Sunday, October 19, 2008
LIC PENSION FUND HOLDS 1ST AGM
The first annual general meeting of the board of LIC Pension Fund, which was held in Mumbai on Wednesday, reviewed the progress of the company including regulatory compliance, risk management, corporate governance, progress in business development and internal audit. T. S. Vijayan, chairman of the company, expressed confidence in the strength o0f LIC Pension Fund and visualized a bigger role in the pension market. H Sadhak, CEO, LIC Pension Fund informed that the company has been managing its entire operation fully independently from its own corporate office and complied with all regulatory requirement.
Source: The Financial Express
Source: The Financial Express
TRY WEATHER-BASED INSURANCE
New Delhi: The non-clearance of insurance claims can render any risk mitigation product worthless. It is worse when the victims are hapless farmers who, having lost their crops, are deprived of compensation despite having insurance cover under the government-supported National Agricultural Insurance Scheme (NAIS). Unpaid insurance claims are reckoned to have mounted to over Rs 920 crore, owing largely to the failure of state governments to put in their share of the money for running the scheme. This is not the only problem with NAIS, which was evolved after decades of experimentation with over half-a-dozen models of farm insurance products since the 1980s. As the findings of some studies, including the National Sample Survey, have revealed, a large proportion of farmers are either unaware of the available risk management scheme, or are not opting for it because it offers little by way of gain. Inappropriate procedures for assessing crop yield in order to determine the compensation that has to be paid, invariably leave the farmers dismayed. Several other irksome issues have also remained unaddressed, including those concerning the unit area for the operation of the scheme, benchmarks for assessing crop losses, the extent of risk coverage and the amount of premium to be charged.
The fundamental problem with all the agricultural insurance models that have been tried out and discarded till now, is the lack of economic viability despite the government’s financial support. In the case of NAIS, too, the premium-claims ratio is a hopeless 1:3.3. The scheme, therefore, requires heavy subsidisation by governments at the Centre and in the states, which becomes fiscally difficult to sustain. Surprisingly, though the government is in possession of the reports of the joint group that went into the changes required in the agricultural insurance scheme, as well as of the working group that vetted the joint group’s report, a modified NAIS based on the recommendations of these two bodies is yet to be unveiled. It does not help, of course, that many of the suggestions mooted by these panels are either impractical or ill-conceived.
For instance, they have suggested that the unit area for operating the scheme be reduced to the jurisdiction of a village panchayat, little realising that this administrative area may not be agriculturally homogeneous. Similarly, their recommendation to move to an actuarial regime for premium calculation may sound good on paper but is bound to pose operational problems for a national-level programme, as the actuarial premium would vary from state to state, and even from one region to another within a state. Moreover, the plea that any insurance scheme involving government subsidy should not cover high-risk crops is absurd as that defeats the very purpose of providing farm insurance.
Considering the very patchy record of trying to make agricultural insurance work, it may be a good idea to opt for weather-based crop insurance which, as stated in the 2007-08 Budget, appears to be a more promising method of risk mitigation. Some weather-related insurance products are being tried out on a pilot scale by public as well as private sector insurance companies in select states, with encouraging results. Though weather-based insurance, too, may not provide solutions for all the predicaments involved in managing hazard in an inherently risky agricultural business, it has been found to be more practical in almost all the countries where it has been put to the test. There is no reason to believe that India will be an exception.
The fundamental problem with all the agricultural insurance models that have been tried out and discarded till now, is the lack of economic viability despite the government’s financial support. In the case of NAIS, too, the premium-claims ratio is a hopeless 1:3.3. The scheme, therefore, requires heavy subsidisation by governments at the Centre and in the states, which becomes fiscally difficult to sustain. Surprisingly, though the government is in possession of the reports of the joint group that went into the changes required in the agricultural insurance scheme, as well as of the working group that vetted the joint group’s report, a modified NAIS based on the recommendations of these two bodies is yet to be unveiled. It does not help, of course, that many of the suggestions mooted by these panels are either impractical or ill-conceived.
For instance, they have suggested that the unit area for operating the scheme be reduced to the jurisdiction of a village panchayat, little realising that this administrative area may not be agriculturally homogeneous. Similarly, their recommendation to move to an actuarial regime for premium calculation may sound good on paper but is bound to pose operational problems for a national-level programme, as the actuarial premium would vary from state to state, and even from one region to another within a state. Moreover, the plea that any insurance scheme involving government subsidy should not cover high-risk crops is absurd as that defeats the very purpose of providing farm insurance.
Considering the very patchy record of trying to make agricultural insurance work, it may be a good idea to opt for weather-based crop insurance which, as stated in the 2007-08 Budget, appears to be a more promising method of risk mitigation. Some weather-related insurance products are being tried out on a pilot scale by public as well as private sector insurance companies in select states, with encouraging results. Though weather-based insurance, too, may not provide solutions for all the predicaments involved in managing hazard in an inherently risky agricultural business, it has been found to be more practical in almost all the countries where it has been put to the test. There is no reason to believe that India will be an exception.
Source: Business Standard (Editorial)
PREMIUM FOR CROP INSURANCE CAN BE PAID TILL OCTOBER
Perambalur: Farmers, who wish to avail the weather-based crop insurance scheme, can pay the premium for the scheme until October 31, Collector Anil Meshram has said.
Speaking at a consultative meeting on the implementation of the insurance scheme in the district here on Thursday, Mr. Meshram said the scheme was being implemented by the Agriculture Insurance Company of India with assistance from Central and State governments.
For farmers who have availed crop loans, the premium of Rs.225 an acre would be deducted and those who have not taken loans can pay the premium amount and avail an insurance cover of up to Rs.10,000. Further details can be had from the scheme coordinators over the telephone numbers: 9360247160, 9940326750, 9443780661, a release said.
Speaking at a consultative meeting on the implementation of the insurance scheme in the district here on Thursday, Mr. Meshram said the scheme was being implemented by the Agriculture Insurance Company of India with assistance from Central and State governments.
For farmers who have availed crop loans, the premium of Rs.225 an acre would be deducted and those who have not taken loans can pay the premium amount and avail an insurance cover of up to Rs.10,000. Further details can be had from the scheme coordinators over the telephone numbers: 9360247160, 9940326750, 9443780661, a release said.
Source: The Hindu
IFFCO-TOKIO ROPES IN PARESH RAWAL
Actor Paresh Rawal will now be seen on the small screen promoting IFFCO-TOKIO General insurance, for it’s recently launched advertising campaign. IFFCO-TOKIO General Insurance is a trusted player in general insurance and has rolled out its new Muskurate Raho ad campaign. The campaign is titled Albert Pinto kyon muskura raha hain and Paresh Rawal who will be seen ad Albert Pinto.
Source: The Financial Express
ANDHRA BANK LAUNCHES ‘BIMA UTSAV-2008’
Karimnagar: Andhra Bank launched the ‘AB Bima Utsav-II -2008’ coinciding with the festival season from October 15 to December 31, 2008 at all its branches. Speaking to newsmen here on Wednesday, Andhra Bank deputy general manager A. S. Prabhakar said that during this Utsav they would educate customers about various insurance-based policies such as Andhra Bank Jeevan Abhaya and Abhaya Gold, Andhra Bank Arogyadhan-health insurance scheme, loan liability insurance, housing loan, educational loan, vehicle loan etc.
Low-cost deposits
He said the Andhra Bank zone had mobilised 10,000 low-cost deposit accounts, 2,500 LIC policies with premium of Rs 1.25 crore and other products under Andhra Bank touch four campaign, which was completed last month. Giving details about the performance of the bank in the zone which comprises of Karimnagar, Adilabad and Nizamabad districts, he said that they had total business around Rs. 3,635 crore till September 30.
Advances
He said that they had provided Rs. 506 crore as advances to the agricultural sector and Rs. 122 crore to women self-help groups.
New branches
He also said that the bank had decided to open new braches at Armoor (Nizamabad), Bellampally crossroads (Mancherial), Vavilalapally and Bank Colony in Karimnagar town. Assistant general manager I. C.V. Subba Reddy and others were also present.
Low-cost deposits
He said the Andhra Bank zone had mobilised 10,000 low-cost deposit accounts, 2,500 LIC policies with premium of Rs 1.25 crore and other products under Andhra Bank touch four campaign, which was completed last month. Giving details about the performance of the bank in the zone which comprises of Karimnagar, Adilabad and Nizamabad districts, he said that they had total business around Rs. 3,635 crore till September 30.
Advances
He said that they had provided Rs. 506 crore as advances to the agricultural sector and Rs. 122 crore to women self-help groups.
New branches
He also said that the bank had decided to open new braches at Armoor (Nizamabad), Bellampally crossroads (Mancherial), Vavilalapally and Bank Colony in Karimnagar town. Assistant general manager I. C.V. Subba Reddy and others were also present.
Source: The Hindu
TSM TIES UP WITH AEGON RELIGARE LIFE
Chennai: T. S. Mahalingam & Sons (TSM), a reputed name in the used car business, has inked a distribution agreement with nascent AEGON Religare Life Insurance to hawk the latter’s products. The tie-up with TSM is expected to help AEGON Religare beef up its presence in southern India. Also, Religare will have access to over 2.50 lakh potential customers of TSM.
Addressing a press conference here on Thursday, Rajiv Jamkhedkar, CEO, AEGON Religare Life Insurance, said Religare had written 4,000 polices since its launch in August. “We want to build a sustainable business,” he said. The company had already brought in capital to the tune of Rs. 370 crore.
K. Mahalingam, Partner, TSM, said his organisation hoped to provide customised insurance products and bring about a difference in the way life insurance is sold.
Addressing a press conference here on Thursday, Rajiv Jamkhedkar, CEO, AEGON Religare Life Insurance, said Religare had written 4,000 polices since its launch in August. “We want to build a sustainable business,” he said. The company had already brought in capital to the tune of Rs. 370 crore.
K. Mahalingam, Partner, TSM, said his organisation hoped to provide customised insurance products and bring about a difference in the way life insurance is sold.
Source: The Hindu
MAX NEW YORK LIFE LAUNCHES MAX VIJAY SCHEME
Taking a cue from the mobile telecom sector, Max New York Life Insurance on Wednesday, launched Max Vijay, an innovative insurance scheme that has been made affordable, accessible and flexible for the common man.
Marking a paradigm shift in life insurance, the company has made the process of buying life insurance simple with its innovative distribution, marketing as well as service delivery. “Unlike other financial instruments, buying and selling Max Vijay is as simple as buying atta, dal and chawal. In fact, it is as simple as recharging a mobile sim card and can be done by paying a minimum of Rs 10 at the nearest kirana store,” said Anil Mehta, senior director and head, Vijay, Max New York Life Insurance.
Speaking to FE on the sidelines of the launch, Kenneth Sannoo, the company’s director & chief distribution officer said “Uttar Pradesh, the largest state of India, has people, who aspire to achieve more in life and Max Vijay thus offers them the opportunity to partake in the financial inclusion process. It offers life insurance cover to provide financial protection with an opportunity to create wealth by aggregating small savings.”
“Distribution is an integral and perhaps the most important element of this innovative savings plus protection solution. Thus taking Max Vijay to every nook and corner of the country is very important to us. Our strong network will introduce Max Vijay across the state in a few months, through which the customers will be able to avail multiple facilities such as initial purchase, subsequent premiums and partial withdrawals,” said Mehta.
To be available in three premium paying options: Rajat, Swarna, and Heera, the sum assured from the policy is guaranteed with choice to invest any amount, anytime, anywhere.
Marking a paradigm shift in life insurance, the company has made the process of buying life insurance simple with its innovative distribution, marketing as well as service delivery. “Unlike other financial instruments, buying and selling Max Vijay is as simple as buying atta, dal and chawal. In fact, it is as simple as recharging a mobile sim card and can be done by paying a minimum of Rs 10 at the nearest kirana store,” said Anil Mehta, senior director and head, Vijay, Max New York Life Insurance.
Speaking to FE on the sidelines of the launch, Kenneth Sannoo, the company’s director & chief distribution officer said “Uttar Pradesh, the largest state of India, has people, who aspire to achieve more in life and Max Vijay thus offers them the opportunity to partake in the financial inclusion process. It offers life insurance cover to provide financial protection with an opportunity to create wealth by aggregating small savings.”
“Distribution is an integral and perhaps the most important element of this innovative savings plus protection solution. Thus taking Max Vijay to every nook and corner of the country is very important to us. Our strong network will introduce Max Vijay across the state in a few months, through which the customers will be able to avail multiple facilities such as initial purchase, subsequent premiums and partial withdrawals,” said Mehta.
To be available in three premium paying options: Rajat, Swarna, and Heera, the sum assured from the policy is guaranteed with choice to invest any amount, anytime, anywhere.
Source: The Financial Express
BAJAJ FINSERV TO SEEK GOD FOR ASSET MANAGEMENT
Mumbai: Financial service company Bajaj FinServ Ltd is getting ready to enter the assets management business, its managing director said on Thursday. “We desire to get into the business,” Sanjiv Bajaj said on the sideline of an industry conference. He said on the sidelines of an industry conference. He said he was in talks with Germany’s Allianz. Bajaj already runs insurance joint venture with Allianz in India.
Source: Reuters, Mint
Source: Reuters, Mint
A CASE FOR HIGHER DEPOSIT INSURANCE
The world financial market is facing one of the worst crises since the Great Depression of the 1930s. The $700-billion bailout, which some analysts are calling “cash-for-trash”, has barely calmed the international financial market, which is still coming to the grips with the huge fallout of the sub-prime crisis.
Unlike the earlier Savings and Loan Association crisis of the 1980s and 1990s in the US, the present debacle is still playing out, not only in Europe but also in Asia, including developed countries such as Japan and emerging countries such as China and India. It was widely believed by experts the world over that deposit insurance would avert this kind of crisis but it has not. However, it has surely minimised the run on the banks that would have led to a repeat of the 1930s.
Deposit insurance was seen as a measure of protection for depositors, particularly small depositors, from the risk of loss of their savings, arising from bank failures. The purpose was to avoid panic and promote greater stability and growth of the banking system — what in today’s world is termed financial stability.
But in the midst of a crisis in the global banking system, the concern is rather more critical — for many, a matter of survival or otherwise. The common man’s real concern is whether the insurance actually works.
Deposit insurance is at different levels in different part of the world. In India, deposits were covered, in the first Act of 1962, only to the extent of Rs 1,500 — the maximum amount payable was revised upwards to Rs 5,000 from January 1, 1968; to Rs 10,000 from April 1, 1970; to Rs 20,000 from January 1, 1976; to Rs 30,000 from July 1, 1980 and now to Rs 1 lakh from May 1, 1993. Since then, it stands at Rs 1,00,000 ($2,500).
The Government charges a premium of 5 paise, later raised to 10 paise for Rs 100. This covers a customer’s deposit, plus interest per bank in all the branches of the bank, up to a maximum of Rs 1,00,000. If one has an account in more than one bank, he is entitled to cover for another Rs 1,00,000 with each of the banks.
How safe?
As the world is coming to terms with the latest financial crisis, the Indian stock market has lost more than Rs 1,60,000 crore in value. In India, the banking sector has been affected more than the others.
The question being asked by the ‘aam aadmi’ (common man) is: “Is my deposit safe with the banks?” Despite the assurance by the RBI and our Finance Minister, the answer is only relative ‘Yes’, and not an absolute ‘Yes’. Even though our deposits with the banks are reasonably secure it is only due to such assurances, not because of any legal obligation of the fund or the Government.
Deposit insurance, as we know it, was introduced in India in 1962. India was the second country in the world to introduce such a scheme — the first being the United States in 1933. After the setting up of the Reserve Bank of India, the issue came to the fore in 1938, when the Travancore National and Quilon Bank, the largest bank in the Travancore region, failed.
The banking crisis in Bengal between 1946 and 1948 revived the issue of deposit insurance. It was in 1960 that the failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalysed the introduction of deposit insurance in India. The Deposit Insurance Corporation commenced functioning on January 1, 1962. In 1968, the Deposit Insurance Corporation Act was amended to extend deposit insurance to ‘eligible co-operative banks’.
The 1960s and 1970s were a period of institution-building. 1971 witnessed the establishment of another institution, the Credit Guarantee Corporation of India Ltd (CGCI). In 1978, the DIC and the CGCI were merged. After the merger, the focus of the new entity, the DICGC (Deposit Insurance and Credit Guarantee Corporation), shifted to credit guarantees.
This owed in part to the fact that most large banks were nationalised. With the financial sector reforms initiated in the 1990s, credit guarantees have been gradually phased out and the focus of the Corporation is veering back to its core function of deposit insurance, with the objective of averting panics, reducing systemic risk, and ensuring financial stability.
