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

2. Exams Market Conduct Underwriting Standards Distribution Channels
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 List of Policy Withdrawals List of Policy Loans
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. D V S Ramesh Assistant Director IRDA Hyderabad
Thank you
D V S Ramesh
Assistant Director
IRDA
Hyderabad