Did Berkshire Hathaway, one of the largest insurance companies in the world resort to a back-door entry into India in order to circumvent caps on foreign direct investment (FDI) in the insurance industry?
A closer look at the facts indicate enough grounds for suspicion.
Berkshire India Private Limited is a majority owned non-direct subsidiary of Berkshire Hathaway Inc incorporated in India, with 100 per cent FDI in paid-up capital. It is a licensed corporate agent of Bajaj Allianz General Insurance Company Limited (BAGICL) and sells BAGICL’s products directly to retail consumers through the Internet and call centres.
According to Indian laws, there can be three types of intermediaries in the insurance sector: brokers, agents and TPA (third party assistants). The second classification has a sub-category of corporate agents. Berkshire India falls in this sub-category.
The FDI limit in insurance companies, intermediaries and TPAs is 26 per cent. By this measure, the FDI cap for corporate agents would be the same. However, as per clauses 2(f) and 2(k) of the Insurance Regulatory and Development authority (IRDA) (Licensing of Corporate Agents) Regulations 2002, nothing has been mentioned as on FDI limitations for the sub-category of corporate agents, according to industry sources.
Any company incorporated under the Indian Companies Act, 1956 can act as a corporate agent. But unlike clause 10 of the IRDA (Insurance Broker) Regulations, 2002 where there is a restriction both on the amount of capital as well as FDI, there is no such clause in the regulation of corporate agents. It is here that the loophole lies.
Berkshire India was formed with BHG Structured Settlements Inc (based in Missouri, US) owning close to 80 per cent of the paid-up share capital. Allianz SE (Based in Munich, Germany) owns 20 per cent. In other words, it is not an Indian company.
“The FDI cap rule cannot be different for one class of intermediary when there is a 26 per cent limit for other intermediaries like brokers and TPAs,” says a highly-placed source in the insurance industry. “Since Berkshire Hathaway cannot operate in India has a full-fledged foreign entity, it has entered the Indian market as a corporate agent.”
There are other charges too.
Berkshire India had advertised in all major newspapers that anyone who bought a policy from them would get to meet Berkshire Hathaway CEO and philanthrope-investor Warren Buffet during his visit to India, albeit on a first-come-first-served basis. “This,” insurance industry sources allege, “did not match the advertisement and disclosure norms of the regulation 2.2 of IRDA. This amounted to inducing customers, which is not permitted.”
Complaints were filed with IRDA, but none yielded any response from the insurance industry regulator. A RTI application was filed to verify this, but elicited the response that “no steps” had been taken against Berkshire India Private Limited.
The source alleged that the then IRDA chairman even went to New Delhi and attended the function with Buffet in spite of the issue of FDI and the controversy surrounding the advertisement issued by Berkshire. “There are newspaper reports indicating this,” he said. A RTI enquiry was made about this, but the IRDA replied saying, “No such complaints were received by the Consumer Affairs department.”
The IRDA-Berkshire relationship seems too cozy for comfort. According to the source, “The time taken for Berkshire India’s application from filing for the corporate agency licence, which was February 19, 2011 to it being granted, which was February 25, 2011, was a mere five days, including a weekend, so effectively four days. Normally it takes months for licences to be r granted. The IRDA worked in great haste in the care of Berkshire.”
The IRDA allegedly overlooked another aspect – the AOA/MOA of Berkshire India says that the primary objective of the company is insurance sales. A corporate agent is usually a company having other activity as their main object and selling insurance as the secondary object. “The IRDA, therefore, went out of its way to oblige Berkshire ignoring this rule,” the source said.
But, it gets a bit murkier still.
A complaint filed with IRDA had alleged that an official held positions in both BAGICL and Berkshire India Private Limited when the latter was approved licence as a corporate agent of the former in February 2011. The complaint, filed by insurance activist and lawyer Dhruv Kumar, alleged that Kamesh Goyal was the Chief Executive Officer (CEO) of BAGICL and at the same time was also Promoter Director in Berkshire India at the time of the approval.
Since Goyal held positions in both the insurance company as well as its corporate agent, there was conflict of interest. This was because being CEO of an insurance company he was supposed to be unbiased and act without prejudice towards all policy holders and as well as agents. Since Goyal was a Director with the agent, this would have been detrimental to the interest of large number of policy holders, the complaint alleged.
Kumar filed the complaint on May 2, and is yet to receive any response from IRDA.
Bajaj Allianz denied the charges. Santosh Balan, Head of Corporate Communications with the company said in a e-mail, “Mr Kamesh Goyal was neither the Director of BIL nor CEO of BAGICL at the time of application to IRDA for approval of Corporate Agency licence. He was also not the Director of BIL at the time of solicitation of insurance by BIL.
“It is evident that the alleged compliant to IRDA is baseless and seems to be motivated with malicious intentions. Furthermore, IRDA has not sought any clarifications from us nor raised any concerns on the said matter. It is obvious that there is no question of any conflict of interest and hence makes your queries redundant.”
Balan said, “Goyal ceased to be CEO of BAGICL from September 30, 2007, and he had resigned from directorship of BIL on February 11, 2011.” BIL applied to IRDA for approval of corporate agency licence of BAGICL on February 19, 2011 and the application was approved by IRDA on February 25, 2011. Goyal, in fact, was the CEO of sister concern Bajaj Allianz Life Insurance Company Limited at the time of the event.
The reason for this confusion is that another company called Berkshire Hathaway Services Private Limited had been incorporated around the same time. A copy of the articles of association of BHSPL with the Registrar of Companies clearly mentions Kamesh Goyal as one of the five first directors of the company.
Why this company was at all incorporated is anyone’s guess.
