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.