MINISTRY HOPES TO MAKE PF AVAILABLE FOR ALL CITIZENS

Even as the finance minister plans to reach out to all parties and seek their support for the Pension Bill, his ministry is considering a proposal to throw open schemes floated by the public sector fund managers for government employees to all private citizens. According to government officials, the PFRDA had sought legal opinion from its advocate on the issue. “Legally, it does not pose any problems,” said PFRDA chairman D Swarup. Workers in the unorganised sector will be the biggest beneficiaries since they do not have any social security mechanism now. A finance ministry official, however, said such schemes generally become successful if backed by statute. “Ideally, the government would like to make pension funds available to all private citizens by getting the Bill passed at the earliest.”

Source: The Indian Express

FINMIN MAKES COMPROMISES TO ENSURE PASSAGE OF PENSION BILL

New Delhi: Aware of the precarious balance the UPA finds itself in Parliament and to ensure that pension reforms receive all party support, the finance ministry has compromised on four significant aspects of the Pension Fund Regulatory and Development Authority (PFRDA) Bill.

According to government officials, the finance ministry has decided to include the 26 per cent cap on foreign direct investment (FDI) in pension funds in the main Bill. This is similar to the legislation in the insurance sector that specifies the cap in the Insurance Act itself. Earlier, the ministry had proposed to relegate the FDI provision in the regulations, thus obviating the need to go back to Parliament for hiking the limit.

The second major change relates to providing subscribers the option to invest their pension fund contributions entirely in debt, making it a risk-free avenue. This has also been included in the Bill. This was done based on the recommendations of the Parliamentary Standing Committee on Finance to placate Left parties that were completely opposed to the Bill. The investment options were earlier supposed to be part of rules and regulations to be framed by the regulator once the legislation was enacted.

In allowing pension funds to invest 15 per cent of their corpus in equity (5 per cent directly in stocks and 10 per cent in equity-based mutual funds), the ministry had earlier not specified if overseas investments were allowed. Now, in an effort to find all round support, including from the Left, the ministry has proposed in the Bill that funds would not invest the corpus abroad.

The last issue relates to the choice of funds to manage the contributions of government employees who joined service after January 1, 2004. The Bill, to be introduced in the next session of Parliament, specifically says that there should be at least one public sector fund manager among the various fund managers to be appointed by the regulator. Source: Indian Express

TERRORISM IS A PART OF MOST POLICIES

Vishakha Mulye is a chartered accountant by profession and has been with ICICI Bank for 15 years. She played a major role in the merger of ICICI with ICICI Bank and was the group financial officer before she joined ICICI Lombard — a 74:26 joint venture between ICICI Bank Limited and Fairfax Financial Holdings Limited of Canada — as executive director in November last year. The shift from banking to insurance was not much of a challenge and Ms Mulye says, "I have always been in the field of financial services. The insurance segment is an extension of financial services, but a different product."

Excerpts from an interview by Yogesh Mehendale and Olga Tellis:

As the largest private general insurance company in the country, how do you see the sector today?

In India, private general insurance companies started their operations just a decade ago. So overall the industry is in a nascent stage. Ten years back, the share of the sector in the gross domestic product (GDP) was 0.5 per cent. Even today it is just 0.6 per cent of the GDP compared to four to 4.5 per cent in the US or UK. In Korea, it is 1.50 per cent and in China it is 1.20 per cent. The Indian industry has an abnormally low share in GDP. The experience in other parts of world is that the general insurance sector booms when per capita income crosses $1,000. India has crossed this, so one can say that this sector will explode in the near future.

Why has this sector been slow to grow?

General insurance is more protection based — protection of an asset. So, there is a lag in returns. People don’t think of insuring their homes and consider it an additional burden, not realising that the home can be burnt down or anything can happen. Life insurance for instance is seen as savings- based. So, life grew from one to four per cent, mutual funds from five to 15-16 per cent of the GDP and consumer loans from five to 14 per cent.

