Informed consent and full disclosure in insurance distribution upheld, with refund limited to premium actually received and penalty sustained.

An insurer was held responsible for ensuring informed consent and full disclosure when advance renewal premium for a three-year policy was collected through a corporate agent. Because the application material did not disclose the arrangement and did not show clear consent from the prospect, the policyholder-protection regulations were breached; the insurer could not rely on the absence of complaints. The refund direction was upheld only to the extent of interest on the advance premium actually received by the insurer, together with penal interest of 2%, while interest attributable solely to the agent was excluded. The monetary penalty was also sustained as the continuing breach and statutory cap supported the quantum.

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Issues: (i) Whether the collection of advance renewal premium for a three-year insurance policy, without clear documentary proof of the prospect's consent and disclosure of the arrangement, violated the policyholder-protection regulations; (ii) whether the insurer could be directed to refund the interest and penal interest on the advance premium received through its corporate agent; and (iii) whether the monetary penalty imposed was excessive.

Issue (i): Whether the collection of advance renewal premium for a three-year insurance policy, without clear documentary proof of the prospect's consent and disclosure of the arrangement, violated the policyholder-protection regulations.

Analysis: The arrangement permitted premium for the current term and renewal premium for the next term to be collected upfront, but the application material did not disclose any such arrangement or show that the prospect clearly consented to it. The absence of complaints from policyholders did not establish informed consent. The insurer, as the regulated entity, remained responsible to ensure that the prospect received all material information and that the corporate agent acted within the policy prospectus and regulatory framework. The conduct was also viewed as incompatible with proper market conduct and with the insurer's duty to put controls in place over the intermediary.

Conclusion: The violation of Regulation 3(2) and Regulation 3(3) of the IRDA (Protection of Policyholders' Interests) Regulations, 2002 was upheld against the insurer.

Issue (ii): Whether the insurer could be directed to refund the interest and penal interest on the advance premium received through its corporate agent.

Analysis: The insurer was not held liable for interest charged on the loan advanced by the corporate agent itself, but it had enjoyed the benefit of the advance renewal premium for three years without providing commensurate risk cover. The regulatory directions were treated as traceable to the Authority's wider powers, and the penal interest reference was accepted as a permissible regulatory benchmark. At the same time, the refund obligation was confined to the interest actually accruing on the advance premium received by the insurer.

Conclusion: The direction to refund interest was sustained only to the extent of the interest on the advance premium actually received by the insurer, together with penal interest of 2%.

Issue (iii): Whether the monetary penalty imposed was excessive.

Analysis: The violation was treated as continuing for 292 days, and the penalty was computed on a daily basis but capped at the statutory maximum. On that basis, the quantum was not regarded as disproportionate or mechanically imposed.

Conclusion: The penalty was not found to be excessive.

Final Conclusion: The appeal succeeded only on a limited modification of the refund direction, while the findings on regulatory breach and the penalty were maintained.

Ratio Decidendi: An insurer remains responsible for ensuring informed consent and full disclosure in the distribution of insurance products through its intermediaries, and where advance premium is retained without commensurate cover, regulatory refund directions may be confined to the amount actually received by the insurer.

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