The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a two-year ban on Confiance International Reinsurance Brokers, a foreign reinsurance broker.
The decision, outlined in an order dated 22nd February 2024, follows an investigation into the non-placement of reinsurance for crop insurance risk for TATA-AIG General Insurance.
The IRDAI determined that GMC did not meet its responsibilities to obtain reinsurance cover, retained premiums without securing the necessary reinsurance, and failed to act despite learning that its Indian affiliate, Globe Master Consultants (GMC), had issued forged reinsurance slips.
Initial 2020 ban
The regulator’s scrutiny originally began following a complaint from TATA-AIG dated 21 Dec 2018. This led to a directive on 8 Jan 2020 that barred Indian and foreign insurers, reinsurers, and intermediaries from doing business with Confiance.
Confiance challenged the IRDAI’s 2020 order at the Securities Appellate Tribunal (SAT) and, in October 2021, the SAT overturned the initial ban on the grounds that the principles of natural justice were not followed as the parties had not been given an opportunity to be heard before the issuance of the order.
Following this, the IRDAI issued a Show Cause Notice —a formal document issued which requires an entity to explain or justify why a certain action should not be taken against them—to Confiance, outlining multiple charges including the lack of due diligence and the issuance of non-valid reinsurance slips.
‘Misplaced trust’
Confiance’s defence, submitted in January 2022 and expanded on during a virtual hearing in April 2022, positioned the company as a victim of circumstances.
The firm highlighted its longstanding relationship with GMC, spanning over 15 years, and the trust placed in GMC’s director, Mukesh Ranwan.
The broker reported that GMC approached it for the placement of crop reinsurance for TATA-AIG, stating that Unison would arrange the reinsurers for the coverage and that Confiance’s role was simply to route the business, following Unison’s request for an overseas commission.
However, issues arose when it was later discovered that reinsurance support had not been secured and GMC had forged reinsurance slips.
The revelation prompted Confiance to attempt to secure reinsurance support independently, an effort that ultimately failed.
Confiance also said it had relied on representations made by GMC and Unison Insurance Broking about the procurement of reinsurance support from Best Meridian Insurance (BMI) and Tokyo Marine Kiln (TMK).
‘Serious and grave’ violation
The IRDAI said that had found several discrepancies in Confiance’s account of events, including the company’s reliance on GMC’s assurances it had obtained support from BMI and TMK, despite knowing they do not write crop insurance.
The regulator said that Confiance had not only failed to place the reinsurance risk, but had also retained premiums for an extended period without securing the necessary reinsurance cover.
The IRDAI found that the broker had not responded appropriately upon learning that GMC had issued forged reinsurance slips. It also highlighted Confiance’s failure to transfer premium payments to the concerned reinsurers or to communicate effectively with them.
After considering all submissions and evidence, the IRDAI found Confiance’s responses unsatisfactory and “failed to satisfactorily respond on the charges mentioned in the Show Cause Notice.”
It determined that the company’s actions constituted a “serious and grave violation” which could have resulted in harm to TATA-AIG and its policyholders.
It also pointed out that most communications between Confiance and GMC were conducted via WhatsApp, which the IRDAI highlighted as a casual approach to professional exchanges.
As a result, the IRDAI has now reaffirmed its initial decision to prohibit Confiance from engaging in any business activity in the Indian insurance market, directly or indirectly, for a period of two years.
The Authority’s order also directs all Indian and foreign insurance and reinsurance entities to not engage with Confiance “directly or indirectly, in whatsoever manner, for a period of 2 years from the date of this order,” issued on 22 February.
This ban marks a significant regulatory action by the IRDAI, underscoring its commitment to maintaining the integrity and trust in the Indian insurance market. The decision also serves as a reminder to insurance and reinsurance entities of the importance of due diligence and the consequences of non-compliance with regulatory standards.
