing policyholders. However, the circular effectively winds up Sahara Life and according to Nilesh Sathe, member, life, Irdai, the process of valuation by ICICI Pru Life has already commenced. “ICICI Pru Life has agreed to take over the policyholders’ liabilities of Sahara Life and has already commenced valuing the liabilities of policyholders and earmarking the matching assets of Sahara Life. They will transfer on their books policyholders’ liabilities and corresponding assets. We have given them 3 weeks to submit the valuation report, which will be reviewed by us for approval,” said Sathe. According to Sandeep Batra, executive director ICICI Pru Life, the insurer will make a final proposal to the regulator post the evaluation.

Though Sahara Life will be no more, its 350,000 policyholders need not worry. Why? We will explain in detail, but first a little background on Irdai’s decision to transfer Sahara Life’s insurance business to another insurer. 

The regulator pointed to three major infractions in its order dated 12 June. The first was about serious lapses in governance, the second was with regard to its declining business and the third was the fact that Irdai had observed a significant increase in expenses.

For instance, its security and other deposits increased from Rs10 lakh to Rs71.34 crore in FY15, which further increased to Rs78 crore in FY16. According to the insurer, this expense was towards expansion and opening more branches, but the regulator said that it had not given any approval for the same. 

Further, as per the order, the insurer did not respond to Irdai’s concerns in a timely fashion. And when it did, the response was not satisfactory. Sahara Life admitted to Irdai there was a lot of chaos for 2 years starting FY15. The insurer said that its key persons—like the chief financial officer, appointed actuary, company secretary and compliance officer—resigned in FY15, which resulted in key persons being absent from management. Further the chairman of its board, Subrata Roy, was in judicial custody and new people were not willing to join the company. Subsequently the insurer appointed a new chairman O.P. Srivastava.

Further, as it did not have an appointed actuary, no new business was written from 1 April 2016 to 15 May 2016. The company also said that the rental deposit it had made to the group company—Rs80 crore—has not been refunded yet. Accordingly, Irdai in its order noted that it had reasons to believe that the insurer was acting in a manner that was likely to be prejudicial to the interests of life insurance policyholders as well as the orderly growth of the insurance sector as a whole.

The regulator therefore saw this as a fit case for invoking of Section 52A of the Insurance Act, 1938, which gives it the right to appoint an administrator to manage the affairs of the insurer. After the regulator gave the order, it appointed R.K. Sharma—a general manager with Irdai—as the administrator. The role of the administrator in this case is to make sure that customer service by the insurer continues unhindered. Further, the administrator also needs to make sure that liabilities of the insurer are properly valued and corresponding assets are intact. 

As per Sathe, it is expected that the transfer of life insurance business to ICICI Pru Life would be completed in a couple of months. ICICI Pru Life is the only life insurance company that has been publicly listed till now. As of FY16, its assets under management (AUM) stood at Rs1.02 trillion (Rs10,17,90.47 crore) compared to Sahara Life’s AUM of Rs1,142.48 crore in the same period. 

Once the transfer happens, existing policyholders of Sahara Life will become policyholders of ICICI Pru Life.

“With the takeover, Irdai will ensure that the claims and maturity amounts are duly paid to the policyholders on time. The roles and responsibilities of the incumbent insurer will be taken over by the new insurer, thus safeguarding policyholder interest. For any grievance or recourse, policyholders can reach out to their new insurer,” said Abhishek Bondia, principal officer and managing director, SecureNow.in. For the policyholders, this simply means interacting with a new insurer and nothing changes in terms of their insurance policies.  

As per Sanjay Agarwal, whole-time director and chief executive officer, Sahara Life, the policyholders have not hit the panic button. “We are amongst the top three in 13th month persistency, and in the top 5 in 61st month persistency in FY16. This indicates that our policyholders are satisfied with us. Even now there has been no increase in surrenders,” he added.

Though the insurer has directed Sahara Life to not issue new policies, existing customers will continue to be serviced. “Our website is fully functional and the customers can renew their policies online as well. Our branch offices are working and they can place request there as well. Our call centre is not working at the moment because we don’t have enough staff, but we plan to reinstate that shortly,” said Agarwal. “For the policyholders there is no reason to worry. Our investments are much more than policyholders’ liabilities, this means we are fully capable of settling all sorts of policyholder’s claims,” he added. 

As per Agarwal, Sahara Life will be making a representation to the regulator on why policyholders’ interest were never compromised and is hoping that the regulator will review its decision. If you are a policyholder of Sahara Life, there is no cause for concern and so you shouldn’t worry or try to surrender your policy. Understand the exit penalties of your policy as it can really cause a dent in your investments. 

Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with the Securities and Exchange Board of India. Mint is contesting the case.

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