International practice
The UK has just raised its deposit insurance cover from 30,000 to 50,000 pounds sterling. Ireland recently guaranteed deposits of its six largest lenders. Some countries provide unlimited coverage in response to a crisis. Malaysia, Thailand and Indonesia did so in response to the 2003 crisis. Some countries, such as Japan and Mexico, had unlimited coverage, which was revoked after the crisis seemed to have abated.
The US is actively debating raising the limit from $100,000 to $250,000. Even with the recent increase in the limit of the deposits in various countries, a lot of deposits fall outside the safety net. Britain’s new limit will still leave about two-fifths of the cash in deposits uninsured.
America’s proposed change would do no more than reduce the part of the deposit base that is unprotected from 38 per cent to 27 per cent. The idea of a quarter or more of a big bank’s deposit base being wiped out is politically unthinkable. Indeed, when Wachovia, America’s fourth-largest commercial bank by assets, was rescued this week, the FDIC created a structure that protected all deposits. It has done so with other banks, too.
It is time the RBI and the Centre took another look at deposit insurance in India. When the Government has increased the annual income level of the ‘creamy layer’ to Rs 4.5 lakh, it is imperative that the RBI increases the limit to at least Rs 500,000 as the minimum deposit amount to be covered by insurance in the current context.
Raise the limit
The Government has to review, like other countries, an increase the insurance limits to avoid the flight of money too. India should also consider introducing optional co-insurance that is available in a few countries that will offer depositors the option to purchase additional cover by collecting additional premium from the depositors over the statutory limit of the deposit’s tenure, so that the tax-payers alone are not saddled with paying for the banks’ and big depositors’ possible bailouts in the future.
It was also felt that an additional purpose of a deposit insurance scheme would be to increase the confidence of depositors in the banking system and facilitate the mobilisation of deposits to enable growth and development. The traditional criticism of such insurance, however, is that it may indirectly encourage banks to take more risk. Hence, it is imperative on the RBI to ensure that the banks do not speculate, like the financial institutions in the US did.
Even after collecting the premium on all deposits over the set limit, it may not, under all circumstances, be possible to cover all kinds of bankruptcy. Even in the US, FDIC’s available funds, including untapped credit lines from the Treasury, are equivalent to just 1.5 per cent of total deposits of commercial banks. Ultimately, if the public thinks that multiple failures of big banks are likely, only the government can offer a credible guarantee to infuse confidence in the banking system.
Source: The Hindu Business Line
Unlike the earlier Savings and Loan Association crisis of the 1980s and 1990s in the US, the present debacle is still playing out, not only in Europe but also in Asia, including developed countries such as Japan and emerging countries such as China and India. It was widely believed by experts the world over that deposit insurance would avert this kind of crisis but it has not. However, it has surely minimised the run on the banks that would have led to a repeat of the 1930s.
Deposit insurance was seen as a measure of protection for depositors, particularly small depositors, from the risk of loss of their savings, arising from bank failures. The purpose was to avoid panic and promote greater stability and growth of the banking system — what in today’s world is termed financial stability.
But in the midst of a crisis in the global banking system, the concern is rather more critical — for many, a matter of survival or otherwise. The common man’s real concern is whether the insurance actually works.
Deposit insurance is at different levels in different part of the world. In India, deposits were covered, in the first Act of 1962, only to the extent of Rs 1,500 — the maximum amount payable was revised upwards to Rs 5,000 from January 1, 1968; to Rs 10,000 from April 1, 1970; to Rs 20,000 from January 1, 1976; to Rs 30,000 from July 1, 1980 and now to Rs 1 lakh from May 1, 1993. Since then, it stands at Rs 1,00,000 ($2,500).
The Government charges a premium of 5 paise, later raised to 10 paise for Rs 100. This covers a customer’s deposit, plus interest per bank in all the branches of the bank, up to a maximum of Rs 1,00,000. If one has an account in more than one bank, he is entitled to cover for another Rs 1,00,000 with each of the banks.
How safe?
As the world is coming to terms with the latest financial crisis, the Indian stock market has lost more than Rs 1,60,000 crore in value. In India, the banking sector has been affected more than the others.
The question being asked by the ‘aam aadmi’ (common man) is: “Is my deposit safe with the banks?” Despite the assurance by the RBI and our Finance Minister, the answer is only relative ‘Yes’, and not an absolute ‘Yes’. Even though our deposits with the banks are reasonably secure it is only due to such assurances, not because of any legal obligation of the fund or the Government.
Deposit insurance, as we know it, was introduced in India in 1962. India was the second country in the world to introduce such a scheme — the first being the United States in 1933. After the setting up of the Reserve Bank of India, the issue came to the fore in 1938, when the Travancore National and Quilon Bank, the largest bank in the Travancore region, failed.
The banking crisis in Bengal between 1946 and 1948 revived the issue of deposit insurance. It was in 1960 that the failure of Laxmi Bank and the subsequent failure of the Palai Central Bank catalysed the introduction of deposit insurance in India. The Deposit Insurance Corporation commenced functioning on January 1, 1962. In 1968, the Deposit Insurance Corporation Act was amended to extend deposit insurance to ‘eligible co-operative banks’.
The 1960s and 1970s were a period of institution-building. 1971 witnessed the establishment of another institution, the Credit Guarantee Corporation of India Ltd (CGCI). In 1978, the DIC and the CGCI were merged. After the merger, the focus of the new entity, the DICGC (Deposit Insurance and Credit Guarantee Corporation), shifted to credit guarantees.
This owed in part to the fact that most large banks were nationalised. With the financial sector reforms initiated in the 1990s, credit guarantees have been gradually phased out and the focus of the Corporation is veering back to its core function of deposit insurance, with the objective of averting panics, reducing systemic risk, and ensuring financial stability.
International practice
The UK has just raised its deposit insurance cover from 30,000 to 50,000 pounds sterling. Ireland recently guaranteed deposits of its six largest lenders. Some countries provide unlimited coverage in response to a crisis. Malaysia, Thailand and Indonesia did so in response to the 2003 crisis. Some countries, such as Japan and Mexico, had unlimited coverage, which was revoked after the crisis seemed to have abated.
The US is actively debating raising the limit from $100,000 to $250,000. Even with the recent increase in the limit of the deposits in various countries, a lot of deposits fall outside the safety net. Britain’s new limit will still leave about two-fifths of the cash in deposits uninsured.
America’s proposed change would do no more than reduce the part of the deposit base that is unprotected from 38 per cent to 27 per cent. The idea of a quarter or more of a big bank’s deposit base being wiped out is politically unthinkable. Indeed, when Wachovia, America’s fourth-largest commercial bank by assets, was rescued this week, the FDIC created a structure that protected all deposits. It has done so with other banks, too.
It is time the RBI and the Centre took another look at deposit insurance in India. When the Government has increased the annual income level of the ‘creamy layer’ to Rs 4.5 lakh, it is imperative that the RBI increases the limit to at least Rs 500,000 as the minimum deposit amount to be covered by insurance in the current context.
Raise the limit
The Government has to review, like other countries, an increase the insurance limits to avoid the flight of money too. India should also consider introducing optional co-insurance that is available in a few countries that will offer depositors the option to purchase additional cover by collecting additional premium from the depositors over the statutory limit of the deposit’s tenure, so that the tax-payers alone are not saddled with paying for the banks’ and big depositors’ possible bailouts in the future.
It was also felt that an additional purpose of a deposit insurance scheme would be to increase the confidence of depositors in the banking system and facilitate the mobilisation of deposits to enable growth and development. The traditional criticism of such insurance, however, is that it may indirectly encourage banks to take more risk. Hence, it is imperative on the RBI to ensure that the banks do not speculate, like the financial institutions in the US did.
Even after collecting the premium on all deposits over the set limit, it may not, under all circumstances, be possible to cover all kinds of bankruptcy. Even in the US, FDIC’s available funds, including untapped credit lines from the Treasury, are equivalent to just 1.5 per cent of total deposits of commercial banks. Ultimately, if the public thinks that multiple failures of big banks are likely, only the government can offer a credible guarantee to infuse confidence in the banking system.
Source: The Hindu Business Line
OPTIMA ONLINE SERVICE TO INSURE TWO-WHEELERS
Coimbatore: Retail insurance site www.click2insure.in is in the process of introducing two-wheeler insurance cover online in the national capital region. The site, promoted by Optima Insurance Brokers, aims to resolve the inconvenience faced by two-wheeler owners on the policy renewal front.
The company has, in the pilot phase, rolled out the service at a grocery store — LM 365, Mayur Vihar, New Delhi. It plans to extend the service across the grocery store chain (comprising 75 stores in Delhi) in a phased manner. Explaining the need for introducing such a service, Mr Rahul Aggarwal, CEO, Optima Insurance Brokers and click2insure.in, said “agents’ commission tends to dip with the slip in the value of the policy. There is not enough money to motivate them to chase a renewal. Insurers too have a thin margin on two-wheeler insurance and so, do not send reminders. The site, therefore, would provide an opportunity for two-wheeler owners to get their vehicles insured conveniently.”
Preventing break in policy
He further pointed out that a break in insurance policy compounded the problem. “With the introduction of this service, a representative from click2insure will be present in LM 365 store to help the vehicle owners avail the cover by registering their policy on the spot,” Mr Aggarwal said, adding there was good response to the service.
The company has, in the pilot phase, rolled out the service at a grocery store — LM 365, Mayur Vihar, New Delhi. It plans to extend the service across the grocery store chain (comprising 75 stores in Delhi) in a phased manner. Explaining the need for introducing such a service, Mr Rahul Aggarwal, CEO, Optima Insurance Brokers and click2insure.in, said “agents’ commission tends to dip with the slip in the value of the policy. There is not enough money to motivate them to chase a renewal. Insurers too have a thin margin on two-wheeler insurance and so, do not send reminders. The site, therefore, would provide an opportunity for two-wheeler owners to get their vehicles insured conveniently.”
Preventing break in policy
He further pointed out that a break in insurance policy compounded the problem. “With the introduction of this service, a representative from click2insure will be present in LM 365 store to help the vehicle owners avail the cover by registering their policy on the spot,” Mr Aggarwal said, adding there was good response to the service.
Source: The Hindu Business Line
MATERNITY BENEFIT TO COME UNDER RASHTRIYA SWASTHYA BIMA YOJANA
New Delhi: The Union Cabinet on Thursday approved inclusion of maternity benefit under the Rashtriya Swasthya Bima Yojana (RSBY), subject to the condition that the premium is within the existing limit of Rs.750 per beneficiary. The modification would be applicable with immediate effect and this would encourage institutional delivery among those workers living below the poverty line.
The RSBY was launched on October 1 last year for the BPL population in the unorganised sector. The scheme is being implemented by the State governments through insurance companies by inviting bids from both public and private companies. Almost all States have agreed to implement the scheme during the current year with Haryana, Punjab, Delhi, Gujarat, Bihar, Jharkhand and Tamil Nadu already starting enrolment and issuing smart cards. As many as 12 States have initiated the process and the remaining are likely to start implementation soon.
Until September 23, more than 3.39 lakh smart cards had been distributed covering more than 16.97 lakh people. So far, 1,458 people have availed themselves of benefits under the scheme. The Cabinet Committee on Economic Affairs also gave its approval for continuation of the ongoing Integrated Child Development Services scheme during the XI Five-Year Plan period within the total allocation of Rs.44,400 crore. With this, the total number of anganwadi centres will also increase to 14 lakh.
Regarding the provision of serving hot cooked meals in all anganwadi centres, the government has decided to constitute a Group of Ministers which will give its recommendations after consultations with the State governments.
The RSBY was launched on October 1 last year for the BPL population in the unorganised sector. The scheme is being implemented by the State governments through insurance companies by inviting bids from both public and private companies. Almost all States have agreed to implement the scheme during the current year with Haryana, Punjab, Delhi, Gujarat, Bihar, Jharkhand and Tamil Nadu already starting enrolment and issuing smart cards. As many as 12 States have initiated the process and the remaining are likely to start implementation soon.
Until September 23, more than 3.39 lakh smart cards had been distributed covering more than 16.97 lakh people. So far, 1,458 people have availed themselves of benefits under the scheme. The Cabinet Committee on Economic Affairs also gave its approval for continuation of the ongoing Integrated Child Development Services scheme during the XI Five-Year Plan period within the total allocation of Rs.44,400 crore. With this, the total number of anganwadi centres will also increase to 14 lakh.
Regarding the provision of serving hot cooked meals in all anganwadi centres, the government has decided to constitute a Group of Ministers which will give its recommendations after consultations with the State governments.
Source: The Hindu
CABINET DEFERS DECISION ON FDI CAP IN INSURANCE
New Delhi: The Union Cabinet deferred a decision on the much-awaited insurance law amendment Bill that aims to raise the foreign direct investment (FDI) cap for insurance companies from 26 per cent to 49 per cent. No decision was taken as Finance Minister P Chidambaram was not present at the meeting.
The Insurance Laws (Amendment) Bill is expected to be tabled in the coming Parliament session, which begins on Friday. The Bill also seeks to allow promoters to hold majority stakes in insurance companies and permit public sector general insurance companies to raise capital from the market to finance their expansion.
The reforms, planned by the government long back, were put on the back-burner due to the opposition by the Left parties, which were giving outside support to the UPA government. The Bill is likely to be taken up by the Cabinet soon.
Briefing the media, Sibal said the Cabinet Committee of Economic Affairs (CCEA) approved the creation of institutional infrastructure for hospitality and tourism education. The approval would entail strengthening of existing hotel management and food craft institutes and result in creation of 19 new hotel management centres and 25 food craft institutes during the 11th Plan period (2007-12).
The CCEA also approved an incentive bonus of Rs 50 per quintal on paddy, over and above the minimum support price (MSP), for the entire kharif marketing season. The decision will effectively increase the support price of paddy procured for the central pool to Rs 900 per quintal, and partially address the concerns of farmers’ organisations, which were demanding a hike in the MSP.
The Insurance Laws (Amendment) Bill is expected to be tabled in the coming Parliament session, which begins on Friday. The Bill also seeks to allow promoters to hold majority stakes in insurance companies and permit public sector general insurance companies to raise capital from the market to finance their expansion.
The reforms, planned by the government long back, were put on the back-burner due to the opposition by the Left parties, which were giving outside support to the UPA government. The Bill is likely to be taken up by the Cabinet soon.
Briefing the media, Sibal said the Cabinet Committee of Economic Affairs (CCEA) approved the creation of institutional infrastructure for hospitality and tourism education. The approval would entail strengthening of existing hotel management and food craft institutes and result in creation of 19 new hotel management centres and 25 food craft institutes during the 11th Plan period (2007-12).
The CCEA also approved an incentive bonus of Rs 50 per quintal on paddy, over and above the minimum support price (MSP), for the entire kharif marketing season. The decision will effectively increase the support price of paddy procured for the central pool to Rs 900 per quintal, and partially address the concerns of farmers’ organisations, which were demanding a hike in the MSP.
Source: Asian Age, Business Standard
Friday, August 29, 2008
Life cover for 40% less
Life protection has become far more affordable. The cost of life insurance has come down by up to 40%, with Insurance Regulatory and Development Authority (IRDA) reducing the capital that insurance companies need to sell term policies. For the second time since the liberalisation of the insurance industry in 2000, there has been a dramatic reduction in term-insurance rates, making life protection a great deal cheaper. Term policies are purely life covers as against endowment policies, which have a sizeable savings component. While the premium for endowment policies will also soften, the benefit will be more apparent on term covers. Among private life insurance companies, Kotak Life has announced new rates, while newcomer Aegon Religare has announced term rates, which, the company says, are the lowest in the industry. Largest private life insurance company ICICI Prudential Life Insurance is in the process of lodging new rates. The chief of Life Insurance Corporation of India (LIC), the largest insurer in the country, said the Corporation may review its term rates.
