Business
 
Insurance fraud: Rs.8m and counting…
Insurance Board discovers leasing
companies with hands unlawfully in insurance business

by Devan Daniel

Certain leasing companies have been found to have been holding on to vehicle insurance premiums paid in by their customers instead of sending them to the relevant insurance company, an official of the Insurance Board of Sri Lanka (IBSL) told the Island Financial Review.

When vehicles are leased, a third party motor vehicle insurance cover is obtained as is mandatory by law.

"We recently discovered that certain leasing companies had been canvassing comprehensive motor insurance policies directly to their clients and collecting the premiums too," the official said.

"This is in direct contravention to the regulations set out by IBSL where insurance policies can only be sold by insurance agents of registered insurance companies or brokers registered with IBSL.

"The fact that the leasing companies are holding onto to the premiums is a serious issue because it puts the policy holder at risk."

According to IBSL laid down regulations, premiums must be paid into the insurance companies within the premium due date which falls 60 days after the inception of the insurance cover and according to the ‘premium payment warranty’ if the premiums are not received by then the policies are terminated.

It has been brought to the attention of IBSL that a certain leasing company had been holding onto premiums amounting to Rs.8ml perhaps utilising the 60 day credit period to make short term investment gains.

The leasing company in question promoted policies and collected premiums on behalf of an insurance company belonging to the same group of companies.

"But even where the insurance companies are not of the same group they do not complain because at the end of the day they want the business. The insurance companies should be concerned with collecting these premiums as early as possible," the official said.

The IBSL has time and again advised policy holders to pay their premiums only to insurance companies or insurance broking companies registered with IBSL or to registered agents of these companies.

The Regulation of Insurance Industry Act does not recognise institutional insurance agents, only individuals. So leasing companies should not be selling insurance in the first place let alone collect premiums.

IBSL will shortly notify the Central Bank of these developments as the bank is the regulator of leasing companies.

 

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