Private insurers too may axe cashless mediclaim

Private sector general insurers may follow their public sector counterparts in discontinuing the cashless facility to hospitals that do not agree to the package rates proposed by the insurers.Health has been a loss making segment for the industry.

With public sector insurers taking the lead in removing errant hospitals from their preferred provider network (PPN), the private sector players consider this the right time to follow suit.
Public sector insurers have almost 60 per cent share in the health insurance market.

Private players are waiting for the hospitals and the public sector insurers to resolve the issue before evolving an industry-level framework on PPN. “There has always been a need to control the claims payout in health as the loss ratio in the health insurance segment is as high as 120-130 per cent. For Rs 8,000 crore premium collected by the industry, the claim outgo is more than Rs 12,000 crore. We will look to evolve a basic framework at an industry level to restrict the hospital network,” said an official with a private sector company.

Collective guidance

Mr S.L. Mohan, Secretary-General, General Insurance Council, said that once the issue is settled between public sector insurers and hospitals, the council could help the private companies by giving them collective guidance.

“A basic framework could be evolved by the industry that hospitals would have to agree to for being a part of the PPN,” said Mr Mohan.

A senior official from New India Assurance Company said private insurers have shown interest in joining the preferred provider network.

“With our move, the momentum has been built. Other stakeholders are also likely to follow suit,” the official added.

The four public sector players — New India, Oriental, National and United India — had removed some of the leading hospital chains across Mumbai, Bangalore, Delhi and Chennai from the preferred provider network from July 1. This meant that even though customers could go to these hospitals for treatment, they could not avail themselves of the cashless facility. They would have to make payments and later apply to the insurance company for reimbursement.

Inflated bills

Insurance companies removed these hospitals from the list as it was found that they were overcharging customers, thus leading to inflated bills. The PSU insurers wanted these hospitals to fall in line with the rates prescribed to them to check their losses.

Earlier, each third party administrator would have its own network of hospitals. Now with the agreement among the four public sector players, the 20-22 TPAs servicing the four PSUs will have a common list of hospitals in these four cities.

Sell more policies for better renewal ratio: Insurance regulator

In order to increase the persistency or continuity of life insurance policies by policyholders, the Insurance Regulatory and Development Authority (IRDA) has suggested agents sell more policies per year.

In an exposure draft on persistency of life insurance policies, the IRDA has suggested a series of measures, including asking them to procure a minimum of 20 polices per year and a minimum first year premium income of Rs.150,000.

Where an agent falls short of achieving either of the above, they would have to achieve proportionately more in either one to make up for the shortfall.

According to the exposure draft, an agent's licence may not be renewed where the persistency ratio (policy renewal ratio) is less than 50 per cent. Further, there shall be a disincentive for lapsation in the form of commission clawback by the insurer, on a proportionate basis.

Alternatively, a part of the first year commission shall be withheld and be paid based on persistency in later years, the draft suggests.

In an attempt to curb dummy agents, the IRDA has also suggested that spouses and close relatives of employees of insurers shall not be engaged as agents by insurers.

Reacting to IRDA's proposals, R Ramakrishnan, a member of the Malhotra Committee on insurance reforms said, "Let the regulator prescribe the persistency ratio of the insurer and not the productivity norms for agents. It is for the insurers to prescribe the productivity norms for their agents."

According to him, IRDA is trying to micromanage the sector which it should not do. The regulator has called for comments from Life Insurance Council, General Insurance Council, consumer organisations and general public by July 31, 2010 while excluding the agents.

Interestingly the 61 month persistency ratio of individual agency channel for private life insurers for the three year period 2004-05 to 2006-07 is around 50 per cent much higher than that of corporate agents (just below 45 per cent), brokers (less than 40 per cent). The persistency of bancassurance channel (policies sold by banks) is above 50 per cent.

Insurers may meet Irda on Tue over IPO norms

The insurance regulator Irda is likely to meet on Tuesday the heads of insurance companies to discuss issues related to the proposed initial public offer (IPO) guidelines.

"There could be some discussions on the IPO guidelines on the July 20 informal meeting with Irda chairman," Life Insurance Council general secretary SB Mathur told PTI.

Finance Minister Pranab Mukherjee will be going to Hyderabad on the occasion of opening of the Irda grievance redressal cell. The chiefs of both life and non-life companies will be coming and there will be some discussions, he said.

Last week, Irda chairman J Harinarayan had said, "We are expecting the (IPO) guidelines shortly. We have given our observations. The matter is currently with the Securities and Exchange Board of India (SEBI)."

He had said the valuation norms for the companies have been finalised in consultation with the Institute of Actuaries.

As per the present regulation, insurer can come out with IPO after completion of 10 years of operation. The companies now want it to be relaxed so that this capital intensive sector can tap primary market to meet fund requirements.

There are 46 insurance companies operating in the country including 23 life insurers.

The Grievance Redressal Cell of the IRDA would look into the relevant and valid complaints lodged by policyholders. The complaints against life and non-life (general) insurance companies are handled separately. The Grievance Redressal Cell plays a facilitative role by taking up complaints or customer grievances with the respective insurers.

At the same time, the meeting could also deliberate on third party premium rate, which is uniform across the sector.

"We will discuss the issue of Third Party Premium Rates. The rates, at present, are under tariff and all the companies have asked for a revision. We will be talking to the IRDA chairman on that," said New Indian Assurance Chairman and Managing Director M Ramadoss.

In the last few years, third party claims have gone up significantly resulting in losses under motor insurance segment. As the third party premium is fixed, insurers are asking for increasing it to mitigate their losses.

On the issue of delisting of a few major hospitals from cashless mediclaim facility, Ramadoss said, "If there is any issue raised, we will answer that."

From July 1, public sector general insurers delisted about 150 hospitals from the list of Preferred Provider Network (PPN) that provide cashless hospitalisation services to policy holders under the mediclaim scheme.

The four insurance companies -- New India Assurance, United India Insurance, National Insurance and Oriental Insurance -- stopped providing cashless facility in select hospitals.

Irda's fiat on insurance agents finds many supporters

Insurance Regulatory and Development Authority’s (Irda) latest proposal to make life insurance agents more responsible while selling policies has elicited mixed reactions from life insurers.

While some are of the opinion that the move is a step in the right direction and will bring in much-needed accountability, others feel the conditions prescribed are too stringent, resulting in many agents winding up their businesses.

The insurance regulator’s proposal, which was placed in the public domain last week, proposes to de-license agents who fail to achieve a persistency ratio of at least 50%. Persistency is defined as the proportion of policies remaining in force at the end of the period, out of the total policies in force at the beginning of the period. It is an indicator of the number of policyholders who have chosen to renew their policies, broadly signifying their satisfaction with the product sold to them.

The move follows widespread complaints of mis-selling by agents who carry out their task with an eye on commissions rather than policyholders’ needs, eventually leading to the latter deserting policies, which typically entail a tenure of more than 10 years, mid-way.

“The move is aimed at ensuring that the agency force acts more responsibly while selling policies. In that direction, we support it. The interests of insurers, distributors and customers have to be aligned, and persistency is a key factor here,” said Max New York Life MD and CEO Rajesh Sud. “The emphasis on persistency will be approved by one and all — agency as well as industry bodies. In our case, we already follow this principle,” added Reliance Life president and executive director Malay Ghosh.

In addition, Irda has put forth certain other recommendations as well. If the draft norms are implemented, an agent will have to sell a minimum of 20 policies every year and bring in a first year premium income of at least Rs 1.5 lakh. Should they fail to fulfil either of the criteria, they will have to achieve proportionately more in either one to make up for the shortfall in the other, states the proposal.

“Agents in India are not full time as most of them enter the agency force as a stop-gap arrangement and the successful ones stay on. After the revision in charge structure, commissions have come down and it has become even more difficult for an individual to earn a living as an agent,” said the CEO of a life company on condition of anonymity.

In India, the commission paid to banks and corporate agents are in many cases higher than the commission paid to individual agent. The proposed guidelines will leave individuals at the mercy of banks and corporate agents who have a bad track record in terms of mis-selling. The new guidelines will hurt the agency channel,” he added.

“Some of the conditions seem harsh, considering that nearly 30-35% of agents in the country are unable to sell even 12 policies in a year. If these norms come into play, many agents could go out of business,” pointed out GN Agarwal, chief actuary of Future Generali Life Insurance.

Some also feel that since many agents do not meet the requirements at present, the regulator needs to allow a reasonable transition period to enable companies to train agents and boost their productivity. Irda has set July 31 as the deadline for receiving comments and suggestions on the draft norms from the general public, life insurers and other stakeholders.

PNB to decide about entry into life insurance in next 3 mths

Punjab National Bank has set up a committee to evaluate the prospects of entering the life insurance business after its earlier attempt to enter the sector along with US-based Principal fell through.