How are you meeting this challenge?

As I said, the Indian general insurance sector has tremendous scope to grow as only two per cent is spent on health, 98 per cent of the houses are not insured and even a large number of the motorcycles don’t have cover. There is demand; the question is how we cash it. We have come with several innovative products such as last minute travel insurance, insurance cover which an NRI can online gift his/her parents, cover for students studying abroad etc. We have tied up with 500 universities across the globe. So we are using technology to give better service in the form of online/mobile commerce.

What would you differentiate yourself from the other players?

Our USP is claims. In general insurance 65 per cent of the money goes back to the customer as claims settlement. How fast you settle the claim, becomes extremely important for renewal as well. For example, if our customer’s car is damaged, he can call on a toll free number and our executive will reach the spot within six hours. In this case we have a cashless option as well. We have tied up with 4,500 garages across the country.

Has de-tariffing helped the industry?

From January 2008 onwards the insurance companies have the freedom to decide the premium on the basis of the risk. Interestingly, in other countries de-tariffing led to de-growth but in India we are seeing a growth of 20 to 22 per cent.

There is a lot of expectation that the government will now permit 49 per cent FDI in insurance. Can you comment in this?

We are very excited, as the industry requires capital for growth. Currently foreign investment of 26 per cent is allowed in the insurance sector. International players are bullish on India and are interested in investing in the insurance sector.

Is there a spurt in growth for cover against terrorism considering that there have been a growing number of terrorist attacks across the country?

Terrorism is a part of most policies sold today. The Insurance Regulatory Developmental Authority (IRDA) has mandated that all general insurance companies should be allied to a common pool for terrorism insurance. As a result, the premium of terrorism insurance collected by all general insurance companies is collected in this common pool. Any terrorism related insurance claims are settled using funds from this common pool.
Source: Deccan Chronicle

MAX NY LIFE TO EXPAND DISTRIBUTION NETWORK

Ahmedabad: Max New York Life Insurance plans to expand its distribution network by opening more than 250 new offices every year for the next three to four years and increasing the number of agent advisors from the current 46,800 to 3 lakh. The growth in agency distribution will be complemented by strong growth in partnership distribution.

The capital base of the company is expected to expand to Rs 3,600 crore from the current equity base of Rs 1,232 crore. The company has clocked Rs 2,100 crore in collected premium for the January-July 2008 period, recording a growth of 81 per cent over the similar period last year.

Of this, the first year premiums contributed to Rs 1,195 crore, while earnings from renewal premium stood at Rs 905 crore. The company has acquired around 27 lakh policies since inception and is the third largest private life insurer in terms of number of policies sold till June.

The Assets Under Management (AUM) have also increased to over Rs 4,138 crore as on July 31, 2008 as compared with Rs 2,271 crore on July 31, 2007, Mr Rajesh Sud, Deputy Managing Director, said.

Focusing on customer needs, the company entered new product segments such as health insurance and retirement and better customer service delivery and claims settlement record. Between January and July, Max New York Life Insurance added more than 5,000 employees and now has over 11,000 employees. The company’s agent-advisor strength would soon be touching 50,000, he said. During 2008, the company launched more than 100 new offices and now has presence in 212 cities across the country through 311 offices.

It has a portfolio of 38 products and 8 riders for individuals and entered the health insurance segment with the launch of LifeLine Health Insurance Plans in February. Source: The Hindu Business Line

BOR MAY TIE-UP WITH BAJAJ ALLIANZ; DILUTE STAKE TO RAISE FUNDS

Mumbai: Private sector lender, Bank of Rajasthan may terminate its distribution tie-up with United India Assurance for general insurance business and is likely to enter into an agreement with Bajaj Allianz.

The agreement with Bajaj Allianz is expected to be signed this fiscal after which the existing agreement with United India Assurance would cease, a source close to the development said.

