The insurance company made this clear in a letter to the Insurance Board, the insurance sector regulator, which on Friday sought clarification from the insurer after Republica disclosed illegal scheme run by Momento.[break]
In the letter, National Life confirmed that Momento is one of its corporate agents and stood by it saying, “What the company did was not in violation of the law.”
The Insurance Board, meanwhile, is all set to summon Momento to its office to clarify its business operation. “We will send a letter on Tuesday asking it to report to the board within a week,” a source said.
Republica recently disclosed that Momento was using an illegal pyramid scheme to sell insurance policies of National Life -- the country´s third largest life insurance company in terms of revenue collection. The company was also found recruiting untrained human resources to sell life insurance policies, promising yields of up to Rs 60,000 per month to every individual enrolled in the scheme.
This directly violates the rules of the Insurance Board, which allows authorized agents who have received a license from the regulator to sell policies.
Under the scheme launched by Momento, each client first had to purchase a policy from National Life and sell at least two more policies to as many clients. Each of these two then had to recruit two other people to create a pyramid. The attraction of the scheme was that the person at the peak of the pyramid earned a commission whenever someone below sold a policy.
"This way, a person can earn up to Rs 60,000 per month," Keshab Raj Sharma, an official with Momento, had said when Republica posed as a client, adding, over 1,300 people have so far been enrolled in the scheme.
Payment of such huge amounts on sales of policies indicate to an unhealthy competition in the insurance industry. The regulator has set a limit on commission distribution, which stands at 25 percent of the amount generated from premium in the first and second years, and five percent thereafter.
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