"The board of the bank has set up a board committee to decide on the (life insurance) business... We are now free to go ahead... once the board committee decides, which may take another 2-3 months," Punjab National Bank Executive Director M V Tanksale told.

"We will come out with document thereafter. We will have a definite business plan what way we should drive our insurance business," he said, adding that the board would take a comprehensive look at the various opportunities in the sector.

Last month, the bank decided to part ways with two of its partners in a planned life insurance joint venture. It was decided that PNB will buy the entire 26 per cent stake held by Principal Financial Group and 32 percent participating interest of domestic firm UK (Berger) Paints in Principal PNB Life Insurance Company Ltd.

PNB's stake currently stands at 30 per cent in the proposed joint venture, while the remaining 12 percent is with Vijaya Bank.

Post-regulatory approval, the stake of PNB in the venture would go up to 88 percent.

Principal PNB Life Insurance was incorporated in 2005 with an authorised capital of Rs 110 crore to commence the life insurance business.

The paid-up capital of the company stood at Rs 2 crore and PNB's stake is Rs 0.6 crore. For picking up the 58 per cent stake held by Principal and Berger, PNB will have to shell out 1.16 crore. Meanwhile, PNB posted a 28 percent jump in net profit to Rs 1,068 crore for the June quarter compared to Rs 832 crore in the same quarter of the previous fiscal. Total income during the quarter grew by 11 percent to Rs 6,863.38 crore against Rs 6,177.59 crore in the same period previous fiscal.

The NII of the bank rose by 45.4 percent to Rs 2,618.5 crore. At the same time, net interest margin (NIM) improved to 3.94 percent from 3.24 percent.

However, treasury income declined to Rs 121.11 crore from Rs 358.47 crore in the same quarter of the previous fiscal.

Total business crossed Rs 4.52 lakh crore at the end of June. At the same time, deposits rose by 16.6 percent to Rs 2,18,960 crore, while advances jumped by 24.6 percent to Rs 1,57,979 crore.

L&T General Insurance gets regulatory nod to start businress

L&T General Insurance Company has received final approval from the insurance regulator to commence business. The company is promoted by the $9.8-billion engineering company, L&T, which controls 100% equity in the non-life company.


The company, which will be headed by CEO Joydeep Roy, already has 100 employees on board and plans to increase its headcount to 300 by the end of the financial year. Mr Roy, who was formerly with Tata AIG Life Insurance, said the company will launch standard non-life products in the next 60-80 days. The company has already designed 20 products, which it will soon lodge with Irda for approval.


Mr Roy said the company will commence operations with a paid-up capital of Rs 175 crore against the statutory requirement of Rs 100 crore. Most of the additional capital will be invested in building up an information technology backbone. The company would use technology to lower its cost of operations. “We are starting our operations with 10 branches and will gradually extend our network to tier-II and tier-III centres, added Mr Roy.


He said health would be a major focus area for the company and L&T Insurance would eventually have its own health claim management team. For the short-term, however, it would outsource claims management to third-party administrators until its own infrastructure was in place.


L&T has a presence in the financial services sector through its three wholly-owned subsidiaries — L&T Finance (LTF), L&T Infrastructure Finance (LTIF) and L&T Mutual Fund, which was acquired from Cholamandalam. “Given the size and the opportunity, L&T considers financial services as an important business in its portfolio. We are very confident of building a world class insurance business in India,” said YM Deosthalee, whole-time director & chief financial officer, L&T.


Mr Deoshthalee said the non-life company would tap into the ‘entire L&T ecosystem’ to generate new business. This would include selling covers to corporate customers of L&T, borrowers of L&T finance and investors in L&T Mutual Fund. He said L&T, at present, had no plans to get into the life insurance business because it required a distribution reach that was not available with the group.


L&T was earlier in discussion with US insurer Travellers for a partnership. However, the talks fell through and L&T decided to go ahead with the venture on its own. Responding to a query on whether L&T would seek a partner, Mr Deosthalee said joint ventures with multinationals were constrained by the product design and overall strategy of the insurance partner. He pointed out that among present joint ventures, in many cases the foreign partner had a major say in running the business despite having a minority stake of only 26%.

Non-life insurers' premium grew 19 pc during April-May period

General insurers grew around 19 per cent by collecting Rs 7,392 crore premium in the first two months of the current fiscal, as compared
to the corresponding period last year.

During April-May this year, non-life insurers mopped up Rs 7,392.19 crore against Rs 6,218.42 crore in the previous year, according to data from the Insurance Regulatory and Development Authority.

The four state-run insurers fared better than their private counterparts, with New India Insurance collecting the maximum premium, it added.

New India Insurance mopped up Rs 1,365.83 crore premium during the April-May period, compared to Rs 1,174 crore in the previous year -- growing by 16.34 per cent.

United India Insurance registered a growth of 22.47 per cent by collecting a premium of Rs 1,094.72 crore in the first two months of the current fiscal, as compared to Rs 893.87 crore during the corresponding period in the previous year.

National Insurance collected Rs 979.91 crore premium during the April-May period this year compared to Rs 773.46 crore in the previous year, registering a growth of 26.69 per cent.

Oriental Insurance, on the other hand, grew by 14.16 per cent during the first two months of the current fiscal by mopping up Rs 954.89 crore.

Among private non-life insurers, ICICI Lombard retained the top position. It mopped up Rs 728.91 crore premium during April-May this year as compared to Rs 631.37 crore in the corresponding period of the last fiscal, growing by 15.45 per cent.

Bajaj Allianz mopped up Rs 490.46 crore in the first two months this year, against Rs 424.60 crore last year -- registering a growth of 15.51 per cent.

However, Reliance General registered a negative growth of 28.22 per cent. The insurer managed to collect Rs 276.80 crore during April-May this year, compared to Rs 385.62 crore in the corresponding period last year.

There are over 20 non-life insurance companies operating in the country.

Public sector insurers to push for a common claims settling agency

The four government-owned non-life insurers - National Insurance, New India Assurance, Oriental Insurance and United India Insurance-- will
soon be taking forward their idea of floating a common third party administrator (TPA) to process the health insurance claims.

"We will be issuing a Request for Proposal (RFP) shortly. Our requirements will be specified in the RFP so that interested parties can submit their proposals," New India Assurance Chairman and Managing Director M. Ramadoss said over phone from Mumbai.

Consulting firm KPMG had given a report on the feasibility of setting up a common TPA by the four companies a year ago.

The four insurers, which together do around Rs.6,000 crore of health insurance business selling several lakhs of polices, are not happy with the manner in which claims are being processed and settled by the existing TPAs.

The earlier expectations of TPAs trying to bring down the treatment costs by hard negotiations with the hospitals have not materialised.

On the other hand, insurers complain about diversion of float funds provided to TPAs to other group ventures rather than using those for settling claims.

With their claims ratio ruling around 115 percent, the four insurers are focusing on ways to minimise the claims outgo.

One such measure that is drawing flak is the delisting some hospitals where the policyholders can avail cashless treatment - hospitals will directly bill the TPAs or the insurers.

The decision was taken after a detailed investigation by the insurers on over charging by many corporate hospitals. "We took the decision after a year-long investigation," said Ramadoss.

"We have documentary proof on hospitals charging differential rates -- higher for those with a policy and lower for others," he said.

Hospitals also charge differential rates for diagnostic tests based on the kind of room a patient opts for. A general ward patient is charged lower (not subsidized rate) while a patient in an air-conditioned room is charged a substantially higher sum.

"The costs for such diagnostic tests remaining the same, how can hospitals have differential rates," wonders Ramadoss.

"Under the Bombay Nursing Home Registration Act, all hospitals have to declare their rate card. But nobody does that," an insurance industry official told IANS.

"We have not scrapped the cashless treatment facility. It is available in around 350 hospitals in the four metros. There are also many hospitals who want to join our network. The panel of hospitals is expandable," said Ramadoss.

According to him, the revised rates that have been negotiated with some of the hospitals do not vary much from their earlier ones.

"It should be remembered that higher the claims ratio, insurers will be forced to hike their premium rates. It is only the policyholders who will suffer and not the hospitals," added another insurance official.

Even the Tamil Nadu government has delisted many hospitals as they were found to be carrying out needless operations, resorting to excess billing and other malpractices under its free insurance scheme.

Insurers may raise limits on healthcare costs to end row

The four government-owned general insurance companies that have limited the availability of cashless hospitalisation to those hospitals that agree to their rates would now look at raising their cap on treatment cost to bring in more hospitals under the new system.

In a meeting on Tuesday, members of the CII National Committee on Healthcare that include top private hospitals met chiefs of the four companies (New India Assurance, Oriental Insurance, United India Insurance and National Insurance Company) to discuss the preferred provider network project of the insurers that has categorised and graded hospitals and capped the rates for 43 odd surgeries in Delhi, Mumbai, Bangalore and Chennai.