Life Insurance managing director Gaurang Shah said: “Two developments have led us to reduce our rates. First, we had the opportunity to review our own claims experience, since we introduced preferred term for non-smokers six years ago. Also, the revised solvency margin requirement introduced by IRDA in March has brought down capital requirement by almost two-thirds, which has helped bring down rates.” Aegon Religare Life Insurance, which launched operations earlier this month, has decided to use competitive pricing on term rates as an edge. “We had decided to introduce a product with the lowest rate, which is also supported by our campaign. Given our pricing, it is possible for a 30-year old to get a Rs 10-lakh cover at only Rs 166 a month,” said Aegon Religare Life Insurance CEO Rajiv Jamkhedkar. When contacted, LIC chairman TS Vijayan said LIC was constantly reviewing its term rates to retain its competitive advantage and any improvement in mortality was always passed on in the form of lower term rates. In a statement issued here, Kotak Mahindra Old Mutual Life Insurance said the new rates were almost 40% lower than the old rates. “The rate reduction is partly as a result of the reduced solvency margin requirements laid down by IRDA. A key player in both the group term life and individual term life businesses, Kotak Life Insurance is among the first life insurance companies to pass on this benefit to the consumer,” the statement said. However, agents of insurance companies said it is not always possible to get the standard rates. It is very rare for a person to get standard rates above the age of 40 with a few private companies, since these companies have a very narrow range for various parameters defining good health. These parameters include weight, blood pressure and abdominal girth, among other things.
DELAY IN OPENING PF OFFICE HITS PENSIONERS
Nagercoil: A sub-regional office of the Employees’ Provident Funds Organisation is a long-cherished dream of the provident fund pension account holders of Kanyakumari district. According to sources, after much protracted correspondences by various trade unions, political parties, different members of Parliament and a follow up struggle by the present member of Lok Sabha, A.V. Bellarmine, the EPF organisation accepted the demands of the working class and a year ago on August 28, 2007, when the people of the district were celebrating Onam, a grand function was organised by the EPF organisation at Raja Towers near Ozhuganaserri here to inaugurate a service centre of EPF organisation as a first step towards opening of a sub-regional office.
A host of officers from EPF organisations also attended the programme. The member of the Central Board of EPF trustees, who advocated the sub-regional office at Kanyakumari on behalf of the working mass, was also present on the occasion. The Minister of State for Labour, Oscar Fernandez, who inaugurated the service centre said the centre would be upgraded to a sub-regional office within the short span of the time. The Central Commissioner of EPF in his address announced that the service centre, which started functioning would have the facility of claim processing and within a period of two months, it would have the facility to issue cheques and within a period of one year the office would be converted into a full-fledged sub-regional office. A year later, nothing happened. No facility was provided in the already existing district office except to know status of the claim applications.
A host of officers from EPF organisations also attended the programme. The member of the Central Board of EPF trustees, who advocated the sub-regional office at Kanyakumari on behalf of the working mass, was also present on the occasion. The Minister of State for Labour, Oscar Fernandez, who inaugurated the service centre said the centre would be upgraded to a sub-regional office within the short span of the time. The Central Commissioner of EPF in his address announced that the service centre, which started functioning would have the facility of claim processing and within a period of two months, it would have the facility to issue cheques and within a period of one year the office would be converted into a full-fledged sub-regional office. A year later, nothing happened. No facility was provided in the already existing district office except to know status of the claim applications.
Source: The Hindu
EXEMPT FUNDS PLAY SAFE, SETTLE FOR LOWER RETURNS
New Delhi: Here’s an interesting revelation about exempt pension funds: it may not just be the negative attitude of the EPFO board against investment in the capital markets that held them back thus far from such investments. Investment in private sector bonds was permitted for exempt fund, for instance, as far back as 1998-99.
However, they had to carry an investment rating from at least two credit rating agencies. Despite the freedom to invest in bonds of the private sector, exempt funds did not choose to do so and government guaranteed bonds were considered safer. After the closing of the SDS, investments shifted towards securities of state governments and government enterprises.
A majority of exempt fund investment is still held in PSU bonds and central government securities. Exempt and excluded pension funds together account for Rs 110,000 crore; of this, pension sector observers peg exempt funds at Rs 70,000 crore.
Exempt funds have a smaller corpus but are more in number. Excluded funds, on the other hand, may be fewer but are much bigger in size. Company-run excluded funds, which are not EPFO regulated, but are set up with the approval from the resident income tax commissioner, look after all investments and the fund management themselves; also, they are not required to follow the government-mandated investment pattern. These funds have so far been able to pay out reasonable returns to their employees.
In 2006, however, the Finance Bill proposed that unless excluded funds were recognized by the EPFO, they would not be recognized by the IT department. In short, for claiming tax exemptions or benefits, excluded funds would have to be recognized by the EPFO. But the moment they apply for recognition, they become EPFO-governed funds and lose their excluded status. Thus, swelling the EPFO numbers and increasing its deficit.
The investment preferences of exempt funds against the riskier private sector are obvious in the trends of the 1994 and 2003 period. Investment of exempt funds in Central government securities grew from only 11% of the gross investment to as high as 25% in 2003. There was an exponential jump in percentage of investment in this category in 2000, when it went up to 22.5% compared to only 17.8% in the previous year.
Annual reports of the EPFO disclose that investment in state government securities in the same period went up from only 3.5% in 94 to 25.17% in 2001 and then dropped to 21.11% in 2003. The closing down of the Special Deposit Scheme (in which Rs 53,570 crores of EPF funds are deposited) and falling yields of central government securities created problems for these funds, both in the private and public sector,with regard to meeting the declared payout rate to employees as they did for organizations governed by the EPFO.
The percentatge of investments in this category dipped from 85% in 94 to 17.21% in 2003. In tandem, the investment in the PSU bonds went up from 16.99% in 97 to a high 36.79% in 2003.
Consequently, the number of organisations that failed to credit the declared interest rate went up over the period although, overall, those who paid out less than the statutory rate fell. By and large, studies show, exempt funds too managed to credit the declared rate of interest to employees only by dipping into past surpluses. Some India Pension Research Founda tion studies also indicated that some exempt funds invested in junk bonds or those with lower credit ratings to pay out high rates, impacting on their viability Being exempt from the EPFO alone, clearly, has not guaran teed better returns on invest ments. Overall, exempt funds account for 0.8% of the total es tablishments and around 35% plus of the EPF funds. Close to 40% of exempt funds, about 2,600 (2,589 up to March 2007 countrywide out of a total of 471,678 establishments, are concentrated in Maharashtra Karnataka and West Bengal Tax benefits on withdrawal of money from exempt funds are the same as in the case of those under the EPF Act. But the real benefits, in the case of in-house managed funds, are that these are processed much quicker Exempt funds must go through a strict procedure to earn that exemption.
However, they had to carry an investment rating from at least two credit rating agencies. Despite the freedom to invest in bonds of the private sector, exempt funds did not choose to do so and government guaranteed bonds were considered safer. After the closing of the SDS, investments shifted towards securities of state governments and government enterprises.
A majority of exempt fund investment is still held in PSU bonds and central government securities. Exempt and excluded pension funds together account for Rs 110,000 crore; of this, pension sector observers peg exempt funds at Rs 70,000 crore.
Exempt funds have a smaller corpus but are more in number. Excluded funds, on the other hand, may be fewer but are much bigger in size. Company-run excluded funds, which are not EPFO regulated, but are set up with the approval from the resident income tax commissioner, look after all investments and the fund management themselves; also, they are not required to follow the government-mandated investment pattern. These funds have so far been able to pay out reasonable returns to their employees.
In 2006, however, the Finance Bill proposed that unless excluded funds were recognized by the EPFO, they would not be recognized by the IT department. In short, for claiming tax exemptions or benefits, excluded funds would have to be recognized by the EPFO. But the moment they apply for recognition, they become EPFO-governed funds and lose their excluded status. Thus, swelling the EPFO numbers and increasing its deficit.
The investment preferences of exempt funds against the riskier private sector are obvious in the trends of the 1994 and 2003 period. Investment of exempt funds in Central government securities grew from only 11% of the gross investment to as high as 25% in 2003. There was an exponential jump in percentage of investment in this category in 2000, when it went up to 22.5% compared to only 17.8% in the previous year.
Annual reports of the EPFO disclose that investment in state government securities in the same period went up from only 3.5% in 94 to 25.17% in 2001 and then dropped to 21.11% in 2003. The closing down of the Special Deposit Scheme (in which Rs 53,570 crores of EPF funds are deposited) and falling yields of central government securities created problems for these funds, both in the private and public sector,with regard to meeting the declared payout rate to employees as they did for organizations governed by the EPFO.
The percentatge of investments in this category dipped from 85% in 94 to 17.21% in 2003. In tandem, the investment in the PSU bonds went up from 16.99% in 97 to a high 36.79% in 2003.
Consequently, the number of organisations that failed to credit the declared interest rate went up over the period although, overall, those who paid out less than the statutory rate fell. By and large, studies show, exempt funds too managed to credit the declared rate of interest to employees only by dipping into past surpluses. Some India Pension Research Founda tion studies also indicated that some exempt funds invested in junk bonds or those with lower credit ratings to pay out high rates, impacting on their viability Being exempt from the EPFO alone, clearly, has not guaran teed better returns on invest ments. Overall, exempt funds account for 0.8% of the total es tablishments and around 35% plus of the EPF funds. Close to 40% of exempt funds, about 2,600 (2,589 up to March 2007 countrywide out of a total of 471,678 establishments, are concentrated in Maharashtra Karnataka and West Bengal Tax benefits on withdrawal of money from exempt funds are the same as in the case of those under the EPF Act. But the real benefits, in the case of in-house managed funds, are that these are processed much quicker Exempt funds must go through a strict procedure to earn that exemption.
Source: The Economic Times
NOW, BUY GENERAL INSURANCE COVER AT KIRANA SHOPS
Chennai: A small photo studio in T Nagar, Chennai, sold more than 50 general insurance policies in the last months alone. All that a person had to furnish was his name, address and the nominee’s name. The policy document will be issued in 15 minutes, shop owner M Raju Mani said.
With the general insurance penetration at a dismal 0.60 per cent (measured as a percentage of GDP), many companies feel that selling the policies through photo studios, grocery stores and even telephone booths would help improve the figure.
“We need to think outside the box and need alternative channels. If telecom companies are able to use grocery stores, petty shops and other small outlets, why not insurance companies?” said an Irda official.
The Committee on Distribution Channels, headed by LIC ex-chairman N M Govardhan, in its report recommended that one of the biggest challenges for the general insurance companies was getting agents to sell their products. The report noted that people are not interested in becoming general insurance agents as the commission is quite low.
In 2005-06, around 40,551 agents were licensed by the general insurance companies compared to 7,21,696 agents employed by the life insurance companies. The committee was constituted by the Insurance Regulatory and Development Authority (Irda).
Private insurers have already gone ahead and started exploring such channels. Bajaj Allianz General Insurance Company has introduced point-of-sale concept on a pilot basis to sell its products.
The point-of-sale concept started in Delhi, where the company’s agent will go to the customers’ homes along with a handy gadget like a blackberry to issue policies on the spot, said Swaraj Krishnan, chief executive officer, Bajaj Allianz General Insurance Company.
The company is also talking to some medical pharmacy chains to sell its health and home insurance products. For motor insurance, the company is in talks with oil companies to sell its products through their retail outlets across the country, he added.
The gadget costs about Rs 50,000. The company wants to supply the gadgets to all its branches, but there is shortage of these machines since there are only two Korean suppliers.
Similarly, ICICI Lombard General Insurance sells its health and motor policies through photo studios and malls. The photo studio in Chennai is selling both the policies.
With the general insurance penetration at a dismal 0.60 per cent (measured as a percentage of GDP), many companies feel that selling the policies through photo studios, grocery stores and even telephone booths would help improve the figure.
“We need to think outside the box and need alternative channels. If telecom companies are able to use grocery stores, petty shops and other small outlets, why not insurance companies?” said an Irda official.
The Committee on Distribution Channels, headed by LIC ex-chairman N M Govardhan, in its report recommended that one of the biggest challenges for the general insurance companies was getting agents to sell their products. The report noted that people are not interested in becoming general insurance agents as the commission is quite low.
In 2005-06, around 40,551 agents were licensed by the general insurance companies compared to 7,21,696 agents employed by the life insurance companies. The committee was constituted by the Insurance Regulatory and Development Authority (Irda).
Private insurers have already gone ahead and started exploring such channels. Bajaj Allianz General Insurance Company has introduced point-of-sale concept on a pilot basis to sell its products.
The point-of-sale concept started in Delhi, where the company’s agent will go to the customers’ homes along with a handy gadget like a blackberry to issue policies on the spot, said Swaraj Krishnan, chief executive officer, Bajaj Allianz General Insurance Company.
The company is also talking to some medical pharmacy chains to sell its health and home insurance products. For motor insurance, the company is in talks with oil companies to sell its products through their retail outlets across the country, he added.
The gadget costs about Rs 50,000. The company wants to supply the gadgets to all its branches, but there is shortage of these machines since there are only two Korean suppliers.
Similarly, ICICI Lombard General Insurance sells its health and motor policies through photo studios and malls. The photo studio in Chennai is selling both the policies.
Source: The Hindu Business Line
IFFCO-TOKIO PLANS TRAVEL INSURANCE PRODUCT
Kolkata: Iffco-Tokio General Insurance (ITGI), was planning to come up with the first of kind product in travel insurance for the domestic market and could move to seek the Insurance Regulatory & Dvelopment Authority(IRDA) in about three month's time.
ITGI, a joint venture between The Indian Farmers Fertiliser Cooperative (IFFCO) and its associates and Tokio Marine and Nichido Fire Group, already had a travel insurance product for the international traveller called the ITGI Travel Protector Policy.
The travel business accounted for around 2 per cent of ITGI's net premium collection, said Prantik Mitra, business head, ITGI. Its net premium revenue for 2007-08 was Rs1254 crore. The new product would also have a built-in health cover component during travel like the old one.
ITGI sold its current travel insurance product mainly through corporate tie-ups and recently tied up with Kaizen Leisure & Holidays Ltd (KLHL), an associate company of the Peerless Group, to sell its products.
It already had a tie-up with the Peerless Group to sell its health, motor, shop and home insurance policies and did business worth Rs2.5 crore last fiscal through the tie-up. "We would make it mandatory for all travellers to take a travel insurance", said Jayanta Roy, director, corporate planning and strategy, KLHL.
He could not share the details of the total number of tourists KLHL had handled last year.
The company enjoyed a 34 per cent market share in the East where the travel & tourism market was pegged at Rs460 crore.
KLHL announced three more tie-ups with Make My Trip travel portal, Budget Rent a Car Systems and Emergency Rescue Card (ERC). Through the strategic tie-up with ERC, KLHL would offer the service of transferring the customer to a better medical facility in case of an emergency during travel.
KLHL registered a turnover of Rs9 crore last fiscal and was eying a revenue of Rs15 crore this year with all the four tie-ups in place.
ITGI, a joint venture between The Indian Farmers Fertiliser Cooperative (IFFCO) and its associates and Tokio Marine and Nichido Fire Group, already had a travel insurance product for the international traveller called the ITGI Travel Protector Policy.
The travel business accounted for around 2 per cent of ITGI's net premium collection, said Prantik Mitra, business head, ITGI. Its net premium revenue for 2007-08 was Rs1254 crore. The new product would also have a built-in health cover component during travel like the old one.
ITGI sold its current travel insurance product mainly through corporate tie-ups and recently tied up with Kaizen Leisure & Holidays Ltd (KLHL), an associate company of the Peerless Group, to sell its products.
It already had a tie-up with the Peerless Group to sell its health, motor, shop and home insurance policies and did business worth Rs2.5 crore last fiscal through the tie-up. "We would make it mandatory for all travellers to take a travel insurance", said Jayanta Roy, director, corporate planning and strategy, KLHL.
He could not share the details of the total number of tourists KLHL had handled last year.
The company enjoyed a 34 per cent market share in the East where the travel & tourism market was pegged at Rs460 crore.
KLHL announced three more tie-ups with Make My Trip travel portal, Budget Rent a Car Systems and Emergency Rescue Card (ERC). Through the strategic tie-up with ERC, KLHL would offer the service of transferring the customer to a better medical facility in case of an emergency during travel.
KLHL registered a turnover of Rs9 crore last fiscal and was eying a revenue of Rs15 crore this year with all the four tie-ups in place.
Source: Business Standard, The Financial Express
MAX NY LIFE UNVEILS NEW BRAND POSITIONING
New Delhi: Max New York Life Insurance Co Ltd plans to expand aggressively in the South this fiscal, a top company official has said. “We already have well dispersed presence in North and Western India. Bulk of the expansion will happen in South this year. By the end of the year, we will be in 75 towns with 125 offices”, Mr Debhasis Sarkar, Senior Director & Chief Marketing Officer, MNYLI, told Business Line, after unveiling the company’s new consumer-oriented brand positioning here.
MNYLI currently has 366 offices in 223 cities and aims to expand presence to 1,000 cities with about 1,600 offices by 2012. The company has coined a new tagline “Karo Zyaada ka Iraada” to represent an ambitious and assertive India that is ready to compete for more, demand more, dream more and live more to create a better and brighter tomorrow.