"If the alliance with Bajaj Allianz comes through, then the bank would take a decision on whether to continue with the existing tie-up or not," the source said. The bank, which is not among the top performing in the country, may also dilute 5-7 per cent of promoters' holding in a bid to infuse fresh capital of upto Rs 250 crore, the source told PTI.

The bank has been facing difficulties in raising capital from private investors owing to adverse market conditions, sources said. BoR had held talks with a host of fund houses including BNP Paribas, Max India and Avenue Capital Group for investments but it did not get positive response owing to a none-too-good performance.

When contacted, Bank of Rajasthan's Chairman & Managing Director, P L Ahuja declined to confirm or deny. Presently, the promoters hold 37.47 per cent stake in the bank and the remaining 62.53 per cent is held by the public. Source: Business Standard

FILMS SEEK ‘COVER’ AGAINST PROTEST

Mumbai: In 2006, Aamir Khan’s ‘Fanaa’ was boycotted in Gujarat after the actor spoke up for the Narmada Bachao Andolan. In early 2008, Ashutosh Gowarikar’s ‘Jodhaa Akbar’ bled after groups of Rajputs objected to its ‘‘distortion of historical fact’’. Most recently, there have been reports that a group of Sikh activists in the north was readying to agitate against Vipul Shah’s ‘Singh Is Kingg’ because they were unhappy with the way the community had been depicted.
Politics and public sentiment, Bollywood has learned the hard way, can wind it at the box-office. With community protest increasingly becoming part of the noise accompanying a film release, the industry has decided to hedge its bets. And what better way than buying insurance cover. Most new Bollywood films are insured against everything from bans to terrorism, says producer Punkej Kharbanda, who made the controversial Matrubhoomi (A Nation without Women).
As a result of this new edginess, Alliance Insurance Brokers Pvt Ltd, which deals with media-related risk, is doing brisk business. According to its director Aatur Thakkar, the policy rates depend on the type of movie being insured and on the agreement between producer and distributor. ‘‘But an average of 0.5% to 1% would be the correct indicative premium amount. So if ‘Fanaa’ is budgeted at Rs 30 crore, the insurance cover would be approximately Rs 15 to Rs 20 lakh,’’ he says. ‘‘Similarly, if ‘Jodhaa Akbar’ cost Rs 55 crore to make, the cover would amount to Rs 25 to Rs 30 lakh.’’
‘‘One reason why there are no exact insurance figures available is because producers buy cover on an approximate and not actual budget,’’ says a trade insider. Apart from traditional cover for cast/key members, props and equipment, raw stock, negatives and extra expenses, a film producer is also protected if a movie is hit by adverse weather or if there is an illness in the family.
‘‘Another attractive policy,’’ says leading Bollywood lawyer Shekhar Menon, ‘‘is the Multimedia Liability Insurance (Errors and Omissions) which protects directors from a quiver of legal claims, including those arising from defamation, libel or slander; copyright infringement (such as in the Raakesh Roshan-Ram Sampat Krazzy 4 spat or the Manoj Kumar-Shah Rukh Khan Om Shanti Om encounter); trademark infringement; invasion of privacy, plagiarism; emotion distress; negligence and even imprisonment.’’
An industry source says the producer of Ram Gopal Varma Ki Aag had a cover of Rs 10 lakh under a general insurance policy, but when he was taken to court by Sascha Sippy, he was advised to take multimedia liability insurance. ‘‘Unfortunately, most producers approach an insurance firm at the last minute with policy requests,’’ says an insurance agent.

Source: The Times of India

PF’S BITTERSWEET MONTH

It’s been a bittersweet month for the Employee Provident Fund Organisation (EPFO). On one hand it held a spectacularly successful competitive bidding for fund management that gives them good names at an unbeatable price of 0.01% of assets. On the other hand the amendment to include employers with more than ten employees (the previous limit was twenty) under PF coverage represents a tragic triumph of hope over experience and has the potential to fatally undermine EPFO’s already questionable financial sustainability.