Meanwhile, the Insurance Regulatory & Development Authority (Irda) has written to the four companies asking them as to why cashless has been stopped for retail policyholders and not for corporate policyholder. Insurers have been asked to submit a report in the next 48 hours explaining the basis of launching the preferred provider network project.

Financial Chronicle on July 5 was the first to report that the four government owned non-life insurance companies have graded hospitals and fixed the treatment cost for various 45 surgeries. Hospitals that have agreed to the new rates would be able to provide cashless facility to the policyholders.

A senior official of one of the four insurers who attended the meeting said, “There could be some reconsideration of rates so that there could be a better representation of corporate hospitals on the panel. In the next 90 days we would look at addressing all areas of concern.”

Vishal Bali, CEO of Fortis Hospitals, told Financial Chronicle, “We had three agendas to discuss. One, to grow the preferred provider network by adding more hospitals, relook at the categorisation and pricing of treatments. Insurers have said that they will ask their respective third party administrators (TPAs) to hold discussions with hospitals and try to bring in more hospitals in the network.”

“We have also suggested that instead of setting price bands for various treatment based on the categorisation of a hospital, a better solution would be to introduce a system of co-payment if the policyholder wants to be treated in top hospital. Thus, the onus of using the cover is equally shared by all including the policyholder,” said Bali. Co-payment is a system where an amount of the claim is borne by the policyholder.

“Insurance companies have said that they are willing to look at the price band of treatments at high end hospitals,” said Bali.

AI crash likely to generate Rs 400-cr claims

The Air India Express flight 812 flying in from Dubai which crashed on Saturday while landing at Mangalore’s “table top” airport surrounded by deep gorges is expected to generate insurance claims worth over Rs 400 crore.

The insurers—led by Anil Ambani’s Reliance General which had bagged the AI account for the first time in 2009-10 and reinsurers—led by Japanese Mitsui-have already swung in to action to assess the losses and settle claim quickly as possible.

Coincidentally AI’s UK-based surveyor for last 20 years Charles Taylor Adjuster is in Mumbai when the crash happened and has proceeded to Mangalore to begin the survey of the losses. Industry sources pointed that the claims out of the human tragedies would be around Rs 125 crore while for the aircraft the claim can be around Rs 225 crore. The aircraft which had crashed was new and had been acquired by AI at the end of 2007.

Each passenger who has lost his/her life is entitled to receive a minimum of Rs 75 lakh which can rise if the family members of the passengers prefer to go the court of law demanding higher compensations.

The flight was an international one and since India is signatory of Montreal Convention (in 2008) which fixes compensation for death or bodily injury of any passenger(traveling in an international flight ) over Rs 75 lakh.

Montreal Convention had increased the compensation for death or bodily injury by seven times from the earlier levels of $20000 to $ 1,40,000 . Similarly the compensation for damage to the checked baggage was also hiked from $ 20 per kg approximately to $ 1400 per passenger. The compensation for damage to cargo also was raised from $ 20 per kg approximately to $ 24 per kg.

“As a policy, we do not comment on individual policy details or specific customer claims”, said a Reliance General spokesperson. Reliance general consortium had paid total $ 25 million for AI’s cover out of which $ 20 million was for the aircraft and passengers’ liabilities.

Speaking to FE, S Narayanan, managing director & CEO, IFFCO-Tokio General Insurance, which along with three other general insurers –Reliance General Insurance, HDFC Ergo General Insurance, Bajaja Allianz General Insurance had participated in providing the insurance cover to Air India said, “I don’t think that too much of time will be taken by the consortium while settling the claims as it will be done on-account payment or...

Pvt life insurers may do away with renewal commissions to agents

Insurance agents are perturbed that some private life insurance companies have decided to discontinue payment of renewal commission after five years in the case of select categories of policies.
According to them, under pressure to meet the cap on charges on unit-linked products, some life insurance companies have restructured products in a manner which offer no renewal commissions to agents and distributors after the completion of the first five years of the policy term. They fear this ‘unhealthy practice' could result in more policies getting lapsed.
Most insurance companies have reduced renewal commissions. Earlier, distributors used to get an average commission of 2.5-4 per cent for the whole policy term. Now, it has been reduced to 1-2 per cent.
“Companies like Aviva and ICICI Prudential have gone ahead and removed renewal commissions after five years,” said Mr Sanjiv Bajaj, Joint Managing Director, Bajaj Capital, a distributor of insurance products.
This practice will lead to more policies getting lapsed as distributors will not have any incentive to persuade policy holders to pay renewal premiums on time. This will benefit companies as they have to pay the guaranteed yield only if the customers continue with the policy for the full policy term, said Mr Bajaj.
However, Aviva Life in an e-mail response said: “While the renewal commission structure varies from product to product (it is beyond 5 years in some cases), what is uniform across all products is guaranteed Loyalty Additions and Maturity Additions to reward customers for staying invested over long term.”
According to ICICI Prudential Life Insurance, the company has brought down renewal commissions by around 1 per cent for some products but has not completely removed renewal commissions paid to agents after five years.” We do not have any product where we do not pay renewal commission after the fifth year. We pay commission right from the first to the tenth year of the policy. After the products are reworked to meet the cap on ULIP charges, we have optimally rationalised the return to the customer and the commission to the agents, under renewal premiums,” said Mr Pranav Mishra, Senior Vice-President and Head-Products, ICICI Prudential Life.
Earlier also companies used to cap commissions due to their aggressive pricing tactics. But it was only for low-cost products, such as products for high net worth individuals where acquisition costs are low. But after the cap on charges, they have extended it to most of their unit-linked products, said Mr Rahul Aggarwal, CEO, Optima Insurance Brokers.
The concept of acquisition and servicing of clients has changed. Nowadays, some companies use agents only to acquire customers and then use technology to follow up with customers for renewals. Be it via SMS or emails, companies are exploring cost-effective channels to keep in touch with their customers, said Mr Aggarwal. However, even though these channels can be used effectively in the urban markets, they will have to rely on agents and distributors in the rural markets if they want to prevent policies from lapsing.

Pvt life insurers post improved results on better market conditions, cost controls

Cost controls and better capital market conditions helped private life insurance companies post improved performances on the profitability front in 2009-10.Insurance companies were able to reduce costs as they focused on improving the productivity of their branches and agents rather than indiscriminately opening new branches. There was also less strain of new business on profitability as insurers went slow on growing their business, said industry officials.Bajaj Allianz Life Insurance reported the highest net profit among life insurers that have declared their results till now. Its net profit soared to Rs 427 crore in 2009-10 from Rs 41 crore in the year ago period. The company's new business premium growth was flat at Rs 4,451 crore (Rs 4,491 crore).“We were able to control our expenses. We focused on improving the productivity of the distribution network. The focus will be on growing the business without increasing the branch network,” said Mr Kamesh Goyal, Country Manager, Allianz and CEO, Bajaj Allianz Life Insurance.The company's expense ratio came down to 16.5 per cent (19.2 per cent).SBI Life Insurance was back in the black posting a net profit of Rs 276 crore, against a loss of Rs 26 crore. The company had one of the lowest expense to gross written premium (GWP) ratio of 6.5 per cent.ICICI Prudential Life Insurance achieved accounting profitability for the first time since its inception. It reported a net profit of Rs 258 crore, against a loss of Rs 780 crore in the year ago period. However, the company's new business growth shrunk by seven per cent to Rs 6,334 crore.Kotak Life Insurance's net was higher at Rs 69 crore (Rs 14 crore).Companies such as HDFC Standard Life, Birla Sun Life and Reliance Life were able to bring down their losses.Along with cost controls, improved capital market performance due to favourable investment climate also helped boost the net of companies, said Mr Gaurang Shah, Managing Director, Kotak Life Insurance.Most of the players were able to increase their assets under management.SBI Life's AUM grew 96 per cent to Rs 28,551 crore. ICICI Prudential increased its AUM by 75 per cent to Rs 57,319 crore. Bajaj Allianz Life's investments grew by 95 per cent to Rs 33,422 crore.