Studies conducted by Mckinsey Global Institute and demographic research by Max New York Life Insurance point to the modern Indian consumer as predominantly young and more confident than ever before, willing to take risks and unabashedly ambitious. This radical change in the thought process of the consumer has inspired MNYLI to revamp the brand and change the tagline from “Your Partner for Life” to “Karo Zyaada Ka Iraada”, Mr Sarkar said.
MNYLI currently has 366 offices in 223 cities and aims to expand presence to 1,000 cities with about 1,600 offices by 2012. The company has coined a new tagline “Karo Zyaada ka Iraada” to represent an ambitious and assertive India that is ready to compete for more, demand more, dream more and live more to create a better and brighter tomorrow.
Studies conducted by Mckinsey Global Institute and demographic research by Max New York Life Insurance point to the modern Indian consumer as predominantly young and more confident than ever before, willing to take risks and unabashedly ambitious. This radical change in the thought process of the consumer has inspired MNYLI to revamp the brand and change the tagline from “Your Partner for Life” to “Karo Zyaada Ka Iraada”, Mr Sarkar said.
Source: The Hindu Business Line, The Hindu, Business Standard
SBI LIFE RANKED THIRD GLOBALLY AT MDRT
Mumbai: SBI Life on Tuesday said it has been ranked third globally in terms of number of Million Dollar Round Table (MDRT) members. The MDRT membership is an exclusive honour that is achieved by less than one per cent of the world's life insurance and financial services advisors, a press release issued here said. "Our global ranking is a testimony to the capabilities and potential of the Indian life insurance industry. Strong brand equity coupled with a highly productive sales force will enable us to scale greater heights in the future," SBI Life's Managing Director and CEO, U S Roy, said. Of the 40,000 SBI Life insurance advisors, 1,662 have qualified for the prestigious MDRT membership. Among these, 124 qualified for Court of Table (COTs) and 20 for Top of Table (TOTs).
Source: PTI, The Economic Times, Daily News & Analysis
WHENEVER A MARKET CRASH ATTENTION SHIFTS TO LIC
One notion about Life Insurance Corporation of India persisting in the public mind is that of a government hotline. It is widely believed that every time the stock market sees a historic crash, the phone rings at the investment department with instructions to support the market. Indeed, in various Black Mondays witnessed by the equity markets, when the Sensex crashed several hundred points, LIC was the only buyer. What irks Sushoban Sarker, CEO of LIC MF Asset Management, is that LIC is not being given enough credit for diligently following the age-old strategy of buying cheap and selling dear. “If you get an opportunity to buy an asset for Rs 750 which was until now selling for over Rs 1,000 what would you do?” asks Mr Sarker in an attempt to explain LIC’s strategy. He points out that legendary investors like Benjamin Graham and Warren Buffett have made their mark by buying value stocks during economic downtrends. While in a market crash attention immediately shifts to LIC, what has gone almost unnoticed is that the corporation made a killing selling bluechips when the Sensex crossed 20,000. Besides this simple home truth, LIC’s other investment philosophy has been to ensure that there are always some self-defined ground rules, even when there is freedom from regulation. Completely unrestricted fund management is the hallmark of hedge funds which have been in the news for losing investors’ money.
Mr Sarker brings these values into his new job at LIC Mutual Fund where he took charge in April. Mr Sarker, a direct recruit at LIC of the 1977 batch, has close to a decade’s experience in investment. Immediately before taking charge, he was executive director in charge of investment department at LIC. He has overseen LIC’s investment in diverse financial instruments including equities, government securities and corporate bonds. After graduating with honours in physics, Mr Sarker went on to acquire a post-graduate degree in financial management from Jamnalal Bajaj Institute of Management Studies, University of Mumbai. He has been on various committees, including those constituted by the government, RBI and the Insurance Regulatory and Development Authority. Though the Rs 18,000 crore-odd assets under management of LIC MF are significant, compared to LIC’s assets of close to Rs 8,00,000 crore they may appear small. But there is a lot of excitement in the fund business. On the cards is a proposed joint venture with Japan’s Nomura. The fund ranks No.11. Mr Sarker aims to improve the rankings and bring LIC MF to the 5th or 6th position. The mutual fund has so far done well in liquid and debt schemes. He wants to diversify a bit more into equity. Although in recent months life insurers and mutual funds have been fighting a bitter turf war, Mr Sarker, who has made the transition from insurance to asset management, feels there is no inherent conflict. On the contrary, he feels there is scope for LIC MF to work closer with its parent and use the distribution network to offer fund products to high net worth customers.
Mr Sarker brings these values into his new job at LIC Mutual Fund where he took charge in April. Mr Sarker, a direct recruit at LIC of the 1977 batch, has close to a decade’s experience in investment. Immediately before taking charge, he was executive director in charge of investment department at LIC. He has overseen LIC’s investment in diverse financial instruments including equities, government securities and corporate bonds. After graduating with honours in physics, Mr Sarker went on to acquire a post-graduate degree in financial management from Jamnalal Bajaj Institute of Management Studies, University of Mumbai. He has been on various committees, including those constituted by the government, RBI and the Insurance Regulatory and Development Authority. Though the Rs 18,000 crore-odd assets under management of LIC MF are significant, compared to LIC’s assets of close to Rs 8,00,000 crore they may appear small. But there is a lot of excitement in the fund business. On the cards is a proposed joint venture with Japan’s Nomura. The fund ranks No.11. Mr Sarker aims to improve the rankings and bring LIC MF to the 5th or 6th position. The mutual fund has so far done well in liquid and debt schemes. He wants to diversify a bit more into equity. Although in recent months life insurers and mutual funds have been fighting a bitter turf war, Mr Sarker, who has made the transition from insurance to asset management, feels there is no inherent conflict. On the contrary, he feels there is scope for LIC MF to work closer with its parent and use the distribution network to offer fund products to high net worth customers.
Source: Economic Times
HYBRID CAPITAL BENEFIT LIKELY FOR INSURERS
New Delhi: Insurance companies may soon be allowed to raise capital through several means which are normally used by commercial banks. The government is considering an amendment in the insurance law for allowing insurers to have hybrid capital. This would help the insurers meet their expansion plans while fulfilling solvency norms. The new norms would be applicable for both public and private insurers. “We are planning to allow insurance companies to raise resources through hybrid capital so as to help them meet their capital requirements,” a senior finance ministry official said, adding there was huge capital requirement for expansion of the life insurance business and the government needed to facilitate the expansion plans of the companies. Almost all the life and non-life insurers are in the need of additional capital for meeting their requirements. In fact, insurance companies were demanding that the government and the regulator should either ease the solvency norms or allow them to raise resources through multiple sources. Presently, Insurance Regulatory and Development Authority (Irda) norms require an insurance company to keep solvency margin at 150%. Insurers wanted it to be brought down to 100%. Funds injected by promoters for adhering to the solvency norms go into the insurer’s shareholders funds. Solvency of an insurance company corresponds to its ability to pay claims. An insurer is considered insolvent if its assets are not adequate (over indebtedness) or cannot be disposed of in time (illiquidity) to pay the claims. A 100% margin means that insurers are adequately placed to pay claims. The capital requirement of non-life insurers has also gone up substantially in the recent past. They need additional capital with de-tariffing of the fire, marine and engineering insurance products, which hitherto proved to be quite profitable.
Source: The Economic Times
INSURANCE PREMIUM FROM NEW POLICIES TAKES A 23% KNOCK
New Delhi: The Insurance sector in India has seen a significant slowdown in growth in the first quarter of the current fiscal. Premium from new policies has fallen 23%, according to the latest Insurance Regulatory and Development Authority (IRDA) report.
The figures show that the industry witnessed 15% growth between April and June this financial year as against 38% in the corresponding period last year. The total Annual Premium Equivalent (APE), which depicts new premium coming in every year, stood at Rs 9,611 crore during the first three months of FY- 09. LIC has witnessed a decline of 27% in its APE from Rs 4,927 crore in April-June last year to Rs 3,575 crore this year.
The slowdown in the economy and high inflation have forced banks to make lendings dearer, which inturn have dampened investments in the insurance sector. Insurance is not a top priority when it comes to consumer spends or investments. With less disposable income, insurance sales would be tougher. “With the uncertainty in the economy, people are spending less on insurance products which are considered major tax saving tools,” said a source. “Although the industry hasn’t faced any negative growth so far, there certainly has been a deceleration of growth in the industry,” said ICICI Prudential managing director Shikha Sharma.
According to sources, it is not just the sale of life and general insurance products which has been impacted by the volatility in the stock market. The demand for Unit Linked Plans (ULIP) also witnessed a drop in demand. The industry has seen a marginal shift away from ULIP to traditional products. “It is just a temporary phase. ULIPs will continue to be the preferred alternative for investors who are not interested in the shortterm market fluctuation,” said Ms Sharma.
Last year, the insurance sector witnessed about a 100% growth. This is even as the insurance perpetration in India is still at a low level at 4.1% of the GDP as compared to 8-10% of the GDP in some of the developed economies and the Asian markets. So far, 24% of the Indian households own life insurance policies and the average sum assured per household is just Rs 1,14,450 among the owner households.
The figures show that the industry witnessed 15% growth between April and June this financial year as against 38% in the corresponding period last year. The total Annual Premium Equivalent (APE), which depicts new premium coming in every year, stood at Rs 9,611 crore during the first three months of FY- 09. LIC has witnessed a decline of 27% in its APE from Rs 4,927 crore in April-June last year to Rs 3,575 crore this year.
The slowdown in the economy and high inflation have forced banks to make lendings dearer, which inturn have dampened investments in the insurance sector. Insurance is not a top priority when it comes to consumer spends or investments. With less disposable income, insurance sales would be tougher. “With the uncertainty in the economy, people are spending less on insurance products which are considered major tax saving tools,” said a source. “Although the industry hasn’t faced any negative growth so far, there certainly has been a deceleration of growth in the industry,” said ICICI Prudential managing director Shikha Sharma.
According to sources, it is not just the sale of life and general insurance products which has been impacted by the volatility in the stock market. The demand for Unit Linked Plans (ULIP) also witnessed a drop in demand. The industry has seen a marginal shift away from ULIP to traditional products. “It is just a temporary phase. ULIPs will continue to be the preferred alternative for investors who are not interested in the shortterm market fluctuation,” said Ms Sharma.
Last year, the insurance sector witnessed about a 100% growth. This is even as the insurance perpetration in India is still at a low level at 4.1% of the GDP as compared to 8-10% of the GDP in some of the developed economies and the Asian markets. So far, 24% of the Indian households own life insurance policies and the average sum assured per household is just Rs 1,14,450 among the owner households.
Source: The Economic Times
IRDA REVISES INVESTMENT NORMS FOR INSURERS
Hyderabad: The Insurance Regulatory and Development Authority (IRDA) has amended the regulations on investment of insurance companies. The definition of investments in infrastructure by the insurance companies is now aligned with current norms prescribed by the Reserve Bank of India. This would “bring in better cohesion and facilitate smooth flow of funds into this important sector”, Mr C.R. Muralidharan, Member (Finance and Investments), IRDA said in a release.
The revised regulations also extend the exposure norms to investments of Unit Linked Insurance Plans (ULIPs) premium to enhance policy-holders’ protection and rationalise the norms for both private and public insurers.
The insurers could now adopt rating criteria as prescribed for categorising certain instruments as approved investments by the authority, including rated mortgage backed securities that can be reckoned towards the housing sector for the purpose of pattern of investment, the release said.
The aim of the changes is to bring more flexibility to the insurers, address certain aspects of risk management in ULIP business and investment management in general, among others, it added.
The revised regulations also extend the exposure norms to investments of Unit Linked Insurance Plans (ULIPs) premium to enhance policy-holders’ protection and rationalise the norms for both private and public insurers.
The insurers could now adopt rating criteria as prescribed for categorising certain instruments as approved investments by the authority, including rated mortgage backed securities that can be reckoned towards the housing sector for the purpose of pattern of investment, the release said.
The aim of the changes is to bring more flexibility to the insurers, address certain aspects of risk management in ULIP business and investment management in general, among others, it added.
Source: The Hindu Business Line
Thursday, August 28, 2008
‘ESI SEEN AS INEFFECTIVE HEALTH SCHEME’
Bangalore: Employee State Insurance (ESI) is seen as an ineffective health insurance scheme for the organised sector temporary employees. In a study by staffing solutions company, TeamLease Services, nearly 70 per cent of temporary employees view the ESI deduction as a form of tax for which they get no or very poor return.
The report says that only 30 per cent of the two per cent who used ESI facilities were satisfied with the facilities and this was because of the poor and dilapidated conditions of the ESI facilities.
Another reason the report cited for poor usage of the facilities was the complex functioning of the ESI scheme that makes it ‘almost incomprehensible to the employee who pays for it.’ Only 15 per cent of the employees surveyed knew how the scheme functioned.
The report says that despite ESI Corporations’ revenues of Rs 2,400 crore in fiscal 2005-06 and an operating surplus of Rs 1,130 crore, the ESI infrastructure is way below WHO standards.
ESIC has a just one bed for 1,882 people to be served, which when benchmarked against bed availability in other countries, the ratio is ‘embarrassingly inadequate and needs to be improved at the least by a factor of 3.’
Mr N. Venkataraman, CFO, TeamLease Services, said about the study, “Our research points to an immediate need to revisit the fundamentals of the ESI scheme to address the radically changed employment scenario in the country. ESI reforms need to be prioritised because of the poor value for money, poor design and lack of consumer choice.”
The report says that only 30 per cent of the two per cent who used ESI facilities were satisfied with the facilities and this was because of the poor and dilapidated conditions of the ESI facilities.
Another reason the report cited for poor usage of the facilities was the complex functioning of the ESI scheme that makes it ‘almost incomprehensible to the employee who pays for it.’ Only 15 per cent of the employees surveyed knew how the scheme functioned.
The report says that despite ESI Corporations’ revenues of Rs 2,400 crore in fiscal 2005-06 and an operating surplus of Rs 1,130 crore, the ESI infrastructure is way below WHO standards.
ESIC has a just one bed for 1,882 people to be served, which when benchmarked against bed availability in other countries, the ratio is ‘embarrassingly inadequate and needs to be improved at the least by a factor of 3.’
Mr N. Venkataraman, CFO, TeamLease Services, said about the study, “Our research points to an immediate need to revisit the fundamentals of the ESI scheme to address the radically changed employment scenario in the country. ESI reforms need to be prioritised because of the poor value for money, poor design and lack of consumer choice.”
Source: The Hindu Business Line
FUTURE GENERALI CUSTOMERS
Using its mallassurance channel, Future Generali, the Insurance Venture of future group of India and Generali Group of Italy, ahs acquired over 2 lakh customers in just 5 days through its ‘Maha Insurance’ initiative at Big Bazaar’s ‘Maha Bachat’ promotion from August 13-07.
Source: The Financial Express
INSURANCE BROKERS SEE BIG MONEY
Mumbai: Insurance broking has a potential to reach Rs 10,000 crore in non-life insurance premia from the current Rs 3,000 crore, a broker said. The insurance broking industry, which was given permission to operate by Insurance Regulatory Development Authority in October 2002, is growing by 15-30% for the past 4 years, brokers said.
Unlike insurance agents, who represent the insurance agency, a broker represents the client, often corporates, who are looking for the best deals in non-life policy. At present, there are over 370 brokers in the country. V Ramakrishna, managing director of India Insure Risk Management Services, one such broking firm, said, “Brokers can target about Rs 10,000 crore of non-life insurance premia, out of which they currently get only Rs 3,000 crore.”
Though brokers have made a considerable dent in the Indian insurance market, it is still largely agent-driven. “Most of our clients are from the manufacturing and service sectors,” said Ramakrishna, whose firm has about Rs 300 crore in annual premia and is into composite broking, involving both direct broking and reinsurance broking.
Though the opportunities in life insurance are “mind-boggling”, he said brokers mostly avoid that space because it’s predominantly retail. While some big companies manage insurance in-house, small and medium enterprises are still hesitant to hire brokers. But attitudes are changing.
Unlike insurance agents, who represent the insurance agency, a broker represents the client, often corporates, who are looking for the best deals in non-life policy. At present, there are over 370 brokers in the country. V Ramakrishna, managing director of India Insure Risk Management Services, one such broking firm, said, “Brokers can target about Rs 10,000 crore of non-life insurance premia, out of which they currently get only Rs 3,000 crore.”