Let’s talk about the fund management issue first. Upset with its earlier fund manager, the EFPO put up the management of its fund for competitive auction. Given tight investment guidelines (mostly sovereign but some corporate debt), fund managers quoted various fees but the final four will be paid 1/100th of 1% of incremental assets. This is a bargain and has huge implications for the proposed national pension scheme (NPS). There is much unfinished agenda (individual account asset allocation flexibility, linking and capping the employee interest credit to earnings, etc) but the auction and free choice of fund managers (unlike earlier unstated restrictions on private managers) represent policy innovation and change at its best for which the EPFO and its leadership must receive credit.

But if the decision to end the earlier fund manager monopoly will revolutionise fund management, why not apply this magic of competition to the overall cost of administration? All employers that pay their contributions into the EPFO are required to pay separate administrative fees for 1.16% of salary. This amounts to 4.64% of contributions i.e. 464 basis points. Is the cost of administration really 464 times cost of fund management? Employers that manage their own trusts are required to pay 0.18% of salary as “inspection charges”.

This amounts to 0.72% of contributions i.e. 72 basis points. Does mere inspection really cost 72 times fund management? As the fund manager auction has shown, the important question is not public or private but competition versus monopoly. Why not allow the record keeping agency for NPS i.e. NSDL to bid for EPFO administration? Better still, why not give employers a choice to pay their PF contribution to the individual anchored NPS? A benefits plan like EPFO that is anchored to employers (rather than employees) has not kept up with the morphing of the “mai baap relationship” to the current “taxicab transaction”. Organising record keeping for benefits like EPFO, ESI, EPS, EDLI, etc by employees (backpack benefits) rather than employer greatly increases portability.

The fund manager triumph notwithstanding, EPFO’s future may be doomed by the decision to increase coverage to organisations with more than 10 employees. Samuel Johnson once described second marriage as the triumph of hope over experience. While second marriages have limited downside, this toxic decision flies in the face of experience since EPFO covers less than half of its current mandate and will: a) amplify unorganised employment, and b) explode the contingent pension liability of the government.

This decision represents the death knell for attempts to increase organised employment. EPFO participation requires employees to save 24% of their salary while the IIMS Dataworks annual survey of the Invest India foundation points out that 25% of those employed in 10-19 employee firms save only 9%. Forced savings of this magnitude at lower salary levels are impossible and force informalisation. This decision represents a fundamental misunderstanding by policy makers of the Cost-to-Company (CTC) world; benefits come out of salary and are not over and above it. I guess this arises from the way government bureaucrats are paid where benefits are not monetised. I’m not even factoring in questions about EPFO’s ability to handle higher volumes without sinking already questionable service. Nobody should be surprised if unorganised employment accelerates.

Not many Provident Fund members realise that 8.33% of their salary is diverted to a defined benefit plan called the Employee Pension Scheme. The last actuarial valuation four years ago calculated the scheme deficit at Rs 22,000 crore. This liability was increasing rapidly with nothing done; it will now exponentially increase with the new members. I bet this hole will be larger than the erstwhile UTI unless benefits are reduced.

History shows that defined benefit plans are dangerous things to fool around with. In the 1950s, GM made pension promises it could not keep and trade unions knew this; union leader Walter Reuther urged auto makers to “go down to Washington and fight with us” for government pensions. In 1961, GM got away with a wage increase of 2.5% in exchange for a 12% rise in pensions. GM recently acknowledged that in the 15 years to 2007 it spent $103 billion on its legacy pensions and healthcare (versus only $13 billion in shareholder dividends). Financial markets are betting on GM declaring bankruptcy if only to dump pension liabilities onto the government operated Pension Benefit Guarantee Corporation.

EPFO, like GM, has been living beyond its means for the last few years because of regulatory capture by the left. The decision to expand coverage is delusional, akin to trying to treat obesity by mandating small sizes, and may be the beginning of the end of EPFO as we know it.

Source: The Financial Express

APOLLO DKV, MAKEMYTRIP TEAM UP

New Delhi: Apollo DKV Insurance Company, a health insurance company, has tied up with MakeMyTrip, a travel company, to introduce a domestic travel insurance solution for travellers within the country.