IRDA to launch vehicle insurance tracking system

The Insurance Regulatory and Development Authority (IRDA) will roll out a web-based system to track vehicle insurance status in a month's time.
“We will be launching the system formally from June 9.It will have a database of all the insured vehicles from across the country. The data will also be shared with the transport and police authorities in different States,” Mr A. Giridhar, Executive Director, IRDA, told Business Line here.
This implies that the Road Transport Authority (RTA) in every State will have access to the insurance status of different vehicles on the road.
In turn, they can launch a drive to track down challan defaulters. The benefit for insurance companies is that the centralised data will help them avoid duplications or multiple claims.
Benefits
The system will make a big difference for the vehicle owners as well as general insurers, he said.
As all vehicles will now have to be insured, the premium per policy is likely to come down.
The third-party insurance procedure will now be efficient, especially for victims of hit-and-run cases.
The system may help reduce insurers' losses as these claims will be settled from a ‘Solatium Fund' now.
At present, the insurers pay for losses caused by the uninsured vehicles.
“More importantly, several insurers are also complaining of multiple claims in damage and theft cases. This can be brought down,” Mr Giridhar, said.
As the system will also have a database of insurance claims made/honoured, cases of bad or negligent driving can be ascertained by the insurers before deciding on the premium to be charged, he added.
Verification
As the data are to be shared with the transport authorities and the police, the new system will also help them verify the insurance status of any vehicle. At present, examining the hard copy of the insurance certificate is the only option available to them. The Web-based system will integrate up-to-date information gathered from general insurance companies.
This information will be made available to all stakeholders instantly. The submission of data by each underwriting office will be monitored on a daily basis and a report on the same will be generated, officials said.

Public insurers may offer 17.5% hike in wages

The Government has agreed to meet the insurance employees' demand for a 17.5- per-cent increase in wages, though it remained non-committal on pension.
The Secretary General of the General Insurance Public Sector (Insurance Companies) Association, Mr A. K. Singhal, said “We have already offered a 17.5-per-cent increase to the employees.” Further discussions are due to held with representatives of the employees of the four public sector insurers on May 8, he added.
The Additional Secretary General of the National Confederation of General Insurers Officers Associations, Mr Vivek Saxena, said, “We will know what is offered only at the meeting next month.” Insurance employees have demanded a pension benefit as provided to the bank employees. Mr Singhal, however, ruled out pensions. He said, “Pension is not acceptable to the managements since it would weaken the balance sheets.”
Also conditions stipulated in the management agenda are not acceptable to the unions. They relate to compulsory retirement of employees, with no mention of any voluntary retirement scheme.
The last round of the VRS in the insurance industry resulted in the migration of skilled and experienced employees to the private sector. This time, the sources said. the managements were keen to avoid such mistakes.
So far five rounds of negotiations have ended in deadlock.
Unlike in the past, when the managements were represented by officers of the ranks of General Manager, the negotiations are expected to be handled directly by the Chief Executives of the four insurers - New India Assurance Co, United India Insurance Co, Oriental Insurance Co Ltd and National Insurance Co.
The sources said that the CEO participation in the wage discussions was prompted by the government which is keen to break the deadlock, ahead with reforms in the sector. The reforms included making the core business of underwriting profitable. Insurers are currently operating at negative underwriting margins with loss ratios as 120 per cent. This year the insurers are expected to make up the provision shortfalls of the past. Under Insurance Act of 1938, general insurers are expected to credit at least 50 per cent of their incremental premiums to technical reserves - Unexpired losses. The sources said that after these provisions are deducted, insurers also were likely to end this year with red-lined net underwriting incomes.

Fire, marine covers to cost more

The premium on fire and marine transit insurance covers is expected to increase by 10-15 per cent following the recent incidents of fire in Bangalore, Kolkata and Delhi.Executives at insurance companies said the recent incidents have increased the risks from fire, especially in case of warehouses and transit-related insurance. “Ultimately, premium is a function of claim. The increasing number of claims will lead to an increase in premium,” said Bajaj Allianz General Insurance head of underwriting T R Ramalingum. “Storage houses and warehouses may see an increase of around 15 per cent in premium. Deductibles in marine will also go up after the recent incidents,” said Tata AIG General Insurance Managing Director and CEO Gaurav D Garg.An increase in deductibles will result in companies and individuals having to shell out more to make claims. The two moves are aimed at minimising the losses arising from the fire portfolio.Over the last few weeks, there have been two major instances of fire in Bangalore, including the one in Carlton Towers, a commercial complex, and today’s incident in the godowns of Gokaldas Exports.In addition, New India Assurance Company has had to take a Rs 35 crore hit due to a fire at the Tughlakabad internal container depot. Other insurers are facing claims from traders whose goods perished in the fire. There was also a fire in a plastic market in Delhi though the scale of damage was not known.In Kolkata, there were a large number of casualties in Stephen Court on Park Street, though insurers would get away in the absence of a cover.Generally, in a non-life sector, property insurance covers losses from fire. In India, a majority of the general insurance policies, including property covers purchased by large companies, come up for renewal in April. To that extent, the damage would be limited, though there are several large companies, such as SAIL and Reliance, which have renewals later in the year. In addition, transit marine is insured through the year, depending on when the consignments leave. The term of this policy is 60 days.Though premium rates depend on the nature of the risk insured, it is less than one per cent of the sum assured in most cases. In case of marine, cargo rates also depends on factors like nature of cargo, scope of cover, packing, mode of conveyance, destination and routes, and past claims experience

Public sector general insurers' savings-linked plans, the first casualty

Public sector general insurers' proposals to introduce savings-linked products have become the first casualty of the spat between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA).
Mr M. Ramadoss, Chairman and Managing Director, New India Assurance Company, said, “There are too many controversies involved in the proposal. We will wait till all the issues are resolved.”
In July 2009, the four general insurers had begun working on introduction of such savings-linked plans, marrying some of the concepts of life insurance into general insurance. Public sector insurers had borrowed the idea from the some of the large private sector insurers, in particular, ICICI Lombard's highly successful Health ULIP. Introduction of the products was at an advanced stage of discussions till the spat between the regulators broke out last week, sources said.
The proposal had involved issuing linked covers in the personal lines of business, either medical or household policies, the sources said. Such a policy was intended to offer risk cover as well as a lumpsum repayment at the demise of the policy.
Currently, all the PSU general insurers are already offering products such as householders' policy, to enhance customer comfort during repayment of housing loans. None of the four public sector general insurance companies though have savings-linked products.
Most offered are risk covers for either property or liabilities. Combination policies, the sources said, were designed specifically with the help of appointed actuaries as mandated by the IRDA.
The proposal also involved upgrading some risk covers into savings-linked policies, the sources said.
Bundling savings-linked covers into motor insurance products, particularly third party, was kept out.
However, some insurers had envisaged factoring in saving components in motor insurance products, particularly in private, personally owned vehicles. This was to help in customer retention and for automatic renewal of insurance with the same company at least for five years.
At the end of this period, the sources said, premiums could be refunded partly or fully.
Savings-linked covers were intended as close-ended policies. None of the proposed savings-linked covers, though, were envisaged to offer any assured rate of return.
Instead, the sources said, the corpus collected through such policies would be invested in Government or designated securities mandated by the insurance regulator.
The proposal had envisaged that returns on such investments would be passed on to the investors, they added.
However, such a product would automatically depreciate in value in the event of claims being made. This is because the claims would be netted from the cumulative payouts, they said.
The sources said that companies intended to restrict their combined ratios through the introduction of such covers. Combined ratios that included management expenses and claims were currently in excess of 120 per cent of the premiums collected.
PSUs stuck with high loss traditional products have been struggling to cut underwriting losses and turn their core business profitable.
Product innovation was seen as one method of complying with deadline prescribed in the statement of intent signed between the government and the PSU insurers in August 2009.
In addition, the sources said that they had also hoped to compete and contain market share losses.

Life insurers to abide by IRDA's directions, says Council
Life insurance industry association Council on Sunday said insurers will abide by IRDA's direction and would continue business as usual. The 14 life insurers would abide by the IRDA's direction to continue business as usual," Life Insurance Council Secretary General S B Mathur said when asked if the insurance companies would continue to sell ULIP policies following the regulator IRDA's directions. Market regulator SEBI on Friday last week banned 14 life insurance companies from raising funds through unit-linked insurance policies, which invest the money collected into equity and debt markets. Insurance sector regulators IRDA, however, yesterday rejected the SEBI ban and asked the insurance companies to do business as usual. Unit-linked equity products (ULIPs) are insurance plans sold by life insurers where the money collected from consumers is invested into equity and debt markets and returns are linked to the same. Regulation of ULIPs has become a bone of contention between the two regulators. The turf war concerns the nature of ULIPs which account for over 50 per cent of the total life insurance business in the country. As on March 31, 2009, total funds under the management of life insurance sector stood at over Rs 9 lakh crore of assets, according to the Life Insurance Council's figure. The life insurance companies against whom SEBI passed the order are SBI Life, ICICI Prudential, Tata AIG, Aegon Religare Life, Aviva Life, Bajaj Allianz, Bharti AXA, Birla Sunlife, HDFC Standard Life, ING Vysya Life, Kotak Mahindra Old Mutual Life, Max New York Life, Metlife India and Reliance Life.