Though brokers have made a considerable dent in the Indian insurance market, it is still largely agent-driven. “Most of our clients are from the manufacturing and service sectors,” said Ramakrishna, whose firm has about Rs 300 crore in annual premia and is into composite broking, involving both direct broking and reinsurance broking.
Though the opportunities in life insurance are “mind-boggling”, he said brokers mostly avoid that space because it’s predominantly retail. While some big companies manage insurance in-house, small and medium enterprises are still hesitant to hire brokers. But attitudes are changing.
Source: DNA
UBI, TATA AIG LIFE LAUNCH RETIREMENT SOLUTIONS
Bangalore: United Bank of India (UBI) and Tata AIG Life Insurance (Tata AIG Life) on Monday announced the launch of 'United Retirement Solutions' - a customised package of three retirement products from Tata AIG Life for customers of UBI. The solutions includes - InvestAssure Future, Nirvana Plus Pension Policy and Easy Retire which offer comprehensive retirement benefits and financial protection. InvestAssure Future is a unit linked insurance plan designed to help the customer meet his needs of capital accumulation to plan for a secure retired life.
Nirvana Plus Pension Policy is a powerful retirement solution which helps the customer build a corpus for his golden years and get sound financial protection for his dependents in the event of any unfortunate event like accidental or natural death, said the company. Easy retire is an immediate annuity plan which is the ideal solution to convert the policy holder's corpus into regular income.
Nirvana Plus Pension Policy is a powerful retirement solution which helps the customer build a corpus for his golden years and get sound financial protection for his dependents in the event of any unfortunate event like accidental or natural death, said the company. Easy retire is an immediate annuity plan which is the ideal solution to convert the policy holder's corpus into regular income.
Source: Deccan Chronicle
LIFE INSURERS' VALUATIONS DIP ON LOWER SALES GROWTH
Mumbai: slower growth in sales of new insurance policies has affected the valuation of life insurance companies by up to 40 per cent. An international investment bank has lowered the valuation of ICICI Prudential Life Insurance by over 41 per cent to $9.2 billion compared with that of $15.7 billion assigned in February this year. In both the cases, the valuation was for 2009-10. ICICI Prudential Life was valued between $12 billion and $17 billion a year ago by most international investment banks.
“We have assigned lower multiples to growth as we see a moderation in growth,” said an analyst at the investment bank, which did not want to be identified, saying the report was meant for private circulation.
An analyst at another global investment bank, which is finalising a similar report, added that stocks of the promoters of life insurance companies too have been re-rated due to the current market volatility. In addition, he pointed out that the growth rate for new business and margins on the business also dipped, resulting in lower valuations. In addition, the depreciation of the rupee against the dollar is affecting valuations.
“Inflation is at 12.63 per cent, crude oil price is rising, money market is tightening, interest rates are rising, the international market scenario is not encouraging, the GDP growth (forecast) has been scaled down to 8 per cent, therefore the perception of the analysts about the future growth prospects over the next 12 months has been impacted,” said SBI Life Managing Director and CEO U S Roy.
During the year ended March 2008, the first year premium income of life insurers rose by 74 per cent to Rs 33,800 crore, while the growth in 2006-07 was 90 per cent. With stock markets continuing to be volatile, investors are no longer thronging to buy unit-linked insurance plans (Ulips) the way they did in the past.
When stock markets were booming, Ulip sales accounted for 75-90 per cent of new sales. In addition, HDFC Standard Life Managing Director and CEO Deepak Satwalekar said the economic slowdown and higher inflation were affecting savings of individuals.
Valuations will have an impact on public offers lined up by companies like SBI Life and HDFC Standard Life, which intend to list next year. “No doubt, lower valuations will impact our price at listing. However, the real value will be to see how the market and the growth pan out in the next one year,” said Satwalekar.
ICICI Prudential Executive Director N S Kannan, however, said the depreciation of the rupee during the last month or so has not been factored in by the investment bank that has dished out lower valuations for life insurers. “ICICI Prudential has grown 50 per cent during the first quarter, its new business achieved a profit of Rs 240 crore. However, what multiples the analysts assign to a company’s earnings depend on their outlook on which I cannot comment.”
Source: Business Standard
“We have assigned lower multiples to growth as we see a moderation in growth,” said an analyst at the investment bank, which did not want to be identified, saying the report was meant for private circulation.
An analyst at another global investment bank, which is finalising a similar report, added that stocks of the promoters of life insurance companies too have been re-rated due to the current market volatility. In addition, he pointed out that the growth rate for new business and margins on the business also dipped, resulting in lower valuations. In addition, the depreciation of the rupee against the dollar is affecting valuations.
“Inflation is at 12.63 per cent, crude oil price is rising, money market is tightening, interest rates are rising, the international market scenario is not encouraging, the GDP growth (forecast) has been scaled down to 8 per cent, therefore the perception of the analysts about the future growth prospects over the next 12 months has been impacted,” said SBI Life Managing Director and CEO U S Roy.
During the year ended March 2008, the first year premium income of life insurers rose by 74 per cent to Rs 33,800 crore, while the growth in 2006-07 was 90 per cent. With stock markets continuing to be volatile, investors are no longer thronging to buy unit-linked insurance plans (Ulips) the way they did in the past.
When stock markets were booming, Ulip sales accounted for 75-90 per cent of new sales. In addition, HDFC Standard Life Managing Director and CEO Deepak Satwalekar said the economic slowdown and higher inflation were affecting savings of individuals.
Valuations will have an impact on public offers lined up by companies like SBI Life and HDFC Standard Life, which intend to list next year. “No doubt, lower valuations will impact our price at listing. However, the real value will be to see how the market and the growth pan out in the next one year,” said Satwalekar.
ICICI Prudential Executive Director N S Kannan, however, said the depreciation of the rupee during the last month or so has not been factored in by the investment bank that has dished out lower valuations for life insurers. “ICICI Prudential has grown 50 per cent during the first quarter, its new business achieved a profit of Rs 240 crore. However, what multiples the analysts assign to a company’s earnings depend on their outlook on which I cannot comment.”
Source: Business Standard
LIFE COS SAY COVER SALE BY MFs AFFECT DISTRIBUTION INFRASTRUCTURE
Mumbai: Life companies have expressed concern that sale of insurance cover by mutual funds could undermine the distribution infrastructure of life companies. They have also complained to the regulator that such a move would end up violating guidelines of the insurance regulator. This is the latest in the ongoing turf war between the mutual fund and the life insurance industry. Mutual funds have been attacking insurers over the lack of transparency and high charges in unit-linked insurance plans — insurance products that mimic mutual funds. Insurers have responded saying they are only exploiting the failure of the mutual fund industry to build a distribution force to sell to retail. Mutual funds have decided to get back at insurers by introducing systematic investment plans (SIPs) with a built-in life insurance cover. The insurance covers on the SIP were small and given away without any charge to the investor. Now, the mutual funds have submitted a proposal where they will sell insurance cover against which premium will be collected. Speaking to ET, Life Insurance Council chief executive SB Mathur said: “Insurance companies are spending hundreds of crores on training agents to sell insurance. If mutual fund distributors are allowed to sell insurance without adequate training, the sanctity of the training would be lost.” According to Mr Mathur, so far the insurance cover has been restricted to the target investment value (the total amount expected to be saved under a systematic investment plan). However, if mutual funds were given too much flexibility in the level of insurance cover, it could weaken the quality of underwriting and safeguards followed by life insurance companies. Insurers also point out that according to IRDA guidelines, any buyer of insurance should be made aware of the name of the company from which he is buying insurance. In the past, the regulator had barred people from naming products in such a manner that it is identified predominantly with the distributor. The other issue raised by life insurers is that of the social obligation of insurance companies. The directive to sell over a fifth of their policies in the rural sector has forced companies to invest in rural areas where costs are averaged out because of sales in urban areas. Mutual funds have no such obligation and sell largely in urban areas. Insurers say allowing them to distribute insurance can lead to cherry-picking by mutual funds.
source: The Economic Times
LIC TO SEEK REVIEW OF NEW IRDA NORMS
The new investment guidelines issued by the Insurance Regulatory & Development Authority (Irda) may have spread cheer among private sector insurers, but it has caught the country’s largest insurer, the Life Insurance Corporation (LIC), off-guard. LIC is also the country’s largest institutional player, with a staggering Rs 7.5 lakh crore of investments.
Finding itself in a quandary after Irda issued its new norms last week, LIC is now planning to approach the ministry of finance and Irda over the implementation of these norms which will have a wide-ranging impact on not only the insurance companies but also the equity and debt markets.
“We are still studying Irda’s new norms and carefully finding out the exact implications of these on our corporation. We will go back to the government and the regulator for a review of certain sections of these regulations,’’ said a senior official of LIC, requesting that he be not named.
The regulations have been gazetted, but that would not preclude a review if it is seen necessary to do so, said the official. Though Irda had consulted LIC while preparing the new set of guidelines, the revamped regulations as announced by it have caught LIC on the wrong foot.
Irda, in its latest notification aimed at removing the differential treatment of provisions applicable to public sector and private sector insurers, has mandated that no insurer can hold more than 10% equity in any company. The norms have also been broadened to include Ulips.
The new guidelines say, “10% of outstanding shares (face value) or 10% of fund size, whichever is lower, can be invested in equity shares of investee company. A sum of 10% of subscribed share capital, free reserves and debentures / bonds of investee company or 10% of fund size, whichever is lower, can be invested in debt instruments of investee company.’’ LIC, the country’s largest institutional player, has major investments in many listed companies and in many companies such investment exceeds 10% .
Earlier, in certain instances, LIC has sought special permission from Irda to invest more than 20% in some companies. The new norms also set out and review exposure criteria for investments in mutual funds, IPOs and debt instruments and also in money market instruments.
These norms give private sector life insurers more freedom to invest in larger avenues. Predictably, they have no problems with the new Irda guidelines. Puneet Nanda, executive vice-president and chief investment officer of ICICI Prudential Life Insurance, India’s largest private sector insurance company, said the new norms have given higher investment flexibility while focusing on better risk management. “This will potentially translate into higher risk adjusted returns for policyholders,’’ he said. The new guidelines will increase the private sector life insurers’ flexibility to invest in initial public offerings further.
On whether the new norms will allow more investments in the stock market, Nanda said: “Not necessarily. The extent of stock investments depends on various factors like customer goals and preference, horizon, risk appetite, product structure and investment strategy of the company.”
Ironically, only recently, the government eased the norms for investments in equity by non-government provident funds, allowing equity investments up to 15%.
Finding itself in a quandary after Irda issued its new norms last week, LIC is now planning to approach the ministry of finance and Irda over the implementation of these norms which will have a wide-ranging impact on not only the insurance companies but also the equity and debt markets.
“We are still studying Irda’s new norms and carefully finding out the exact implications of these on our corporation. We will go back to the government and the regulator for a review of certain sections of these regulations,’’ said a senior official of LIC, requesting that he be not named.
The regulations have been gazetted, but that would not preclude a review if it is seen necessary to do so, said the official. Though Irda had consulted LIC while preparing the new set of guidelines, the revamped regulations as announced by it have caught LIC on the wrong foot.
Irda, in its latest notification aimed at removing the differential treatment of provisions applicable to public sector and private sector insurers, has mandated that no insurer can hold more than 10% equity in any company. The norms have also been broadened to include Ulips.
The new guidelines say, “10% of outstanding shares (face value) or 10% of fund size, whichever is lower, can be invested in equity shares of investee company. A sum of 10% of subscribed share capital, free reserves and debentures / bonds of investee company or 10% of fund size, whichever is lower, can be invested in debt instruments of investee company.’’ LIC, the country’s largest institutional player, has major investments in many listed companies and in many companies such investment exceeds 10% .
Earlier, in certain instances, LIC has sought special permission from Irda to invest more than 20% in some companies. The new norms also set out and review exposure criteria for investments in mutual funds, IPOs and debt instruments and also in money market instruments.
These norms give private sector life insurers more freedom to invest in larger avenues. Predictably, they have no problems with the new Irda guidelines. Puneet Nanda, executive vice-president and chief investment officer of ICICI Prudential Life Insurance, India’s largest private sector insurance company, said the new norms have given higher investment flexibility while focusing on better risk management. “This will potentially translate into higher risk adjusted returns for policyholders,’’ he said. The new guidelines will increase the private sector life insurers’ flexibility to invest in initial public offerings further.
On whether the new norms will allow more investments in the stock market, Nanda said: “Not necessarily. The extent of stock investments depends on various factors like customer goals and preference, horizon, risk appetite, product structure and investment strategy of the company.”
Ironically, only recently, the government eased the norms for investments in equity by non-government provident funds, allowing equity investments up to 15%.
Source: The Financial Express, The Indian Express, Business Standard
MINISTRY OF STATISTICS OFFERS TO SHARE DATA WITH INSURERS
Hyderabad: The Union Ministry of Statistics and Programme Implementation, is ready to share vital data with the insurance companies and provide consultancy, according to Dr Pronab Sen, Chief Statistician and Secretary of the Ministry.
“Though our primary task is to provide data on various aspects to the Planning Commission, we do possess lot of figures, which will be useful for the insurance and other financial services providers,” Dr Sen told Business Line here recently.
We have all data
On the specific data that can be shared with the financial sector, he said it depends on what a company is looking for. “From demographic patterns to income levels, all data will be with us,” he added.
The collection and accessing of data in the banking sector is easy due to the long history of banking in India and role of the Reserve Bank of India. The insurance industry still suffers from absence of data, which is crucial in product designing and marketing strategies, he pointed out.
“Unfortunately, nobody approaches us for data on insurance/banking even though we are sitting on a large data base,” Dr Sen said, adding that there was a tendency to pick up only supportive data by the corporates to suit their beliefs and needs. The relationship between data-generators and data-users should be based on two separate platforms for accuracy of inferences, he added.
Consultancy too
“If there is a dialogue between us and the insurance industry, we can guide them to the right data base. We are ready to provide consultancy if asked,” Dr Sen said.
“Though our primary task is to provide data on various aspects to the Planning Commission, we do possess lot of figures, which will be useful for the insurance and other financial services providers,” Dr Sen told Business Line here recently.
We have all data
On the specific data that can be shared with the financial sector, he said it depends on what a company is looking for. “From demographic patterns to income levels, all data will be with us,” he added.
The collection and accessing of data in the banking sector is easy due to the long history of banking in India and role of the Reserve Bank of India. The insurance industry still suffers from absence of data, which is crucial in product designing and marketing strategies, he pointed out.
“Unfortunately, nobody approaches us for data on insurance/banking even though we are sitting on a large data base,” Dr Sen said, adding that there was a tendency to pick up only supportive data by the corporates to suit their beliefs and needs. The relationship between data-generators and data-users should be based on two separate platforms for accuracy of inferences, he added.
Consultancy too
“If there is a dialogue between us and the insurance industry, we can guide them to the right data base. We are ready to provide consultancy if asked,” Dr Sen said.
Source: The Hindu Business Line
BANKS, INSURANCE FIRMS CUSHION FII SALES IN Q1
Banks, financial institutions and insurance (BFI) companies provided the much-required cushion to the equity markets in the first quarter of FY09. While foreign institutional investors (FIIs) sold a hefty $4 billion of equities in the quarter, the BFI investors together bought $2.6 billion of equities, a study by ENAM, titled “India Inc Shareholding – June 2008” shows.
The study analyses in detail the shareholding patterns and trends of the BSE-500 companies, and finds the mutual funds, including UTI, had also sold to the tune of $231 million during the quarter.
In sector-wise analysis, the study shows that FIIs sold banking and financial services stocks, and were also sellers in engineering and realty sectors, while they bought IT services stocks during the first quarter.
FIIs were underweight in sectors like oil and gas, IT and fast-moving consumer goods, while they were overweight in banking and financial services, pharma and realty. On the other hand, the BFI sector showed quite the opposite trend to that of the FIIs.
The BFI investors bought banking and financial services stocks, and also those in engineering, energy and oil and gas sectors. They sold IT services stocks during the quarter. The BFI institutions were overweight in metals, auto and FMCG, and underweight in IT services, banking and oil and gas.
Mutual funds, including UTI, on the other hand were sellers in banking and financial services, mirroring similar investment sentiment in some ways as that of FIIs, and also sold oil and gas stocks. They bought IT services, telecom and engineering stocks. MFs were overweight in engineering, pharma and FMCG, and underweight on IT services, oil and gas and banking and financial services, the study shows.
The study also does a concentration analysis, which shows BSE-100 stocks account for as much as 80% plus of BFI and FII holdings and 73% of mutual fund holdings. The holding pattern analysis shows promoters hold 57% in BSE-500 stocks in Q1, while foreign investors hold 17%, BFI 6%, mutual funds 4% and individuals 9% in these companies. Of the benchmark BSE-30 companies, promoters hold 51%, foreign investors 22%, BFIs 7%, MFs 4% and individuals 9%.
