This practice goes against the rules of the Insurance Board, which allows only authorized agents who have received a license from the insurance sector regulator to sell insurance policies to the public. [break]
During the investigation, Republica found that Momento had been recruiting subscribers buying insurance policies from it to sell policies of National Life Insurance Company - the third largest life insurance company in the country in terms of revenue collection. The insurance company confirmed that Momento is listed as one of its corporate agents.
Under the scheme launched by Momento, every client first has to purchase a policy of National Life Insurance and sell at least two policies of the company to two people. Each of these two then has to recruit two other people, and gradually in this manner a pyramid is formed.
“Each person enrolled in the scheme gets paid depending on number of clients looped in the chain and worth of the insurance policies sold,” Keshab Raj Sharma, an official of Momento, said, when Republica posed as a client.
For instance, if person ‘A’ sells two policies worth Rs 500,000 to ‘B’ and ‘C’- for which, say, each has to pay an annual premium of Rs 30,000 for 20 years - ‘A’ automatically gets Rs 2,500. This is a sum of commission of Rs 1,250 each generated through sales of policies to ‘B’ and ‘C’.
The bait is: once ‘B’ and ‘C’ recruit two clients each, say, ‘D’, ‘E’ and ‘F’, ‘G’, the person at the peak of the pyramid (who is ‘A’) still gets a commission of Rs 1,250 from every policy sold by ‘D’, ‘E’, ‘F’ and ‘G’. This means, by the time pyramid extends to client ‘G’, ‘A’ makes Rs 7,500 by virtually doing nothing.
“This way a person can earn up to Rs 60,000 per month,” Sharma said, adding, over 1,300 people have participated in the scheme. And the beauty, according to Sharma, is you can earn this amount every year when policyholders renew their policies.
This is not all. There are other freebies as well, including mobile set, digital camera, laptop, bike, Rs 500,000 worth of insurance policy and even a car, which every member enrolled in the scheme can get depending on the number of people added to the pyramid.
“Don’t worry about payments. You’ll be paid every 15 days,” Sharma tried to reassure. “And, don’t worry about its legality as well. This is a completely legal business and the commission you get is in line with the Insurance Act 1993.”
The Insurance Board, which enforced the Insurance Act, however, begs to differ.
“What the company (Momento) is doing is completely illegal as people who haven’t received a license from us cannot work as insurance agents,” said Shekhar Kumar Aryal, acting director of the IB.
As per the Insurance Act, people can work as agents only after undergoing training and obtaining a license from the IB. This is because insurance is a technical subject and agents need to have a good understanding of the topic before selling policies to people.
For instance, agents need to explain to clients how the policy works, how it generates yields and consequences of surrendering the policies halfway. That’s why the IB allows only people who have turned 16 and possessing degree of at least Grade 10 or equivalent to become agents.
But under the Momento’s scheme, even a 10-year-old client in the pyramid can sell policies to others. This illicit act shows unhealthy competition in the insurance industry.
“Besides, the practice of giving away up to Rs 60,000 per month to each person - which adds up to Rs 720,000 per year - seems unsustainable,” Aryal said, expressing surprise over how the company is being able to dole out such huge amount of cash.
When asked about chances of the scheme falling, Sharma only said: “This should be the concern of the company (National Life Insurance) and since we have been getting money in bulk every month for the last 10 months we are not worried.”
This act of paying huge amounts, on the other hand, confirms that the company is also flouting regulator’s rules on commission distribution, which is limited at 25 percent of the amount generated from premium in the first and second years, and five percent thereafter.
Although there is a loophole called ‘incentive bonus’ in the Insurance Act, which allows insurance companies to give away additional sums, Aryal said: “The amount given away by the company appears too much.”
National Life, however, said it was unaware of illegal practices adopted by Momento. Bharat Basnet, CEO of the insurance company, told Republica: “Yes, Momento is our corporate agent and it has recruited staff to conduct the business. But I do not have any knowledge of the company hiring unqualified people.”
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