Clouds of uncertainty over ULIPs

The controversy about Unit Linked Insurance Plans (ULIPs) has reached an inflexion point with SEBI on Friday banning of 14 of the 25 insurance companies from marketing ULIPs.
SEBI's order does not mention insurance companies such as LIC, IDBI Fortis and a few other bank-sponsored life insurance companies.
Based on data from the IRDA's 2008-09 annual report, ULIPs managed total funds of Rs.1.72 lakh crore as of March 2009. Insurers such as ICICI Pru Life, Bajaj Allianz, SBI Life and Birla Sun Life were the ones with the biggest ULIP assets.
A rough calculation suggests that ULIPs could be managing close to Rs 2.3 lakh crore now, after accounting for the market appreciation and new premium collected, inclusive of LIC (about Rs.1.2 lakh crore).
Ever since the launch of ULIPs by private insurers in 2003-04, there has been friction between mutual funds and life insurance companies.
With SEBI banning entry loads on mutual fund schemes, which in turn led to MF agents upfront commissions going down to 0.5 per cent from the earlier 2 per cent, inflows into mutual funds declined sharply.
In an interaction with Business Line, commenting on the ban, Life Insurance Council Secretary-General, Mr S. B. Mathur, said that it was unfortunate that SEBI had imposed this ban, but felt that the insurance companies would explore various possibilities to find an acceptable solution. IRDA is expected to issue a circular this regard and also may take up the matter with SEBI.
We spoke to several insurance companies to have their view on this order and the majority of them felt that IRDA was more competent to comment on this. But a top insurance official on the condition of anonymity, raised the question of how claims of existing ULIP holders will be dealt with now. “If I am not allowed to accept his premium, if the death occurs, who will be responsible for (fulfilling) the insurance contract? Under Type I ULIPs, the fund value or the sum insured will be paid as death benefit.
The ULIP is a unified contract, investment contract cannot be taken out separately and be subject to a certain regulator.”
An insurance agent said : “SEBI's recent crackdown on upfront commission being paid to agents, being charged as expenses for arriving at the net asset value means that we are not going to get any (upfront) fee for marketing mutual fund products. With the ban on ULIPs, we will be completely thrown out of the financial intermediary business. This may impact our life very seriously.”

Life insurers see 18% growth in total premium income in '09-10

Council has projected 18% growth in total premium income for the life insurance industry in the financial year 2009-10. Although final figures, released by the Insurance Regulatory Development Authority (Irda), are being compiled, Life Insurance Council secretary general SB Mathur told ET: “During 2008-09, the life insurance segment had mopped up a first premium income of Rs 88,000 crore while in 2009-10, there was an approximately 10-12% growth, which means that first premium income in the year just gone by is expected to be around Rs 1 lakh crore.” Mr Mathur also said the industry is estimated to have garnered a total premium income of Rs 2.6 lakh crore at the end of 2009-10, against Rs 2.2 lakh crore in the previous fiscal, which means an 18% growth. Life Insurance Corporation (LIC) is expected to have earned total premium income of Rs 1.76 lakh crore in the year under review, against Rs 1.53 lakh crore in the previous financial year. On the entire sector turning profitable, Mr Mathur said it is expected to take another 2-3 years before almost all companies turn profitable. As of now, almost all private sector companies, barring a few, showed loss on their profit and loss account. According to data released by the Insurance Regulatory Development Authority (Irda) for 2008-09, total accumulated losses stood at Rs 14,421 crore while the total equity infused by all companies put together was Rs 18,253 till March 2009.

Public non-life insurers’ employees to strike

Around one lakh employees of four Indian government owned non-life insurers will strike work for two hours March 31, demanding 40 percent pay hike and an option to join pension scheme. They claim they have “done well and the management should reciprocate”.All the unions in the four companies — National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited — called for a two-hour walk-out from work places preceding the lunch recess March 31, the last working day of the current fiscal.
The unions warned of serious action if their demands were not met.
“The four government owned non-life insurers have clocked a gross premium of Rs.18,222 crore up to February 2010 this fiscal, logging a growth of 12.21 percent over the corresponding period of the previous year. On the other hand, leading private non-life insurers have logged negative growth,” J.Gurumurthy, secretary of All India Insurance Employees Association (AIIEA), told IANS Thursday.
He said the wage talks are still at the level of general manager level of the individual companies, steadfast on their offer of 17.5 percent salary hike, made at Kolkata Dec 22 last year.
The Governing Board of General Insurers Public Sector Association (GIPSA) Feb 5 informed the unions that it did not find it possible to improve the offer.
After the rejection of the offer of 15 percent increase, the GIPSA came up with a revised offer of 17.5 percent.
The AIIEA had demanded 40 percent wage hike so that there is pay parity with that of the private sector.
“The chairman and managing directors seem to feel that it is not their responsibility to find a satisfactory solution to the wage demand of the employees and officers in consonance with growth, productivity and competitive environment,” Gurumurthy added.
He said wage talks were resumed in Life Insurance Corporation of India (LIC) after the unions rejected the 17.5 percent hike offered.

State-owned general insurers look to shape up

As part of a drive to curtail losses, the four public sector general insurance companies are going in for a makeover The four state-owned general insurers— New India Assurance, National Insurance, United India Insurance and Oriental Insurance — have undertaken a restructuring exercise to improve underwriting profits.“We have set a target with the government saying how much would be the underwriting profit or losses. The need to reduce losses has been made clear to us. Therefore, we will be looking at reducing underwriting losses and will focus on departments that are making losses,” said M Ramadoss, chairman and managing director of New India Assurance.As part of the restructuring, the four insurers — who have been dealing with legacy issues for the past few years — are reconciling the list of claims with those that have been paid but are not reflected in their books.“There are a lot of cases in which insurers have paid the claims but the provisions, some of which are in excess of the amount paid, are still sitting on the books,” said a non-life insurance executive.In addition, they have undertaken a business process re-engineering (BPR) exercise, which includes implementation of core insurance solutions and centralising the claim settlement process.Business is being reorganised into verticals focused on different segments — bancassurance, large companies and agency — and a performance-linked incentive scheme is being introduced for employees.As a precursor to this, the state-owned general insurers have started measuring the performance of employees on a regular basis in terms of business generated, commission paid on the risk underwritten and the claims incurred.“Earlier, performance was only measured after the annual accounts were finalised, which was somewhere around July-August. But now, companies are trying to measure performance on a monthly basis so that mid-course corrections can take place,” said an insurance company executive.This is akin to the exercise undertaken by banks in the 1990s.During the 2009-10 financial year the finance ministry had asked public sector general insurers to implement Core Insurance Solutions (CIS), in line with the experience of public sector banks, where the implementation of core banking solutions has helped customers carry out transactions across the country.While Oriental Insurance, the smallest of the four state-owned players, has already implemented CIS, the other three will follow suit over the next 12 months.New India Assurance, Oriental Insurance and United India Insurance had appointed Boston Consulting Group, while National Insurance had hired PricewaterhouseCoopers for the restructuring exercise. The process is expected to conclude in the next six months.“Technology is the cutting edge and we expect to implement the core insurance system by 2010. We are focusing on better underwriting practices by adding an element of incentive to performance,” said United India Insurance chairman and managing director G Srinivasan.United India has divided strategic business units into bancassurance, motor dealer offices and large corporate and agency offices, while Oriental has segmented the market into four groups — agency, corporate, brokers and bancassurance. On servicing claims, United India is strengthening settlement offices and speeding up claim settlement by third-party administrators (TPAs), while Oriental is offering more business to TPAs which have provided it with substantial business.“As part of our re-engineering, we have added an element of incentive linked to the performance for branches, which will be based on number of claims settled and number of claims incurred by the group. The branch with the lower combined ratio will be incentivised,” Srinivasan added. The underwriting performance of an insurance company is measured by its combined ratio.A combined ratio of less than 100 per cent indicates underwriting profitability and better return on the amount placed at risk, while a ratio of more than 100 indicates an underwriting loss. The combined loss ratio of the four general insurance companies is hovering at 123-130 per cent.It is calculated by adding the loss ratio and the expense ratio. The loss ratio is calculated by dividing the loss by the earned premium. The expense ratio is calculated by dividing the operational expenses by the earned premium. The expense ratio of the general insurance companies is around 20 per cent.“We had appointed consultants when we were losing market share. The ministry has asked the other three insurance companies to implement the CIS, since we had already started it in 2005. We expect to bring down our combined ratio by 10 per cent, from 135 per cent at present,” said a senior executive at Oriental Insurance.Insurers expect the re-engineering process to result in improved bottomlines. National India had undertaken an IT-led business process re-engineering exercise and is close to implementing CIS.The ministry had initiated talks on a possible merger of the four public sector insurers, but the insurers themselves said that no opinion had been formalised, and that there was no pressure on them to finalise anything immediately.“If there is disinvestment and the ministry decides that we should come up with an IPO, the concerns are whether all four companies will come up with the public offer separately or as one company. If at all there is a merger it will be driven by the IPO. Underwriting losses is only part of the discussion and merging the four PSUs will not ensure underwriting profits,” Ramadoss added.In the last one year public sector players have stemmed the decline in their market share. Due to high discounts insurers had to suffer underwriting losses. PSUs retain 80-85 per cent risk while private players retain around 50-55 per cent risk.PSUs with more elbow room in writing bigger risks dominate the corporate business. Though these players lack in customer service, they are confident of increasing their market share because of public confidence, financial ability and better technical expertise.To bring down claims in the health segment, the four insurers are jointly forming a TPA, and have appointed KPMG as the consultant. KPMG has submitted its report.