Sectorwise, the FII portfolio was skewed towards banking and financial services, oil and gas and IT services, with these three sectors together accounting for about 50% of the FIIs’ portfolio. Telecommunications, metals and mining, engineering and FMCG were the next preferred sectors for FIIs in terms of their holdings.
On the other hand, MFs, including UTI, favoured engineering, banking and financial services and oil and gas sectors which together comprise about 40% of their portfolio. FMCG, metals/mining, IT services and telecommunications were the next preferred sectors for mutual funds.
BFI companies leaned on oil and gas, banking and financial services and metals sectors which together comprised about 43% of their portfolio in the first quarter. Engineering, FMCG, energy and auto were the next on their holdings priority list.
Among individual stocks, the study shows Reliance Industries, HDFC and Bharti Airtel were the favourite top three stocks for FIIs, dominating the portfolio weights during the June quarter. For BFI investors, once again Reliance Industries topped the portfolio weight, followed by ITC and L&T. For the MFs, including UTI, L&T topped the weightages, followed by ITC and RIL.
Sectorally, the study shows that banking and financial services, infrastructure, retail, cement and engineering sector stocks saw a decline in FII holdings during the quarter. FMCG, IT and textiles sectors saw a rise in MF holdings during the quarter, whereas auto, diversified, media and cement saw a fall in MF holdings during the same period.
BFI investors increased their holdings in the banking and financial services, cement, FMCG and engineering sectors during the quarter, the ENAM study says.
The study analyses in detail the shareholding patterns and trends of the BSE-500 companies, and finds the mutual funds, including UTI, had also sold to the tune of $231 million during the quarter.
In sector-wise analysis, the study shows that FIIs sold banking and financial services stocks, and were also sellers in engineering and realty sectors, while they bought IT services stocks during the first quarter.
FIIs were underweight in sectors like oil and gas, IT and fast-moving consumer goods, while they were overweight in banking and financial services, pharma and realty. On the other hand, the BFI sector showed quite the opposite trend to that of the FIIs.
The BFI investors bought banking and financial services stocks, and also those in engineering, energy and oil and gas sectors. They sold IT services stocks during the quarter. The BFI institutions were overweight in metals, auto and FMCG, and underweight in IT services, banking and oil and gas.
Mutual funds, including UTI, on the other hand were sellers in banking and financial services, mirroring similar investment sentiment in some ways as that of FIIs, and also sold oil and gas stocks. They bought IT services, telecom and engineering stocks. MFs were overweight in engineering, pharma and FMCG, and underweight on IT services, oil and gas and banking and financial services, the study shows.
The study also does a concentration analysis, which shows BSE-100 stocks account for as much as 80% plus of BFI and FII holdings and 73% of mutual fund holdings. The holding pattern analysis shows promoters hold 57% in BSE-500 stocks in Q1, while foreign investors hold 17%, BFI 6%, mutual funds 4% and individuals 9% in these companies. Of the benchmark BSE-30 companies, promoters hold 51%, foreign investors 22%, BFIs 7%, MFs 4% and individuals 9%.
Sectorwise, the FII portfolio was skewed towards banking and financial services, oil and gas and IT services, with these three sectors together accounting for about 50% of the FIIs’ portfolio. Telecommunications, metals and mining, engineering and FMCG were the next preferred sectors for FIIs in terms of their holdings.
On the other hand, MFs, including UTI, favoured engineering, banking and financial services and oil and gas sectors which together comprise about 40% of their portfolio. FMCG, metals/mining, IT services and telecommunications were the next preferred sectors for mutual funds.
BFI companies leaned on oil and gas, banking and financial services and metals sectors which together comprised about 43% of their portfolio in the first quarter. Engineering, FMCG, energy and auto were the next on their holdings priority list.
Among individual stocks, the study shows Reliance Industries, HDFC and Bharti Airtel were the favourite top three stocks for FIIs, dominating the portfolio weights during the June quarter. For BFI investors, once again Reliance Industries topped the portfolio weight, followed by ITC and L&T. For the MFs, including UTI, L&T topped the weightages, followed by ITC and RIL.
Sectorally, the study shows that banking and financial services, infrastructure, retail, cement and engineering sector stocks saw a decline in FII holdings during the quarter. FMCG, IT and textiles sectors saw a rise in MF holdings during the quarter, whereas auto, diversified, media and cement saw a fall in MF holdings during the same period.
BFI investors increased their holdings in the banking and financial services, cement, FMCG and engineering sectors during the quarter, the ENAM study says.
Source: The Financial Express
A MILLION COVER FOR INDIA INC’S PAREKHS & KAMATHS
Mumbai: Key-Person insurance is catching up in a big way in the country, with banks, IT and pharma firms spending millions on insuring their indispensable employees. In fact, according to industry sources, executives like ICICI Bank MD & CEO KV Kamath and HDFC chairman Deepak Parekh could well be insured for a few thousand crore rupees. And it’s not just top officials of multinational corporations who are being insured by their employees; insurance brokers claim that key-person insurance requests from start-up IT firms are on the rise as well.
According to Naveen K Midha, senior vice-president and head of the employee benefits vertical at Willis India Insurance Brokers, a general thumb rule for key-person insurance followed over the world recommends that a key person in an organisation be insured for at least five times the net profit of the company over the past three years. So with both ICICI Bank and HDFC consistently turning in annual profits in excess of Rs 1,000 crore for the past few years, the premium figures are not hard to fathom.
“People like KV Kamath and Deepak Parekh are synonymous with their respective organisations, and big bucks being spent on them is understandable,” explains Mr Midha. But while big firms have the luxury of a strong brand name, smaller start-ups rely on their core team for acquiring business. “The need for key-person insurance is more acute in smaller firms,” he added. Interestingly, key-people for an organisation might not just be their MDs and CEOs but also technical support staff with special knowledge of the firm’s systems and even brand ambassadors.
Key-person insurance protects the company against the untimely death, disability or retirement of the insured. The insured-sums obviously vary from company to company and region to region. Also, key factors like the employees remuneration and propensity to jump jobs are taken into consideration while the policies are framed. Such schemes are also being used by some companies as an effective retention tool. Unlike life or medical insurance schemes undertaken by employers, premiums paid by companies in this case are treated as business expenses and do not attract fringe-benefit taxes either.
Willis is one of the world’s largest insurance brokerages, which has been represented in India for the past three years. According to, Willis Asia MD James Quirk; Indian companies have increasingly started adopting a host of relatively new insurance products, like cover for trade and political risks, and insurance for mergers and acquisitions. Such products have gained prominence in India of late, given the rising number of outbound acquisitions and the volatility in the international economic conditions.
According to Naveen K Midha, senior vice-president and head of the employee benefits vertical at Willis India Insurance Brokers, a general thumb rule for key-person insurance followed over the world recommends that a key person in an organisation be insured for at least five times the net profit of the company over the past three years. So with both ICICI Bank and HDFC consistently turning in annual profits in excess of Rs 1,000 crore for the past few years, the premium figures are not hard to fathom.
“People like KV Kamath and Deepak Parekh are synonymous with their respective organisations, and big bucks being spent on them is understandable,” explains Mr Midha. But while big firms have the luxury of a strong brand name, smaller start-ups rely on their core team for acquiring business. “The need for key-person insurance is more acute in smaller firms,” he added. Interestingly, key-people for an organisation might not just be their MDs and CEOs but also technical support staff with special knowledge of the firm’s systems and even brand ambassadors.
Key-person insurance protects the company against the untimely death, disability or retirement of the insured. The insured-sums obviously vary from company to company and region to region. Also, key factors like the employees remuneration and propensity to jump jobs are taken into consideration while the policies are framed. Such schemes are also being used by some companies as an effective retention tool. Unlike life or medical insurance schemes undertaken by employers, premiums paid by companies in this case are treated as business expenses and do not attract fringe-benefit taxes either.
Willis is one of the world’s largest insurance brokerages, which has been represented in India for the past three years. According to, Willis Asia MD James Quirk; Indian companies have increasingly started adopting a host of relatively new insurance products, like cover for trade and political risks, and insurance for mergers and acquisitions. Such products have gained prominence in India of late, given the rising number of outbound acquisitions and the volatility in the international economic conditions.
Source: The Economic Times
IRDA TO INSURERS: SET UP RISK MGMT SYSTEMS
The Insurance Regulatory & Development Authority (Irda) has asked insurers having assets under management of over Rs 500 crore to personally see that someone acts as fund manager and dealer. “The investment system should have separate modules for front and back office,” said Irda in a notification.
Transfer of data from front to back office should be electronic without manual intervention, that is, without re-entering data at the back office. The insurer may have multiple data entry systems, but all such systems should be seamlessly integrated without manual intervention. The front office shall report to the CEO, through the chief investment officer.
Transfer of data from front to back office should be electronic without manual intervention, that is, without re-entering data at the back office. The insurer may have multiple data entry systems, but all such systems should be seamlessly integrated without manual intervention. The front office shall report to the CEO, through the chief investment officer.
Source: The Financial Express
RISK FIRMS GET MORE INVESTMENT AVENUES
Mumbai: After a two-year wait, the Insurance Regulatory and Development Authority (Irda) has notified new investment norms that provide more flexibility to insurance companies for parking funds in debt instruments offered by banks and allows more money to flow into initial public offers (IPOs).
At the same time, it has put in place group and individual company exposure norms for unit-linked insurance plans (Ulips) that did not face any such restrictions so far. Exposure to any group of companies has been capped at 25 per cent, while it has been restricted to 10 per cent each for equity and debt instruments for one company.
Investment in fixed deposits is, however, outside the 25 per cent ceiling. In addition, the revised guidelines issued on Friday evening, have stipulated that 5 per cent of the investible corpus can be parked in immovable property.
With Ulips emerging as the largest selling product in a life insurer’s portfolio, these companies have become the biggest qualified domestic institutional investor in recent months. Ulips constitute anywhere between 75 per cent and 90 per cent of the business premium for insurance companies. Of the funds raised through Ulips, more than 90 per cent flows into the stock markets.
To ensure that insurers invest in safe instruments, Irda has specified that at least 75 per cent of debt investments, other than government and other approved securities, should enjoy AAA or an equivalent rating. These norms are also applicable to Ulips.
As part of Irda’s drive to expand the investment basket, mortgage-backed securities (MBS) have been included under the ‘approved investments’ group as part of exposure to the housing sector.
Besides, securities such as bonds and debentures issued by companies and financial institutions that enjoy a minimum AA or an equivalent rating will be part of the ‘approved investments’ group. In case of downgrades, they will be shifted to ‘other investments’ group. Government securities and liquid mutual funds are also ‘approved investments’.
Under the norms, insurers have to invest up to 35 per cent of their funds in approved investments. Of this, at least 15 per cent has to be invested in housing and infrastructure and asset-backed securities with underlying housing loans.
In case of venture capital, Irda has said that life insurers can now invest up to 3 per cent of their investible corpus and general insurers 5 per cent of the investment fund, or 10 per cent of the VC fund size, whichever is lower.
While the exposure limit for financial and banking sector is 25 per cent of the investment assets, Irda has provided flexibility by specifying that investment in fixed deposits, terms-deposits and certificate of deposit of scheduled banks will not be categorised into the group if the bank is not a promoter of the insurance company.
The criterion on the minimum size of the IPO including ‘offer for sale’ for investment by insurers has been reduced to Rs 200 crore from Rs 500 crore earlier. For life insurers, the maximum bid amount for IPO investment has to be less than 10 per cent of the subscribed capital of the investee company or 10 per cent of the fund or assets in case of a general insurer.
Insurance companies had sought relaxations saying that they represent individual investors and should not be treated at par with other institutional players.
At the same time, it has put in place group and individual company exposure norms for unit-linked insurance plans (Ulips) that did not face any such restrictions so far. Exposure to any group of companies has been capped at 25 per cent, while it has been restricted to 10 per cent each for equity and debt instruments for one company.
Investment in fixed deposits is, however, outside the 25 per cent ceiling. In addition, the revised guidelines issued on Friday evening, have stipulated that 5 per cent of the investible corpus can be parked in immovable property.
With Ulips emerging as the largest selling product in a life insurer’s portfolio, these companies have become the biggest qualified domestic institutional investor in recent months. Ulips constitute anywhere between 75 per cent and 90 per cent of the business premium for insurance companies. Of the funds raised through Ulips, more than 90 per cent flows into the stock markets.
To ensure that insurers invest in safe instruments, Irda has specified that at least 75 per cent of debt investments, other than government and other approved securities, should enjoy AAA or an equivalent rating. These norms are also applicable to Ulips.
As part of Irda’s drive to expand the investment basket, mortgage-backed securities (MBS) have been included under the ‘approved investments’ group as part of exposure to the housing sector.
Besides, securities such as bonds and debentures issued by companies and financial institutions that enjoy a minimum AA or an equivalent rating will be part of the ‘approved investments’ group. In case of downgrades, they will be shifted to ‘other investments’ group. Government securities and liquid mutual funds are also ‘approved investments’.
Under the norms, insurers have to invest up to 35 per cent of their funds in approved investments. Of this, at least 15 per cent has to be invested in housing and infrastructure and asset-backed securities with underlying housing loans.
In case of venture capital, Irda has said that life insurers can now invest up to 3 per cent of their investible corpus and general insurers 5 per cent of the investment fund, or 10 per cent of the VC fund size, whichever is lower.
While the exposure limit for financial and banking sector is 25 per cent of the investment assets, Irda has provided flexibility by specifying that investment in fixed deposits, terms-deposits and certificate of deposit of scheduled banks will not be categorised into the group if the bank is not a promoter of the insurance company.
The criterion on the minimum size of the IPO including ‘offer for sale’ for investment by insurers has been reduced to Rs 200 crore from Rs 500 crore earlier. For life insurers, the maximum bid amount for IPO investment has to be less than 10 per cent of the subscribed capital of the investee company or 10 per cent of the fund or assets in case of a general insurer.
Insurance companies had sought relaxations saying that they represent individual investors and should not be treated at par with other institutional players.
Source: Business Standard
VC FUNDS BULLISH ON IRDA'S MOVE
Mumbai: The Insurance Regulatory and Development Authority’s (Irda) move to allow insurance companies to invest in venture capital (VC) funds could help them raise money more easily, but it could take up to 12 months for insurers to start investing.
On Friday, Irda allowed life insurers to invest 3 per cent of their total investible corpus in VC funds or 10 per cent of the fund’s size, whichever is lower. For general insurers, the limit is 5 per cent of their investment assets or 10 per cent of the fund size, whichever is lower. Based on life insurers’ assets under management of Rs 700,000 crore, potentially over Rs 21,000 crore can flow from this segment alone.
Canaan Partners CEO Alok Mittal said the move is a good beginning, but does not translate into immediate gains. “Insurance companies will have a good opportunity to be a part of the growing VC market in India. Over a period of time, more and more insurance companies will invest as they look at it as a part their asset management exercise,” added Vishal Tulsiyan, director and CEO, Motilal Oswal Ventures.
“Worldwide, insurance companies, pension funds, sovereign funds and government funds are investing in VC funds. The key thing is that there is a lot of capital flowing from outside than inside in our domestic market. Insurance funds will provide a boost to VCs” said Sudhir Sethi, CEO, JDG Ventures.
Frontline Strategy, a Mumbai-based VC fund, said the norms would help broaden the pool of money available for domestic funds. “It will take six to 12 months before the funds starts flowing from the insurers,” added Supratim Basu, a director of an early-stage fund. While the options for VC funds increase, Sidbi Venture Capital CEO Ajay Kumar Kapur said insurers are already investing and the cap will hold back some of the flows.
VC funds have invested $340 million in 51 deals in the first half of 2008. Although high valuations are a worry for VC funds, they are confident about the investment flow for the year ahead.
On Friday, Irda allowed life insurers to invest 3 per cent of their total investible corpus in VC funds or 10 per cent of the fund’s size, whichever is lower. For general insurers, the limit is 5 per cent of their investment assets or 10 per cent of the fund size, whichever is lower. Based on life insurers’ assets under management of Rs 700,000 crore, potentially over Rs 21,000 crore can flow from this segment alone.
Canaan Partners CEO Alok Mittal said the move is a good beginning, but does not translate into immediate gains. “Insurance companies will have a good opportunity to be a part of the growing VC market in India. Over a period of time, more and more insurance companies will invest as they look at it as a part their asset management exercise,” added Vishal Tulsiyan, director and CEO, Motilal Oswal Ventures.
