Malaysian Reinsurance Broker Scam

The Insurance Regulatory and Development Authority of India (IRDAI) has penalised Unison Insurance Broking Services, and barred from Indian insurance and reinsurance market, Malaysian Confiance International Reinsurance Brokers LLC and Jaipur-based Global Master Consultant (GMC) for their involvement in a fraudulent crop reinsurance deal with Tata AIG General Insurance Co Ltd.  

In two separate orders issued last week, Sujay Banarji, member (distribution) of IRDAI barred Malaysia-based Confiance International Reinsurance Brokers, its managing director Steven Chetty, as well as Dr Mukesh Ranwan and Sachin Agarwal, both directors of GMC, which is official representative of Confiance, from doing any insurance or reinsurance business in India. Mr Banarji also levied a penalty of Rs1 crore on Unison Insurance Broking for its failure to verify re-insurance slips provided by Confiance and GMC. 

Coming down heavily on the Malaysian reinsurance broker, IRDAI observed that "Confiance betrayed the trust of the reinsurance market and caused damage to the financial strength of Tata-AIG in India, which cannot be ignored by the IRDAI. The IRDAI is of the firm view that the actions of Confiance were deliberate and harmful. Such actions cannot under any circumstances be tolerated as it put the existence of general insurance companies in peril. 

During the entire episode, Confiance made no efforts to clarify its stance and simply return the premium, which in turn proves that Confiance intentionally committed this act by not placing the risk with the foreign reinsurers and issued forged reinsurance slips to the Indian reinsurance broker."

 

Insurance or re-insurance business is based on trust. A cedant (a party in an insurance contract that passes financial obligation for certain potential losses to the insurer) relies on the reinsurance slip submitted by the reinsurance broker to assume that the risk is placed and there is no gap in reinsurance protection. lf the reinsurance protection is found to be non-existent, the entire risk that was supposed to be passed on to the reinsurer falls into the lap of the direct insurer who is obliged to make good the loss, as he has issued an insurance policy to the policyholder. It is because of this important nature of transaction that utmost care has to be exercised by the insurer and the insurance broker. Any shortcomings can have very serious consequences even to the extent of a failure of an insurance company.

 

The regulator found that the Malaysian reinsurance broker has cheated Unison Insurance Broking Services as well. It says, "The actions of Unison put Tata-AIG in a difficult position. They suffered a loss because they did not have adequate reinsurance protection as a result of which their financials were impacted. However, given the documents shared by Unison with the Authority, it appears that Unison were themselves cheated by Confiance. Confiance who could not place reinsurance for crop insurance, forged the reinsurance slip and submitted as original to Unison."

 

During FY2018-19, Unison lnsurance Broker made facultative reinsurance arrangements to support crop reinsurance risk cover of Tata AIG through Confiance International involving its Indian representative GMC. In two emails, Confiance gave Tata AIG, terms for placement with two reinsurers, Tokio Marine Kiln Syndicate 510 (TMK) and US-based Best Meridian lnsurance Co (BMI). 

 

The reinsurance placement was confirmed with copies of signed slips of the participating re-insurers, one slip signed and stamped by TMK on the letter-head of ARB International and another one from BMl. Unison then remitted reinsurance premium of Rs1.13 crore and Rs6.17 crore to Confiance after deducting its brokerage in two transactions in September and October 2018.

 

However, during November, officials of Tata AIG found that TMK was not participating in facultative placement of its crop business. When asked about this, TMK told Tata AIG that is has not provided any support for reinsurance and the slip was not issued by them. Similarly, official of BMI also denied issuing any slip for the crop re-insurance of Tata AIG.

 

Tata AIG later found that the fraudulent slips were provided by GMC, the Indian representative of Confiance. It filed a complaint to IRDAI against Unison lnsurance Broker on 21 December 2018 alleging fraud in reinsurance placement pertaining to crop insurance in Rajasthan cluster for Kharif 2018. 

 

Unison Insurance Broker informed Confiance about the fraud. Mr Chetty, MD of Confiance, accepted full responsibility for the fraud and on 26 November 2018 refunded the reinsurance premium paid. 

 

Unison lnsurance Broker also filed a first information report (FIR) against Confiance and its Indian representative GMC in the economic offences wing (EOW) of Mumbai police. The case is under investigation.