ADAG eyes foreign partners for life, general insurance biz

The Anil Ambani Group-promoted Reliance General Insurance is looking to buy a majority stake in its rival Royal Sundaram, while talks are in advanced stages to bring in Swiss Re as foreign partner in its life insurance venture. While talks have reached advanced stages for sale of 10-15 per cent stake in Reliance Life to Swiss Re for an estimated Rs 1,500 crore, a possible buyout of the Sundaram Group's 74 per cent stake in Royal Sundaram Alliance Insurance could take some time due to regulatory issues, sources in the know of the developments said. Royal Sundaram Alliance Insurance Company is a joint venture between the Sundaram Group and the England-based RSA, which owns 26 per cent stake in the alliance. Though the deal size could not be ascertained, it can be noted that Royal Sundaram has mopped up Rs 820 crore premium in the first 11 months of this fiscal, compared to Rs 1,847 crore premium collected by Reliance General. If successful, it would be the first time that a general insurance firm acquires a rival and therefore the relevant guidelines need to be sought from the sectoral regulator Irda. In the life insurance space such a deal has happened in the past when Reliance Life acquired AMP Sanmar in 2005. Both Reliance Life and Reliance General are part of Reliance Capital, the Anil Dhirubhai Ambani Group's financial services arm. With these two separate deals, Reliance Capital is seeking foreign alliances to run both its life as well as general insurance businesses, sources said. When contacted, ADAG spokesperson declined to comment, while Royal Sundaram did not respond to an e-mail. RSA's external communications director Louise Shield said, "we don't comment on rumours and speculation so have no response to make." When contacted, Swiss Re's director for communications (Asia division) Kwokchoi Wong said the company "does not comment on market rumours". As per the existing rules, a foreign entity can hold only up to 26 per cent stake in an insurance firm in the country. Besides plans to offload 10-15 per cent stake to a foreign partner, Reliance Life could sell additional 10-15 per cent shares through an initial public offer, for which it is awaiting final IPO guidelines from Irda, expected by the end of the next month. For nearly a year, Reliance Capital has been planning either an IPO or strategic sale of its life insurance business to unlock value for shareholders. After the strategic stake sale to foreign firms, as and when it happens, Reliance Life could also come out with an IPO, according to sources. "Depending on the interest from foreign firms (for buying a maximum of 26 percent stake), the company (Reliance Life) could come out with an IPO," a source said.

SBI General Insurance begins operations in Mumbai

SBI General Insurance, the non-life subsidiary of public sector lender State Bank of India, on Saturday formally announced the launch of its operations beginning with Mumbai.
“Initially, we will write policies in Mumbai. We will start full-fledged operations pan-India once our IT infrastructure is put in place,” SBI Chief General Manager (New Initiatives), R.K. Garg, told PTI here.
The company expects to start full-scale operations by Q2 of the next financial year, he said.
“To begin with, we propose to offer 2-3 products in commercial segments,” he said.
The company has filed for 22 products, both in retail and commercial segments with the Insurance Regulatory and Development Authority (IRDA) and is expecting approval for the rest of the products soon, he said.
SBI General Insurance is a 74:26 joint venture between State Bank of India (SBI) and Australia-based Insurance Australia Group (IAG).
The company, which would be the 22nd player in the general insurance industry, received its R3 approval for starting the company in December last year.
The Managing Director and Chief Executive Officer of (CEO) of the company is R.R. Bele.
A representative of IAG-Rob Logie-has been appointed as the Deputy CEO of the company.
The company has a capital base of Rs. 653-crore, including premium.
SBI also has a life insurance joint venture-SBI Life Insurance with BNP Paribas Assurance.

Public non-life insurers’ employees to strike

Around one lakh employees of four Indian government owned non-life insurers will strike work for two hours March 31, demanding 40 percent pay hike and an option to join pension scheme. They claim they have “done well and the management should reciprocate”.All the unions in the four companies — National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited — called for a two-hour walk-out from work places preceding the lunch recess March 31, the last working day of the current fiscal.
The unions warned of serious action if their demands were not met.
“The four government owned non-life insurers have clocked a gross premium of Rs.18,222 crore up to February 2010 this fiscal, logging a growth of 12.21 percent over the corresponding period of the previous year. On the other hand, leading private non-life insurers have logged negative growth,” J.Gurumurthy, secretary of All India Insurance Employees Association (AIIEA), told IANS Thursday.
He said the wage talks are still at the level of general manager level of the individual companies, steadfast on their offer of 17.5 percent salary hike, made at Kolkata Dec 22 last year.
The Governing Board of General Insurers Public Sector Association (GIPSA) Feb 5 informed the unions that it did not find it possible to improve the offer.
After the rejection of the offer of 15 percent increase, the GIPSA came up with a revised offer of 17.5 percent.
The AIIEA had demanded 40 percent wage hike so that there is pay parity with that of the private sector.
“The chairman and managing directors seem to feel that it is not their responsibility to find a satisfactory solution to the wage demand of the employees and officers in consonance with growth, productivity and competitive environment,” Gurumurthy added.
He said wage talks were resumed in Life Insurance Corporation of India (LIC) after the unions rejected the 17.5 percent hike offered.

SBI General's imminent debut ruffles existing players

Likely to kick off operations in end-March or early April.
Public sector insurance players are likely to lose their dominant market share soon, as the country’s largest lender, State bank of India (SBI) gets ready to make a splash in the general insurance space through a joint venture in the next few days.
SBI General Insurance Co, a 74:26 joint venture between SBI and Insurance Australia Group (IAG), is expected to start operations by the end of the March or early next month, according to a source close to the development.
At present, four public sector general insurance companies — New India Assurance, National Insurance, United India Insurance and Oriental Insurance — collectively enjoy about 60 per cent market share.
The biggest setback will be for New India Assurance, as SBI is its bancassurance partner. Out of the Rs 400-crore annual premium that New India earned from the bancassurance channel, SBI accounted for nearly half, or Rs 200 crore.
"We have plans to recover from the loss. We are also in talks with three-four other banks for a partnership," said a New India Assurance executive. The company enjoys around 17 per cent share of the general insurance market.
"It (SBI) is a big player, has a huge reach through a large number of branches and has financial strength. It can create a dent in the market. SBI can reach almost all major clients. Its entry will affect us because New India has a distribution tie-up with SBI," M Ramadoss, chairman and managing director, New India Assurance, had said earlier.
"There might be some impact on the market share of public sector insurance companies, once SBI General Insurance comes into the market. But, we will have to see what strategy they adopt," said a National Insurance spokesperson.
Also, marginal repricing of some products could not be ruled out in the short term, even though premium for fire and engineering insurance had fallen after de-tariffing, said insurance company officials.
"This year, the market might have been erratic due to new entrants, but it should be more disciplined by next year," said an Oriental Insurance spokesperson.
SBI General Insurance has already filed for products across segments.
"The company has made a lot of progress. It will have full range of products," said RR Bele, managing director and chief executive officer, SBI General Insurance. SBI has invested Rs 111 crore for its 74 per cent equity, while IAG has pumped in about in Rs 542.10 crore (including about Rs 500 crore premium) for its 26 per cent stake.
By timing its foray now, SBI would eye corporate clients, as that was the time when most of them renew policies, the source said. The company is also hoping to leverage SBI’s 10,000-plus branch network and borrowers, mostly in retail and small & medium enterprises segments.

Insurance premium may touch Rs. 1 lakh crore by 2015: Assocham

Industry body Assocham on Thursday said it estimates the premium from general insurance to touch Rs. 1 lakh crore in the next 5 years as awareness and income about insurance products among the rural masses are on the rise.
Currently, insurance premium collection is estimated at Rs. 35,000 crore, the chamber said.
In rural areas, awakening levels (regarding insurance) are rising and their income is surfacing because of the various social schemes of the government, it said.
“...because of the social schemes of the government a large chunk of the rural population is getting inclined for insurance...It is one of the reason which will drive growth for insurance premium and reach projected levels of Rs. 1 lakh crore by 2015,” it added.
As over 60 per cent of the population, largely in rural areas has yet to be tapped by insurance industry, micro- financing institutions should explore possibilities in rural areas for wider coverage of general insurance, it said.
The government’s initiatives on mass insurance would also gradually open the reach of general insurance to a large part of the country.
High growth in automobile sector, huge strides in the healthcare will also open up health insurance potentials substantially, it said.