“Worldwide, insurance companies, pension funds, sovereign funds and government funds are investing in VC funds. The key thing is that there is a lot of capital flowing from outside than inside in our domestic market. Insurance funds will provide a boost to VCs” said Sudhir Sethi, CEO, JDG Ventures.
Frontline Strategy, a Mumbai-based VC fund, said the norms would help broaden the pool of money available for domestic funds. “It will take six to 12 months before the funds starts flowing from the insurers,” added Supratim Basu, a director of an early-stage fund. While the options for VC funds increase, Sidbi Venture Capital CEO Ajay Kumar Kapur said insurers are already investing and the cap will hold back some of the flows.
VC funds have invested $340 million in 51 deals in the first half of 2008. Although high valuations are a worry for VC funds, they are confident about the investment flow for the year ahead.
Source: Business Standard
Tuesday, August 26, 2008
NEW NORMS TO DIVERSIFY INSURANCE COS RISK
Hyderabad/Mumbai: Insurers investing in initial public offerings (IPO) of private sector companies will enjoy more freedom that could help policy holders garner higher returns from equities post-listing.
They can also invest in fixed-income instruments such as mortgage-backed securities (MBS) and bonds floated by developers of SEZs. Insurers will get greater leeway in their investments in mutual funds and venture funds as well.
Insurance regulator Irda on Friday notified major changes in the investment norms for insurers that will help companies diversify risks and lower the strain on capital. For policy holders, it would also mean higher yield on investments.
“The new regulations provide more flexibility to insurers that will help generate better returns. The control framework has also been tightened as a result of which risk management will be more robust,” ICICI Prudential Life Insurance chief investment officer Puneet Nanda said. The control framework includes exposure limits that are more conservative than those applicable to mutual funds.
Currently, insurers can invest in an IPO of a private sector company if the minimum issue size is Rs 500 crore. The amount is significantly lower at Rs 100 crore for investment in IPOs of public sector companies. The regulator has now fixed a uniform minimum issue size of Rs 200 crore.
However, safeguards are in place to ensure that companies maintain their solvency margins and are able to pay claims to consumers. The investment in equity shares will have to comply with the prudential and exposure norms . Insurance companies can invest up to 10% of the face value of the company or 10% of their fund size as application money. In a choppy market, the changes will ensure that investments are made only in good quality paper,” CIO of a private insurance company said.
The investment basket for insurers has also been widened to include MBS-structured loan instruments where cash flows from home loans are pooled together and converted into marketable securities. MBS will qualify as investments under the housing sector, but subject to industry exposure norms. This means insurance companies can only invest up to 10% of their portfolio in MBS under the approved investment category.
They can also invest in bonds of SEZ developers, with Irda aligning the definition of infrastructure with that of the banking regulator. The regulations will make investments for life insurers, who have Rs 8,00,000 crore assets under management. The housing finance and infrastructure finance industry will also benefit from the regulations that allow for investments in securitised paper from these sectors.
The insurers’ investment in liquid mutual funds will fall under approved investments. However, the instruments should not be used as long-term investments. They can be a maximum 5% of their investment portfolio in liquid mutual funds. The fund size is Rs 50,000 crore for a life company and Rs 2,000 crore for a nonlife company. “The new norms provide more clarity on investments in mutual funds,” a senior insurance industry official said.
It has also aligned the exposure norms of public and private sector insurers. This means LIC can invest only 10% of its portfolio in a single company against 30% earlier. For the first time, exposure norms have been made mandatory for unit-linked insurance plans (Ulip), which are akin to mutual funds in design and have an added insurance cover. The move is aimed at mitigating the risks arising from investments in a few companies.
The investment norms for insurers are stipulated in the insurance legislation. Now, an overhaul has been undertaken without taking recourse to legislative amendments.
At present, life insurance companies are allowed to invest 50% of their investible assets in government and other approved securities. Additionally, they can invest at least 15% in infrastructure instruments that qualify as approved instruments.
They can also invest in fixed-income instruments such as mortgage-backed securities (MBS) and bonds floated by developers of SEZs. Insurers will get greater leeway in their investments in mutual funds and venture funds as well.
Insurance regulator Irda on Friday notified major changes in the investment norms for insurers that will help companies diversify risks and lower the strain on capital. For policy holders, it would also mean higher yield on investments.
“The new regulations provide more flexibility to insurers that will help generate better returns. The control framework has also been tightened as a result of which risk management will be more robust,” ICICI Prudential Life Insurance chief investment officer Puneet Nanda said. The control framework includes exposure limits that are more conservative than those applicable to mutual funds.
Currently, insurers can invest in an IPO of a private sector company if the minimum issue size is Rs 500 crore. The amount is significantly lower at Rs 100 crore for investment in IPOs of public sector companies. The regulator has now fixed a uniform minimum issue size of Rs 200 crore.
However, safeguards are in place to ensure that companies maintain their solvency margins and are able to pay claims to consumers. The investment in equity shares will have to comply with the prudential and exposure norms . Insurance companies can invest up to 10% of the face value of the company or 10% of their fund size as application money. In a choppy market, the changes will ensure that investments are made only in good quality paper,” CIO of a private insurance company said.
The investment basket for insurers has also been widened to include MBS-structured loan instruments where cash flows from home loans are pooled together and converted into marketable securities. MBS will qualify as investments under the housing sector, but subject to industry exposure norms. This means insurance companies can only invest up to 10% of their portfolio in MBS under the approved investment category.
They can also invest in bonds of SEZ developers, with Irda aligning the definition of infrastructure with that of the banking regulator. The regulations will make investments for life insurers, who have Rs 8,00,000 crore assets under management. The housing finance and infrastructure finance industry will also benefit from the regulations that allow for investments in securitised paper from these sectors.
The insurers’ investment in liquid mutual funds will fall under approved investments. However, the instruments should not be used as long-term investments. They can be a maximum 5% of their investment portfolio in liquid mutual funds. The fund size is Rs 50,000 crore for a life company and Rs 2,000 crore for a nonlife company. “The new norms provide more clarity on investments in mutual funds,” a senior insurance industry official said.
It has also aligned the exposure norms of public and private sector insurers. This means LIC can invest only 10% of its portfolio in a single company against 30% earlier. For the first time, exposure norms have been made mandatory for unit-linked insurance plans (Ulip), which are akin to mutual funds in design and have an added insurance cover. The move is aimed at mitigating the risks arising from investments in a few companies.
The investment norms for insurers are stipulated in the insurance legislation. Now, an overhaul has been undertaken without taking recourse to legislative amendments.
At present, life insurance companies are allowed to invest 50% of their investible assets in government and other approved securities. Additionally, they can invest at least 15% in infrastructure instruments that qualify as approved instruments.
Source: The Economic Times
HSBC TO MANAGE UP TO 33% OF EPFO MONEY
New Delhi: The Employees’ Provident Fund Organisation finalised the fund allocation to the four successful bidders in an order that is inversely proportional to their financial bids. The lowest bidder HSBC will get the highest amount to manage followed by ICICI Prudential AMC and then Reliance Capital AMC and State bank of India.
“We have taken a decision on who will manage which fund and accordingly the funds will be allocated,” said a government official close to the development. The annual incremental accretion amounts approximately to Rs 30,000 crore. It is divided into two funds — the pension money and the provident fund money.
The management has decided to give the full pension money amounting between Rs 9,000 crore and Rs 10,000 crore to HSBC, said the official. ICICI Prudential AMC will get 40 per cent of the balance Rs 20,000 crore in the provident fund and 30 per cent each will go to Reliance Capital AMC and State Bank of India.
The funds will be allocated to the fund houses by September 1, he added.
Earlier, HSBC offered to manage the fund at a fee of 0.0063 per cent followed by ICICI Prudential AMC’s quote of 0.0075 per cent. Reliance Capital and SBI quoted their bids at 0.01 per cent.
“We have taken a decision on who will manage which fund and accordingly the funds will be allocated,” said a government official close to the development. The annual incremental accretion amounts approximately to Rs 30,000 crore. It is divided into two funds — the pension money and the provident fund money.
The management has decided to give the full pension money amounting between Rs 9,000 crore and Rs 10,000 crore to HSBC, said the official. ICICI Prudential AMC will get 40 per cent of the balance Rs 20,000 crore in the provident fund and 30 per cent each will go to Reliance Capital AMC and State Bank of India.
The funds will be allocated to the fund houses by September 1, he added.
Earlier, HSBC offered to manage the fund at a fee of 0.0063 per cent followed by ICICI Prudential AMC’s quote of 0.0075 per cent. Reliance Capital and SBI quoted their bids at 0.01 per cent.
INSURANCE SCHEMES ARE NOT IN THE PINK OF HEALTH
New Delhi: How do you provide health care to handloom weavers, who occupy among the poorest segments in the unorganised sector? There are 6.5 million of them scattered across the country and are not always fixed in their occupation.
For the textile ministry that oversees their welfare, the answer was insurance cover — with a private company underwriting the risk. It was seen as a daring move when the scheme was launched three years ago, and has since become something of a trendsetter.
The Health Insurance Scheme for Weavers, launched in 2005, has a number of firsts to its credit. It provides medical assistance for a wide range of common ailments, which means Out Patient Department (OPD) is covered, and also allows beneficiaries to use alternative systems of medicine.
According to an official of ICICI Lombard, which put in the winning bid, the scheme is path-breaking and not just because of its geographical spread. Says Sanjay Pande, head of the insurance firm Financial Inclusion Solutions Group, which deals with government schemes: “There were so many firsts in the scheme that we were petrified.”
Progress, however, has been slow. So far 1.77 million weavers have been covered, but, given the challenges, it is “a hugely successful scheme”, claims Meenu Kumar, chief enforcement officer with the Handloom Development Commissioner’s office, who oversees the project. Among the tougher challenges: selling the scheme to the weavers and putting together a network of rural clinics and hospitals to meet the requirements of the scheme where 70 per cent of the treatment is cashless.
Because of malpractices and shortcomings, close to half of the 3,500 hospitals and clinics that were empanelled have been de-listed. A more controversial issue though is the amount of the insurance cover: beneficiaries are entitled to treatment amounting to just Rs 15,000, a pittance compared to what other government schemes offer. Textile ministry officials tend to bristle at such criticism, with one ministry functionary claiming that “the amount may seem very little but is in fact a big improvement for weavers”. A comparative analysis of health insurance schemes shows that the premium is by far the highest in the weavers’ scheme compared to the benefits offered.
Yeshasvini, the pioneering scheme launched in 2003 for cooperative farmers in Karnataka, charges just Rs 120 annually for insurance cover of Rs 1,00,000. Farmers are entitled to treatment for everyday problems in the rural areas, such as snake bites, electric shocks and farm accidents, and for sophisticated heart surgeries at the best cardiac hospitals in the state. S R Naik, CEO of the Yeshasvini Cooperative Farmers Healthcare Trust, claims with some justification that “there is no such scheme in the whole world”.
For one, it does not have an insurance company underwriting the risk and, for another, it does not use a single rupee from the premium for establishment costs. A small room with just a couple of tables and cupboards is the office of the trust where Naik, a retired official of the department of cooperatives, runs the show, backed by the machinery of the department and a third party administrator (TPA), Family Health Plan Ltd, which implements the scheme.
The TPA is paid a flat sum of Rs 50 lakh a year. But the fact is that the scheme cannot run without government support. The subsidy has been increasing sharply and this year the Karnataka government’s contribution (Rs 40 crore) has outstripped the premium collected so far (Rs 33.45 crore).
Numbers are crucial for health insurance schemes to remain viable. Pande maintains that ICICI Lombard is yet to make money on the weavers’ scheme but hopes to do so when it reaches critical mass. Fortunately for the company, it was able to clinch the subsequent tender (2007-09) also, and the higher volumes are expected to provide profits in the fourth year of operations.
Companies though are willing to pay a price for their learning experience. ICICI Lombard claims it lost heavily on other projects, such as the one for Punjab cooperative farmers (premium collected Rs 5.2 crore, claims paid Rs 28 crore) and in Jammu & Kashmir (premium income Rs 7.2 crore, pay-outs Rs 41 crore). Yet, it is, like other companies in the business of health insurance, jockeying hard for a piece of the action. Most of the contracts for government schemes are said to be hard-fought battles with very narrow differences in the bids.
Says R Sasi Ganapathy, chief operating officer of Star Health and Allied Insurance Co, which covers the risk for AP’s Rajiv Aarogyasri: “There are no big profits in this business just now. In Aarogyasri, we make very little money even though it’s the largest of its kind in the world. For us, it is a stepping stone because the experience is helping us to gain a foothold in other states.”
Star Health, India’s first stand-alone health insurance firm, has invested around Rs 14 crore in Aarogyasri. This may seem a large investment for a small firm but is small beer compared to the business it is expected to garner. The company has won the health insurance tender for three million state government employees in Tamil Nadu and is expecting more business from neighbouring states.
“The brand equity of Aarogyasri is very high and our costing will be tough for other companies to match,” asserts Ganapathy. All the same, it may not be a cakewalk in other states, where the lack of data could make risk-profiling difficult. The big battles will be over the labour ministry’s Rashtriya Swasthya Bima Yojana (RSBY). This is being put to tender on a pilot basis, and so far just three states have awarded contracts for some districts. There is big business in the offing as 16 other states are preparing to seek bids.
Source: Business Standard
For the textile ministry that oversees their welfare, the answer was insurance cover — with a private company underwriting the risk. It was seen as a daring move when the scheme was launched three years ago, and has since become something of a trendsetter.
The Health Insurance Scheme for Weavers, launched in 2005, has a number of firsts to its credit. It provides medical assistance for a wide range of common ailments, which means Out Patient Department (OPD) is covered, and also allows beneficiaries to use alternative systems of medicine.
According to an official of ICICI Lombard, which put in the winning bid, the scheme is path-breaking and not just because of its geographical spread. Says Sanjay Pande, head of the insurance firm Financial Inclusion Solutions Group, which deals with government schemes: “There were so many firsts in the scheme that we were petrified.”
Progress, however, has been slow. So far 1.77 million weavers have been covered, but, given the challenges, it is “a hugely successful scheme”, claims Meenu Kumar, chief enforcement officer with the Handloom Development Commissioner’s office, who oversees the project. Among the tougher challenges: selling the scheme to the weavers and putting together a network of rural clinics and hospitals to meet the requirements of the scheme where 70 per cent of the treatment is cashless.
Because of malpractices and shortcomings, close to half of the 3,500 hospitals and clinics that were empanelled have been de-listed. A more controversial issue though is the amount of the insurance cover: beneficiaries are entitled to treatment amounting to just Rs 15,000, a pittance compared to what other government schemes offer. Textile ministry officials tend to bristle at such criticism, with one ministry functionary claiming that “the amount may seem very little but is in fact a big improvement for weavers”. A comparative analysis of health insurance schemes shows that the premium is by far the highest in the weavers’ scheme compared to the benefits offered.
Yeshasvini, the pioneering scheme launched in 2003 for cooperative farmers in Karnataka, charges just Rs 120 annually for insurance cover of Rs 1,00,000. Farmers are entitled to treatment for everyday problems in the rural areas, such as snake bites, electric shocks and farm accidents, and for sophisticated heart surgeries at the best cardiac hospitals in the state. S R Naik, CEO of the Yeshasvini Cooperative Farmers Healthcare Trust, claims with some justification that “there is no such scheme in the whole world”.
For one, it does not have an insurance company underwriting the risk and, for another, it does not use a single rupee from the premium for establishment costs. A small room with just a couple of tables and cupboards is the office of the trust where Naik, a retired official of the department of cooperatives, runs the show, backed by the machinery of the department and a third party administrator (TPA), Family Health Plan Ltd, which implements the scheme.
The TPA is paid a flat sum of Rs 50 lakh a year. But the fact is that the scheme cannot run without government support. The subsidy has been increasing sharply and this year the Karnataka government’s contribution (Rs 40 crore) has outstripped the premium collected so far (Rs 33.45 crore).
Numbers are crucial for health insurance schemes to remain viable. Pande maintains that ICICI Lombard is yet to make money on the weavers’ scheme but hopes to do so when it reaches critical mass. Fortunately for the company, it was able to clinch the subsequent tender (2007-09) also, and the higher volumes are expected to provide profits in the fourth year of operations.
Companies though are willing to pay a price for their learning experience. ICICI Lombard claims it lost heavily on other projects, such as the one for Punjab cooperative farmers (premium collected Rs 5.2 crore, claims paid Rs 28 crore) and in Jammu & Kashmir (premium income Rs 7.2 crore, pay-outs Rs 41 crore). Yet, it is, like other companies in the business of health insurance, jockeying hard for a piece of the action. Most of the contracts for government schemes are said to be hard-fought battles with very narrow differences in the bids.
