An Aviva business model that Indian tax officials say was used to pay agents unlawful commissions from 2017 to 2023 was rolled out internally in 2013 and approved in writing by top India executives, a confidential company document shows.
Tax inspectors accuse the British insurer of engaging in a clandestine scheme involving hundreds of individuals and illegal payments of $26 million that used fake invoices to enable the commissions in excess of regulatory caps, Reuters has reported.
Aviva has said it is actively engaging with Indian authorities, but the accusations are the biggest challenge it faces in a key market where it has struggled to grow amid intense competition.
Indian tax officials have asked Aviva why it should not be penalised for the scheme in the period 2017 to 2023, which a confidential company document shows began in 2013 and was approved by then India CEO, T.R. Ramachandran, legal director Ravi Bhadani and finance director Jitendra Nayyar.
Reuters is first to report the document that shows the practice under scrutiny has run for longer than previously known, and was planned and approved by top Aviva India executives.
The document, titled "Inter Office Memo (IOM) of Agent Mentor Model, 2013", using the company's name for the scheme, reveals it took effect from July 1, 2013, and carries the signatures of eight senior Indian executives.
"The tax matter referred to is presently sub judice," the company said in response to a Reuters request for comment that provided it with a copy of the memo, an internal document. "Aviva India does not comment on speculation or legal matters."
Ramachandran, Bhadani and Nayyar did not respond to Reuters' queries.
India's Insurance Regulatory and Development Authority (IRDA) and the tax authority that issued the warning to Aviva also did not respond.
The memo showed Aviva took a calculated risk with the scheme.
"This arrangement has not been formally recognized by IRDA, (the insurance regulator)," it read.
"IRDA questioned this arrangement in case of ICICI and other insurers, but did not levy penalty," it added.
"On this basis, we are continuing with this arrangement, subject to making sure that relatives are not hired. However, if IRDA takes an adverse stand on this, we may have to close this channel."
In a May 2012 order, the regulator said leading insurer ICICI Prudential breached the Insurance Act by hiring unlicensed "business partners" remunerated with a "training and development support fee" proportional to the business generated by agents they managed.
ICICI did not respond to a request for comment.
SILVER, GOLD, PLATINUM
Aviva's India business is run in partnership with domestic firm Dabur Invest Corp. It has held a stake of 74% in the joint venture since 2022, when it upped a holding of 49% maintained since 2016. Until that year, it had held a share of 26%.
A Dabur representative declined to comment, saying the matter was sub judice.
Aviva retained the "agent-mentor" model until at least 2023, the Indian tax investigation notice said, referring to the year in which commission norms were eased.
Until then, IRDA had capped agent payouts for new policies at between 7.5% and 40%, while renewal commissions were set lower.
Aviva hired 559 agent-mentors over the years, according to the tax notice, which Reuters reported in August.
Their job, on paper, was to train agents, but, on directions from Aviva, they submitted fake invoices for "recruitment fees", "development fees", "team support allowances", in order to enable payment of bigger commissions.
These terms appear in the Aviva memo that showed such agent-mentors could earn "recruitment fees" of up to $30 each month and quarterly "development allowance fees" of up to $70 for each agent.
The agent-mentors were also ranked in categories designated as "silver", "gold" or "platinum".
A "Silver Agent Mentor" could also earn a "mentorship allowance" and "team support allowance" of 40% of first-year commissions earned by their agents, rising to 55% for those in the "platinum" category.
"Platinum Agent Mentors are high potential professionals who are responsible for recruitment and mentorship," read one undated Aviva document.
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