Insurance cos join hands with Visa cards for premium payments

Visa and 20 insurance companies in India have joined hands to make paying life and general insurance premiums "faster and easier" through a range of new payment options for Visa cardholders.Participating companies are: Aegon Religare, Bajaj Allianz Life, Bajaj Allianz General, Bharti AXA Life, Birla Sunlife, Future Generali, HDFC Ergo, ICICI Lombard, ICICI Prudential Life, IDBI Fortis, ING Vysya Life, Kotak Life, Max New York Life, Metlife, Reliance General, Reliance Life, Royal Sundaram, SBI Life, Tata AIG General and Tata AIG Life.
The consumers can pay their annual insurance premiums for participating companies with a click of a mouse and their Visa Debit or Credit card by logging on to or the participating insurance company websites, Visa said in a statement here.
For cardholders who prefer other payment channels there are options to pay over the phone through their insurance company call centre or sign a standing instruction with their bank to pay their insurance company through their Visa card. Visas payment options also help insurance companies enhance operational efficiency by enabling timely payment, the statement said.
Payment via Visa cards also helps insurance companies reduce handling costs through automating the payment process, which in turn can speed up customer service and improve consumer perceptions.

LIC's new biz grew 23 pc during April-Feb 2009-10

The new busineses of the country's largest insurer Life Insurance Corporation (LIC) grew by over 23 per cent, with Rs 54,320 crore collected in the first eleven months of the current fiscal. During the April-February period of last fiscal, LIC mopped up first year premium of Rs 43,883 crore, sectoral regulator Insurance Regulatory and Development Authority (IRDA) said in its monthly data. Overall, life insurance industry collected premium of Rs 83,891 crore in the first eleven months of this fiscal compared to Rs 72,017 crore in the corresponding period last fiscal, thereby growing by over 16 per cent. The private life insurers grew by 5 per cent during April-February period of the current fiscal. The 22 private players mopped up new businesses of Rs 29,570 crore in the eleven months of the current fiscal compared to Rs 28,133 crore same period last year. The largest private player SBI Life mopped up Rs 5,266 crore during the April-February period compred to 4,348 crore collected in the same period last year

IRDA advertisement stirs up debate

Is it appropriate on the part of a regulatory body to recommend investment in a product that is regulated by it?
An advertisement issued by the Insurance Regulatory and Development Authority (IRDA) last week, asking investors to consider Unit Linked Pension Plans, has raised just such a debate.
“If you have not already provided for regular income/pension during your retired life, consider a Unit Linked Pension Plan,” says the advertisement, which goes on to ask investors to keep in mind five points of advice before deciding to buy a ULIP (Pension).
SEBI missive
The advertisement must also be seen in the light of the recent dispute that arose between IRDA and the stock markets regulator SEBI when the latter wrote to insurance companies asking them to show cause why they did not get its approval for ULIPs, which partly invest in the capital markets.
“It is a possibility that through this advertisement, IRDA simply wanted to signal that ULIP falls clearly within its territory. But in principle, a regulator should not recommend investment or disinvestment in any product that it regulates,” said a legal expert who deals with SEBI-related disputes.
An official at IRDA said it must be seen as an exercise in investor awareness, which as a development authority, IRDA had the right to do.
However, the advertisement's sentence asking investors to consider ULIPs was not acceptable, said the legal expert. “
If it were merely an educational advertisement, it should have stopped short of saying this. It could merely have said that investors putting their money into ULIPs must keep in mind certain points,” he said.
Ban on entry load
The development must also be seen in the light of SEBI banning of entry load on mutual fund investments from August last year.
This caused much heartburn among MF companies who felt that agents would now push ULIPs, which offer commissions as high as 30 per cent.
‘Wrong priorities'
“IRDA have got their priorities all wrong,” said Mr Sandeep Parekh, regulatory expert and faculty member at IIM-Ahmedabad. “They are protecting the industry rather than the investor. It is the only industry perhaps in the world that allows commissions as high as 30 per cent. If Rs 30 out of Rs 100 put in by an investor goes into commissions, then to get his Rs. 100 back itself the investor may have to wait for three or four years.”
Many experts felt that if the advertisement was really “educational”, it should have asked ULIP investors to check the amount of commission paid out.

General insurance rates set to go up

General insurance rates are set to go up in the coming fiscal. With all-time low tariff rates, general insurance companies are considering reducing the discount rates on renewals of industrial fire and engineering policies from April.
Instead of offering across-the-board discount, insurers this year will try to negotiate with corporate policyholders in areas such as deductibles and add-on covers, according to industry experts. Deductibles are the portion of claims borne by policyholders.
The first day of the new financial year is a preferred renewal date for most large industrial houses, with nearly 25-40 per cent of group renewals in a year taking place on the day.
“With the reinsurance rates expected to go up in some policies, price discount may not be the preferred choice year. If the price cut is checked and deductibles increased, the claims ratio could come down in 2010-11,” Mr Alok Agarwal, Director (Corporate), ICICI Lombard, said. Claims ratio in these (fire, engineering) policies are now currently in the range of 70-80 per cent, up from about 40 per cent during the tariff-era.
“The general insurance industry is slowly moving towards better pricing. We may see a check on indiscriminate discounting with the concessions to some corporates being reduced from nearly 90 per cent to about 50 per cent,” Mr Rahul Agarwal, CEO, Optima Insurance Broking, said.
Add-on covers would serve as a selling point during renewals, Mr Alok Agarwal pointed out. The Insurance Regulatory and Development Authority of India recently allowed clubbing of add-on covers with main policies.
Some of the important add-on covers on offer are compensation for damage of employee belongings, civil infrastructure, customer goods lying in factory premises and overhead cost of shutting down plants.
A senior official at National Insurance Company, however, said, “Add-ons cannot become the unique selling point because all insurers would be offering the same set of benefits.” Group insurance business would continue to be price driven, he added.

LIFE AND GENREAL INSURANCE IN INDIA

General insurers face higher liabilities

For the first time, global reinsurers have turned their back on primary general insurers in the country by under-subscribing treaty obligations. That means general insurance companies in India will have to absorb liabilities themselves and will require more capital.
Highly placed officials said that the under-subscriptions were mostly in marine hull, marine cargo and miscellaneous accidents categories. This business accounts for almost 20 per cent of India's general insurance. Marine Hull refers to shipping business. The officials said that the under-subscription in all these businesses varied from 25-35 per cent. At least 55 per cent of private sector business and about 25 per cent of public sector business is ceded to cross-border reinsurers.
Reinsurer under-subscription, the officials said, is largely on account of low risk premiums quoted by domestic general insurers. Since deregulation, the domestic general insurance markets have witnessed steep undercutting of risk premiums, going down by as much as 80 per cent since 2007.
Domestic insurers are likely to face capital stress in the coming weeks, already partially evident from the reduced business intake. For the first 10 months of the current year, two of the largest private sector general insurers, ICICI Lombard General Insurance Company Ltd and Bajaj Allianz General Insurance Company Ltd showed negative growth rates of 10.18 per cent and 8.22 per cent respectively. The gross premiums collected by these two insurers were Rs 2,730 crore and Rs 2,032 crore respectively for the period.
It appears some insurance lines covered by annual treaties are likely to be restricted further. Most of India's cross border treaty reinsurance placement is with either Munich Re or with Swiss Re although there are other smaller treaty reinsurers that include Hannover Re and to some extent Lloyds group.
Officials of Bajaj Allianz said, “It has been found that some new reinsurer would offer their support to the market whereever participation was restricted / reduced by an existing reinsurer, as witnessed in the FY 09-10.”
Treaty negotiations
Treaty negotiations this year are yet to be concluded. Reinsurance arrangements are normally expected to be completed at least 45 days before the beginning of the next financial year. ICICI Lombard's Head, Reinsurance, Mr Rajiv Kumaraswamy, said, “We have already submitted the draft reinsurance programme to the regulator. We are now in discussions with the reinsurers for finalising our programme for the next year.”
But with global capacity under pressure, domestic companies are reconciled to looking for spot market reinsurance placement in the form of Facultative Reinsurance (an arrangement where ceding insurers offer individual risks to a reinsurer, who has the right to accept or reject each risk). Spot placements would essentially translate into higher costs for reinsurance wiping out the little commission that primary insurers earned through such cession.

