Irdai penalises Acko ₹1 crore for violating outsourcing norms

The Insurance Regulatory and Development Authority of India (IRDAI) has imposed a penalty of ₹1 crore on Acko General Insurance Ltd for violating its regulations and various provisions of the Insurance Act, 1938. The penalty follows a detailed probe into the company's outsourcing practices and payments made to an unauthorised entity for solicitation-related services.

In its final order dated May 19, Irdai cited breaches of Section 40(1) of the Insurance Act, 1938; Regulation 15(d) and Regulation 21 of the Irdai (Outsourcing of Activities by Indian Insurers) Regulations, 2017; and Regulation 6(c) of the Irdai (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016.

The violations came to light during a remote inspection carried out by the regulator between October 25 and 29, 2021, covering financial years 2019–20 and 2020–21. It was found that Acko had paid ₹13.3 crore and ₹6.6 crore to Ola Financial Services Private Limited (OFSPL) in those respective years, ostensibly for technology and marketing services. However, Irdai concluded that these payments were rewards or commissions for insurance policy solicitation—a role OFSPL was not authorised to perform at the time.

"The insurer has failed to demonstrate that any due diligence was carried out before selecting the vendor or that their outsourcing committee deliberated on the need to engage the said vendor given their expertise in these services. Hence, the insurer’s argument that OFSPL demonstrated their capability in building technology infrastructure does not hold ground. Moreover, insurer failed to submit any documentary evidences to support their argument that OFSPL conducted online advertising and branding for them," Irdai stated.

Although Acko claimed that OFSPL was not a registered corporate agent during most of the period in question, Irdai pointed out that OFSPL had been licensed as a corporate agent from September 2019. Even then, the payments made to it exceeded permissible limits.

The submissions made by Acko on December 16, 2021; July 30, 2024; October 3, 2024; and October 10, 2024, have been carefully considered by Irdai.

In addition to the monetary penalty, Irdai has directed Acko's board to formulate a comprehensive outsourcing policy and conduct a formal review of all outsourcing transactions to mitigate conflicts of interest. The insurer is required to remit the penalty within 45 days and submit an Action Taken Report within 90 days.

The order underscores Irdai’s tightened oversight on insurers’ outsourcing practices and use of third-party entities in policy sales. Acko has the option to appeal the decision before the Securities Appellate Tribunal under Section 110 of the Insurance Act.