Says R Sasi Ganapathy, chief operating officer of Star Health and Allied Insurance Co, which covers the risk for AP’s Rajiv Aarogyasri: “There are no big profits in this business just now. In Aarogyasri, we make very little money even though it’s the largest of its kind in the world. For us, it is a stepping stone because the experience is helping us to gain a foothold in other states.”
Star Health, India’s first stand-alone health insurance firm, has invested around Rs 14 crore in Aarogyasri. This may seem a large investment for a small firm but is small beer compared to the business it is expected to garner. The company has won the health insurance tender for three million state government employees in Tamil Nadu and is expecting more business from neighbouring states.
“The brand equity of Aarogyasri is very high and our costing will be tough for other companies to match,” asserts Ganapathy. All the same, it may not be a cakewalk in other states, where the lack of data could make risk-profiling difficult. The big battles will be over the labour ministry’s Rashtriya Swasthya Bima Yojana (RSBY). This is being put to tender on a pilot basis, and so far just three states have awarded contracts for some districts. There is big business in the offing as 16 other states are preparing to seek bids.
Source: Business Standard
IDBI FORTIS BRANCH IN VIJAYAWADA
Hyderabad: IDBI Fortis Life Insurance Co Ltd has opened its second branch in Andhra Pradesh in Vijayawada in addition to its branch in the State Capital. It is also planning to open four more new branches in the State during the year, Ms R.M. Vishakha, President – Bancassurance, IDBI Fortis Life Insurance Co Ltd, said after inaugurating the branch, according to a release.
Source: The Hindu Business Line
MAKEOVER TIME AT BAJAJ ALLIANZ
Kolkata: Having suffered a severe downslide in growth in premium during the first quarter of the current fiscal, Bajaj Allianz Life Insurance is going in for a rejig of its operations.
It is devising a new range of unit-linked policies to compensate for the chunk of premium that came from a category of products that were discontinued since last year. It is also looking at controlling expenses.
Bajaj Allianz grew 13% in the first quarter of the current year, one of the lowest in the industry. Although the company has the second highest market share of 12.20% in the private life space, the growth has been low compared to most of the other players in the industry.
Kamesh Goyal, CEO, Bajaj Allianz told DNA Money, “Yes, there has been a low growth, mainly on account of some categories of businesses that we have almost stopped. We are not doing single premium and hardly doing group business plans. Moreover, we have discontinued the clutch of actuarially funded products. All this contributed 40-50% of the portfolio.”
Bajaj Allianz, which has one of the largest geographical spread in the industry, may not go in for much expansion in the current year. “The greatest challenge will be to manage costs while building a market share. Currently, we are well positioned, with costs comprising 14-15% of the gross written premium. But this has to be lower in a few years. This will be done by increasing market share and increasing productivity per employee,” Goyal said.
As part of its thrust on new policies, the insurer just introduced a new unit linked plan - Fortune Plus. The company also recently launched a family floater as part of its health insurance initiatives.
Commenting on the company’s growth, Rajeev Varma, analyst with Merrill Lynch said in a recent report, “Bajaj Life’s slowdown a worry. While a concern, it is too early to take a call. We expect the growth to bounce back as it scales up distribution in the coming months.”
Enam India Research analysts Punit Srivastava and Sumit Agarwal, point out, “The company has seen a moderating growth after a high growth phase. Market share of the company has seen substantial improvement.”
It is devising a new range of unit-linked policies to compensate for the chunk of premium that came from a category of products that were discontinued since last year. It is also looking at controlling expenses.
Bajaj Allianz grew 13% in the first quarter of the current year, one of the lowest in the industry. Although the company has the second highest market share of 12.20% in the private life space, the growth has been low compared to most of the other players in the industry.
Kamesh Goyal, CEO, Bajaj Allianz told DNA Money, “Yes, there has been a low growth, mainly on account of some categories of businesses that we have almost stopped. We are not doing single premium and hardly doing group business plans. Moreover, we have discontinued the clutch of actuarially funded products. All this contributed 40-50% of the portfolio.”
Bajaj Allianz, which has one of the largest geographical spread in the industry, may not go in for much expansion in the current year. “The greatest challenge will be to manage costs while building a market share. Currently, we are well positioned, with costs comprising 14-15% of the gross written premium. But this has to be lower in a few years. This will be done by increasing market share and increasing productivity per employee,” Goyal said.
As part of its thrust on new policies, the insurer just introduced a new unit linked plan - Fortune Plus. The company also recently launched a family floater as part of its health insurance initiatives.
Commenting on the company’s growth, Rajeev Varma, analyst with Merrill Lynch said in a recent report, “Bajaj Life’s slowdown a worry. While a concern, it is too early to take a call. We expect the growth to bounce back as it scales up distribution in the coming months.”
Enam India Research analysts Punit Srivastava and Sumit Agarwal, point out, “The company has seen a moderating growth after a high growth phase. Market share of the company has seen substantial improvement.”
Source: DNA
BUY YOURSELF A REAL INSURANCE COVER
Mumbai: A popular life insurance advertisement shows a husband asking his wife, “Mere bina jee paogi tum?” when she wants him to sign papers subscribing to a life insurance policy.
The wife, taken aback, replies: “Nahin.” “What will you do with all the money you will get from the life insurance in case I die?” he asks again. She then makes him understand that his signing the papers would guarantee their daughter’s education, his retirement and their overall future. “Sab guarantee matlab no tension aur tension ke bina aadmi zyaada jeeta hai na? Toh apni lambi umar ke liye... ...sign kar do,” she says. The husband signs the papers with an ironic remark: “Yaani ki lambi umar tak jhelna padega tumhe.”
The underlying theme in most life insurance advertisements is more or less similar.
As Tyler Cowen, an economist at George Mason university in the US, writes in the book, Discover your Inner Economist - Use Incentives to Fall in Love, Survive Your Next Meeting and Motivate Your Dentist, “Often, buying insurance is about investing in a story about who we are and what we care about; insurance salesmen have long recognised this fact and built their pitches around it.”
A recent insurance advertisement, which is very different from the typical life insurance advertisements, has the ‘thinking’ woman’s sex symbol, talking about people suffering from - K.I.L.B or kam insurance lene ki bimari. Never before has an insurance advertisement talked about the real problem so directly.
Most of us do not have the right level of life insurance cover. And who is to be blamed for this? To some extent our ignorance and to a large extent, life insurance companies and their agents, who are more interested in selling investment products masquerading as insurance as these fetch higher margins.
That explains why pure insurance covers (or term insurance as it is popularly known) forms a very minuscule percentage of the total amount of life insurance being sold in the country.
The first financial decision that any working professional who has a dependant family should take is get himself is a term insurance policy. In a term insurance policy, in case of death of the policyholder during the term of the policy, the nominee gets the ‘sum assured’ (or the life cover). But if the policyholder survives the period of the policy, he does not get anything.
One reason people don’t like term insurance is the fact that if they were to survive the term of the policy, they feel, the premium paid is wasted. However, what they don’t realise is that they are ‘insuring’ themselves by paying a premium and not investing. Term plans have the lowest premium among all the different insurance plans. And as we shall see, if the individual calculates the right amount of insurance cover and opts for it, the cheapest way to get it is by buying a term insurance cover.
So, how is the right amount of insurance cover calculated?
A thumb rule going is that the insurance cover of an individual should be at least 5-7 times his annual income. Going by this, if a 30-year-old earns Rs 6 lakh per annum, he should have an insurance cover of Rs 42 lakh. But this approach, though better than having no insurance cover at all, is not the only or the best way to approach the problem.
Another way to calculate the right amount of insurance cover is the human life approach. Under this, someone earning Rs 6 lakh per year is taken to be earning Rs 50,000 per month. Assume that his own expenditure per month is at Rs 10,000. The remaining Rs 40,000 goes towards meeting the family expenditure and savings. If something were to happen to him, his family, which is dependant on him, would need Rs 40,000 per month to maintain a similar standard of living. Now, to earn an income of Rs 40,000 per month at a rate of return of 8% per year, he would require an investment of Rs 60 lakh, which is the amount of insurance cover he should have. Thus, had he followed the thumb rule, he would have been underinsured.
The human life approach to calculating the amount of insurance cover is also not perfect. It does not take into account the rate of inflation. A term insurance cover of Rs 60 lakh for a period of 35 years for a 30-year-old would involve a premium of around Rs 23,000 per year. On the other hand, an endowment policy with a similar cover would require a premium payment of nearly Rs 1.6 lakh per annum, which is seven times that and clearly beyond the means of someone who earns Rs 6 lakh per year.
The other thing to keep in mind is to get a term cover for as long as possible. If in the example taken above the individual had taken a policy for 25 years, he would have needed another policy once this policy expired. At 55, he would have found it very difficult to get an insurance cover and even if he did, he would have to pay an exorbitant premium for it.
The wife, taken aback, replies: “Nahin.” “What will you do with all the money you will get from the life insurance in case I die?” he asks again. She then makes him understand that his signing the papers would guarantee their daughter’s education, his retirement and their overall future. “Sab guarantee matlab no tension aur tension ke bina aadmi zyaada jeeta hai na? Toh apni lambi umar ke liye... ...sign kar do,” she says. The husband signs the papers with an ironic remark: “Yaani ki lambi umar tak jhelna padega tumhe.”
The underlying theme in most life insurance advertisements is more or less similar.
As Tyler Cowen, an economist at George Mason university in the US, writes in the book, Discover your Inner Economist - Use Incentives to Fall in Love, Survive Your Next Meeting and Motivate Your Dentist, “Often, buying insurance is about investing in a story about who we are and what we care about; insurance salesmen have long recognised this fact and built their pitches around it.”
A recent insurance advertisement, which is very different from the typical life insurance advertisements, has the ‘thinking’ woman’s sex symbol, talking about people suffering from - K.I.L.B or kam insurance lene ki bimari. Never before has an insurance advertisement talked about the real problem so directly.
Most of us do not have the right level of life insurance cover. And who is to be blamed for this? To some extent our ignorance and to a large extent, life insurance companies and their agents, who are more interested in selling investment products masquerading as insurance as these fetch higher margins.
That explains why pure insurance covers (or term insurance as it is popularly known) forms a very minuscule percentage of the total amount of life insurance being sold in the country.
The first financial decision that any working professional who has a dependant family should take is get himself is a term insurance policy. In a term insurance policy, in case of death of the policyholder during the term of the policy, the nominee gets the ‘sum assured’ (or the life cover). But if the policyholder survives the period of the policy, he does not get anything.
One reason people don’t like term insurance is the fact that if they were to survive the term of the policy, they feel, the premium paid is wasted. However, what they don’t realise is that they are ‘insuring’ themselves by paying a premium and not investing. Term plans have the lowest premium among all the different insurance plans. And as we shall see, if the individual calculates the right amount of insurance cover and opts for it, the cheapest way to get it is by buying a term insurance cover.
So, how is the right amount of insurance cover calculated?
A thumb rule going is that the insurance cover of an individual should be at least 5-7 times his annual income. Going by this, if a 30-year-old earns Rs 6 lakh per annum, he should have an insurance cover of Rs 42 lakh. But this approach, though better than having no insurance cover at all, is not the only or the best way to approach the problem.
Another way to calculate the right amount of insurance cover is the human life approach. Under this, someone earning Rs 6 lakh per year is taken to be earning Rs 50,000 per month. Assume that his own expenditure per month is at Rs 10,000. The remaining Rs 40,000 goes towards meeting the family expenditure and savings. If something were to happen to him, his family, which is dependant on him, would need Rs 40,000 per month to maintain a similar standard of living. Now, to earn an income of Rs 40,000 per month at a rate of return of 8% per year, he would require an investment of Rs 60 lakh, which is the amount of insurance cover he should have. Thus, had he followed the thumb rule, he would have been underinsured.
The human life approach to calculating the amount of insurance cover is also not perfect. It does not take into account the rate of inflation. A term insurance cover of Rs 60 lakh for a period of 35 years for a 30-year-old would involve a premium of around Rs 23,000 per year. On the other hand, an endowment policy with a similar cover would require a premium payment of nearly Rs 1.6 lakh per annum, which is seven times that and clearly beyond the means of someone who earns Rs 6 lakh per year.
The other thing to keep in mind is to get a term cover for as long as possible. If in the example taken above the individual had taken a policy for 25 years, he would have needed another policy once this policy expired. At 55, he would have found it very difficult to get an insurance cover and even if he did, he would have to pay an exorbitant premium for it.
Source: DNA
HIGH INSURANCE LOADING DESPITE IRDA DIRECTIVE
How effective is the Insurance Regulatory and Development Authority (IRDA) directive over loading (increase) of premium during health insurance policy renewal? Despite the March 2008 instructions to public sector general insurance companies to cap loading at 75% of previous year's rates and to set up a grievance cell for the category, complaints from senior citizens continue to pour in. A high-ranking insurance official, who does not wish to be identified, says "these half-hearted measures don't work" as the regulation was issued more in the form of an advisory than a notification. In March again, P N Ojha of Mumbai-who has held a family health policy with New India Assurance Company for 19 years without making a single claim-was in for a shock when his policy went up for renewal. He was asked to pay a premium of Rs 29,401, which amounted to an over 100% loading over the previous year's Rs 14,485. New India Assurance CMD B Chakrabarti, though, says this lapse could be the result of "some operational problem" and asks the consumer to write in to get it rectified. Ojha's grouse, though, does not end here. "I received the renewal letter just days before the policy's expiry, so there was no room for discussion or negotiation. Since I am 74, I had to accept the terms. If I were to approach another insurer, they would not have accepted my application." (The insurance official says insurance companies are "very careful" with applicants who have crossed 65 years of age. An industry observer had earlier noted in this column that insurance agents are also discouraged from bringing in senior citizens). Kirti Bhatt, director, legal, at Ahmedabad's Consumer Education & Research Centre, thus emphasises that seniors cannot afford to remain without a policy. He advises them to pay the premium and only then dispute the loading. "If there is a break, an insurer will consider the new application as a fresh policy and exclude existing diseases under the pre-existing diseases clause." That is, if the insurer accepts the application in the first place. Ojha, who paid the renewal premium, has a bigger grouse with IRDA itself. He had written to the regulator's cell, which attends to senior citizens' grievances, with his case details. "Four months passed without a reply." When contacted, the new IRDA chairman Jandhyala Harinarayan asks the consumer to write in again. "We are here to help out," he assures. In another interesting twist to this case, a few days ago, Ojha received an envelope from the insurer. It contained a premium refund intimation voucher of Rs 4,028, saying "it is hereby agreed and decided to refund excess premium to insured persons above 60 years who have renewed their policies between August 16, 2007 and April 9, 2008". Ojha adds that even with this discount, the loading on his premium remains slightly above 75%. Meanwhile, K S (Kaka) Samant, general secretary at the General Insurance Pensioners' Association (western zone), advises senior citizens, whose complaints continue to languish at the IRDA, to approach the ministry of finance.
Source: The Times of India
Hyderabad: The Insurance Regulatory and Development Authority (IRDA) has constituted a committee to examine the requirements for International Financial Reporting Standards (IFRS) compliance by the insurance industry.
The 12-member panel is headed by Dr R. Kannan, Member (Actuary), IRDA. It would examine the requirements of IFRS, current availability of various requirements including accounting standards, identify gaps and suggest various measures required to fill the gaps to enable the industry move towards IFRS compliance by 2011. The panel would submit its report by March 31, 2009.
The Institute of Chartered Accountants of India had earlier announced that the accounting practice should move towards IFRS by 2011. “The accelerated globalisation of business and the internationalisation of capital markets have lent greater urgency to the drive towards more standardised reporting system. One of the important developments in the financial sector is the preparation for moving towards IFRS compliance,” IRDA said in a release.
The 12-member panel is headed by Dr R. Kannan, Member (Actuary), IRDA. It would examine the requirements of IFRS, current availability of various requirements including accounting standards, identify gaps and suggest various measures required to fill the gaps to enable the industry move towards IFRS compliance by 2011. The panel would submit its report by March 31, 2009.
The Institute of Chartered Accountants of India had earlier announced that the accounting practice should move towards IFRS by 2011. “The accelerated globalisation of business and the internationalisation of capital markets have lent greater urgency to the drive towards more standardised reporting system. One of the important developments in the financial sector is the preparation for moving towards IFRS compliance,” IRDA said in a release.
Source: The Hindu Business Line
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