National Insurance opens motor business hub

In order to facilitate speedy settlement of motor claims of Maruti customers, the National Insurance Company has launched a motor business hub in the State.
Mr N.S.R.Chandraprasad, Chairman-cum-Managing Director inaugurated Kerala's first NatMar Business hub at the Kochi divisional office of the company.
National Insurance has a tie up with Maruti Suzuki Ltd for online issuance of policies at dealer outlets since May 2002.
The alliance with Maruti, popularly known as NatMar Insurance is one of the company's largest portfolios in motor insurance.
According to company officials, surveys will be arranged, reports will be received online and claims will be processed instantly. The hub will provide hassle-free and cashless settlement of damage claims, officials said.
The company plans to open more such hubs in Thiruvananthapuram and Kozhikode.

Insurers propose 80% hike in third party motor risk premium
In a decision that will hurt auto owners in the commercial vehicle (CV) segment, domestic general insurers have finally taken the initiative to increase premiums for third party motor insurance by almost 80%. General Insurance Council (GIC), the official representative body of the domestic general insurers, met in Hyderabad on Friday and passed an resolution to this effect. "We have decided to initiate the process to hike third party motor insurance rates by 80% since losses from the portfolio are no longer sustainable," said the chief of a public sector general insurance company. Over 50% of the premiums of general insurers come from motor insurance. The third party insurance covers the risks of financial losses arising out of a situation where a vehicle damages a third party in an accident. In India, third party motor insurance has a provision for unlimited liability and many cases end up in prolonged litigation with courts awarding large financial compensations to victims. Third party motor premiums account for the largest share of revenues of general insurers. However, the business makes big losses too with the loss ratio for the portfolio exceeding 120-130% every year. It is legally mandatory for vehicle owners to buy this cover and this is the only segment where the premium is still regulated and needs to be ratified by the government. General insurers claim they are at the receiving end while selling third party insurance covers. Since the cover is mandatory, they have to sell them even if the portfolio incurs losses, eating into the profits of other segments. In order to simplify the third party motor insurance business, insurance companies had created a mechanism in April 2007 wherein all insurers would transfer their premiums collected to the Indian Motor Third Party Insurance Pool. General Insurance Corporation of India is the pool administrator and claims that are paid out of the pool depend on each insurance company's market share. During 2008-09, 17 members of IMTPIP had contributed Rs 2,822.96 crore of premium to the pool, which had paid Rs 3,258.54 crore towards claims, thereby taking a hit of Rs 650.30 crore. A proposal by insurance companies to increase third party motor premiums by 150% in January 2007 was met with stiff resistance from the All India Motor Transport Congress (AIMTC), which has over 3,400 affiliate associations and members owing over 4.5 million vehicles. Finally, the government had to relent, allowing a 70% hike.

Centre should retain power to decide LIC agents' service conditions: House panel
A Parliamentary panel has opposed a Government proposal to entrust Life Insurance Corporation of India (LIC) with the power to decide on the terms and service conditions of its agents.
The Standing Committee on Finance, headed by the BJP leader, Dr Murli Manohar Joshi, in its report on the Life Insurance Corporation (Amendment) Bill 2009 suggested that it would be "preferable to continue with the existing legal provisions relating to the terms and conditions of service of LIC agents".
The report was tabled in the Lok Sabha on Friday. The LIC Amendment Bill 2009 has proposed to do away with the existing system of the Centre framing the rules on terms and service conditions of LIC agents. Simultaneously, the Bill sought to confer upon LIC the power to frame regulations on the terms and service conditions of the agents.
The Bill also proposes to take away the power of LIC to specify the form and manner in which policies may be issued and the contracts binding on the corporation may be executed.
A large section of the LIC agents' community is keen that the power to decide and specify the service conditions should not be vested with LIC. Allowing LIC to frame regulations on the service conditions of the agents would dilute the legal protection that such agents currently enjoyed, sources said.
The whole idea behind the proposed amendments is to bring the status of LIC agents on a par with that of agents in any other insurance company that is governed by the Agents' Regulations of the IRDA, sources added.
The Insurance Regulatory and Development Authority (IRDA) had in a written submission to the Standing Committee on Finance noted that the responsibility of issuing and renewal of Agents' licences is proposed to be assigned to the insurers, but with checks and balances. Also, the IRDA would regulate the licensing procedure by way of detailed regulations.

Andhra Bank, BoB and L & G insurance venture gets final nod

Life insurance joint venture of Bank of Baroda, Andhra Bank and the U.K.-based company Legal and General (L&G) — IndiaFirst Life Insurance — has received final approval from the Insurance Regulatory and Development Authority (IRDA) and will start operations in December. “We have received approval R3 (the final approval required for starting an insurance company) from the IRDA, and we will be in the market in December,” IndiaFirst Life Insurance Chief Executive Officer P. Nanadagopal told reporters here on Monday.
Four products
The latest entrant in the life insurance market, IndiaFirst had filed for four products, including three unit linked products, with the insurance regulator, he said.
“Once the product approval from IRDA is received, we will start the operations,” Mr. Nandagopal said.
23rd player
In the joint venture company, Bank of Baroda has a 44 per cent stake, Andhra Bank 30 per cent and Legal and General 26 per cent.
The 23rd player in the life insurance market, IndiaFirst, has a capital base of Rs. 200-crore and plans to enhance it to Rs 2,500-crore over ten years. “Our initial paid-up capital is Rs. 200-crore. All the three promoters would increase the base to Rs. 2,500-crore over the next 10 years,” Mr. Nanadgopal said.

Finmin wants PSBs to exit insurance

The finance ministry has circulated a proposal that aims to ask state-run banks to exit noncore businesses, notably insurance, to force greater capital efficiency and ensure that periodic capital infusion into them goes into increasing the spread of banking rather than propping up money-losing ventures. “The money provided through recapitalisation support is for core banking activities such as increased lending and branch expansion. Banks with interests in other areas may divert the funds, which is not desirable,” a senior finance ministry official told ET. The proposal, which is in the early stages of debate and discussion within the ministry, reasons that noncore businesses such as insurance are highly capital intensive and can take up to 10 years to be profitable. India’s life insurance industry posted a combined net loss of Rs 4,878.49 crore in 2008-09 , up 43% from a year ago. Of 22 life insurers, only four have reported profits, data from insurance regulator Irda shows.

Govt for level playing field in insurance sector

Union Finance Minister Pranab Mukherjee on Tuesday said in the Rajya Sabha that the UPA Government was providing a level playing field in the insurance sector and informed that private sector insurance companies had more than three times the outstanding number of death claims on individual insurance policies compared to state-owned Life Insurance Corporation (LIC).
Replying to a question by Brinda Karat (CPM) and subsequent supplementaries during Question Hour, Mr. Mukherjee said the outstanding number of death claims, as on March 31, 2009, as a percentage of total number of claims intimated to the companies in 2008-09, stood at 7.75 per cent for private firms. The same for LIC was 2.21 per cent, he added.
For group policies, private sector companies had 3.93 per cent outstanding claims while LIC had 0.24 per cent. Mr. Mukherjee said private sector insurance companies started operations eight years ago while LIC has been in the business since 1956. “There certainly is a difference (between outstanding claims with private and public sector firms). This difference will have to be looked into but forming a committee for this is not a solution,'' he said.
The Finance Minister said the government's role was limited to providing level playing field to private and public sector companies.
Minister of State for Finance Namo Narain Meena said there were 23 insurance companies operating in India, of which 22 were private. He said the claim pendency ratio of private firms was higher than LIC but it had come down due to intervention of the Insurance Regulatory and Development Authority.
The pendency ratio of private firms was 13.32 per cent in 2006, which came down to 10.88 per cent in 2007 and to 7.75 per cent in 2008-09.

Employees protest against amendment in LIC Act

On the call of Northern Zone Insurance Employees Association (NZIEA), employees working in LIC of India, on Saturday, registered their protest against the proposed amendments in insurance law and LIC Act, pending in the Parliament. The employees demanded that Insurance Laws (Amendment) Bill, 2008, was placed in Rajya Sabha on December 22, 2008, and LIC (Amendment) Bill, 2009, was placed in Lok Sabha on December 7, 2009.

They said, "The bills were referred to the standing committee on finance on September 9 and 14, 2009, respectively, and these proposed amendments are detrimental to the interest of policy-holders and national economy." Through Insurance Laws (Amendment) Bill, 2008, the government wants to hike FDI capital in insurance sector from the present limit of 26% to 49%, to amend General Insurance Business Nationalization Act (GIBNA) permitting four public sector general insurance companies to approach the capital market to raise the capital for their business activities. "By LIC (Amendment) Bill, 2009, the government wants to increase the capital of LIC from Rs 5 crore to Rs 100 crore and to dilute the pattern of sovereign guarantee," the employees said. Discussing their demands, Harbans Singh, president of NZIEA said, "The hike in foreign equity will increase the ability of private companies to manipulate and exploit the insurance market. Nearly 50% funds of private companies are invested in equities thus limited funds are available for infrastructural investments. Therefore the government should amend these decisions."