Multi-Level Marketing (MLM) companies like Team Life Care (TLC) Insurance (India) Pvt Ltd, Pearl (PACL), Lakshya India etc., have been selling insurance as a product to remain on the right side of the law and insurance majors are probably turning a blind eye to this practice. Selling insurance on commission payback to customers is illegal according to the Insurance Regulatory and Development Authority (IRDA) Act. The act states that, “Agents are not allowed to pass on commissions or any money to the customers who purchase insurance polices.”
Writing in Sarai.net, S Ananth, who has been studying chain schemes in Andhra Pradesh, in an article titled ‘Harmless fraud’ says, “A clear-cut case of violation of the laws relates to schemes that distribute insurance policies on behalf of various private insurance companies. Any person desirous of marketing insurance polices has to pass an exam conducted by IRDA. Only corporate agents or brokers (registered with IRDA) are allowed to pay commissions.
Companies actively involved in marketing insurance schemes include TLC Insurance (India) Pvt. Ltd. (TLC), RMP and Amway, among others. These details indicate the nature of harmless fraud and also the frequent testing of the frontiers of economic law by such companies in order to gauge the reaction of the agencies of the state. The lack of reaction by state institutions, or even tacit approval, is likely to gradually lead to calls to formalise these activities at a future date.”
All these companies form a pyramid structure wherein the insurance co-ordinator gets in new recruits to form a chain. The payments given out to these agents depend on the number of recruits joining the scheme. Mr Ananth adds, “Companies such as TLC collect membership fee in this case Rs 500 in addition to the cost of the product they market like an Rs 5,000 insurance policy by Bajaj Allianz. A clear-cut case of violation of the laws relating to schemes that distribute insurance policies on behalf of various private insurance companies.”
Companies like TLC have made it mandatory for candidates to clear the IRDA formalities before joining the company as an ‘insurance co-ordinator’, but ironically, the company does not follow the regulations of the IRDA Act. Other companies like DSR Insurance Services claim to be registered with IRDA and also claim to be a licensed agent of LIC. These companies do not work for consumer interest but in fact push policies that benefit them the most. These agents earn point values according to the amount of Insurance policy that they sell.
DSR Insurance Services seems like a legitimate company from their website but on a closer inspection it can be seen that the company has Binary and Spill income plans. These plans basically work like a marketing chain.
A branch manager for a Madurai-based insurance company who refused to be indentified confirmed disbursement of policies by TLC and said, “An insurance policy taken from TLC is legitimate and can be renewed in any of the branches of Bajaj Allianz.” TLC markets Bajaj Allianz insurance policies in such a manner that a false perception has been created that the company is a third party entity for Bajaj Allianz.
These companies claim to have partnered with insurance companies like Bajaj Allianz, Reliance Insurance, ICICI Lombard and LIC. And on their websites they even claim to be members of FICCI, IRDA and in the case of PACL it claims to be a public sector company. PACL on its website also claims that it will allocate land to an investor till the maturity period of the insurance.
Following an article written in Moneylife on Ponzi schemes, SEBI has taken action directing the Tamil Nadu police to raid Paazee—a fraudulent company in Tirupur. The company claimed to be doing foreign exchange business and had collected huge amounts from gullible people. - Aditya Kshirsagar [email protected]