The alliance ensures that travellers have the option of a one-stop solution that takes care of their travel and travel insurance needs comprehensively. The new product, Easy Domestic travel, will cover travel-related risks of domestic airline passengers and would come with the added benefits of ‘TravelMate’ to take worry out of travel for all customers.

Speaking at the launch, Mr Chandrasekhar, Chief Marketing Officer, Apollo DKV, said, “Apollo DKV’s tie-up with MakeMyTrip is an important step in making insurance products readily available to large sections of the society. This partnership reiterates our commitment towards enhanced customer satisfaction.”

Mr Chandrashekhar said health insurance and travel continue to be a high-growth sector and more and more travellers are recognizing the need for travel insurance.

Source: The Hindu Business Line

MAX NEW YORK LIFE GETS ON TRACK

Kolkata: Picture this. An insurance agent accosts you while you’re en route to Delhi on the Bangalore-Rajdhani. He gives you a low-down on products you might be interested in and goes on to sell you a policy by the time you hit Delhi. If you thought this was fiction, think again? Such encounters will be a regular feature on the Bangalore, Chennai or Trivandrum Rajdhanis. Max New York Life Insurance has tied up with Railways for manning these three trains with 24 officials pitching for Max New York Life Insurance (MNYL) policies. “Indian Railways has allowed us to man these three Rajdhanis with eight officials. They will approach the passengers and explain our products. In case anybody wants to buy a cover, the sale will be concluded after he/she has reached the destination,” Rajendra Sud, director & head agency distribution told ET. Incidentally, MNYL has also adopted these three Rajdhanis whose exteriors will feature a large fast moving billboard of the private insurer. The train interiors will also be used to grab passenger mindshare. This is possibly for the first time that an insurer has decided to pitch its products on a train. Incidentally, MNYL is targeting total premium of Rs 22,000-23,000 crore by 2011, of which the first year premium is pegged at Rs 10,000 crore. “We are looking at a 10% market share by 2011, by which time the company’s share capital is expected to touch Rs 3,600 crore from Rs 1,232 crore now. We also plan to increase the number of offices from 311 to 1,600, including 928 agency offices and 739 rural offices in the next three years,” Mr Sud added.

Source: The Economic Times

MAX NY LIFE’S PREMIUM UP 81%

New Delhi: Max New York Life Insurance has announced that the company had clocked Rs 2,100 crore in collected premium for January-July 2008. This represents an 81-per cent increase over the same period last year.

Of the total premium collected, the first year premiums contributed Rs 1,195 crore, while earnings from renewal premium stood at Rs 905 crore. A release issued by the company said its assets under management has increased to over Rs 4,138 crore as on July 31, 2008, as compared to Rs 2,271 crore on July 31, 2007.

During the period January-July 2008, Max New York Life Insurance has added more than 5,000 employees and now has over 11,000 employees. The company’s agent advisor strength is now almost 50,000. Max New York Life has launched more than 100 new offices and now has presence in 212 cities across the country through 311 offices.

Source: The Hindu Business Line

LIFE INSURANCE FIRMS HIT SPEED BREAKER

Kolkata: Private life insurers players are expected to grow their new business premium by 40-60% in the current financial year, down from a 75% growth registered in the previous year.

The slump in equity markets since January (the Sensex has fallen 27% from its peak on January 8, 2008) has dented the popularity of unit linked investment plans (Ulips), which form the chunk of life insurance policies sold in India.

Punit Srivastava and Sumit Agarwal of Enam India Research said in a recent report: “There are some key risks as most policies are unit linked with high equity component. Sustained bearishness in capital markets can further reduce persistency ratios, thereby putting pressure on profitability. We estimate private players to grow at a lower 27% over the next couple of years vs~100% for the past 5 years”.

A Motilal Oswal Research report also has a cautious take on the life insurance sector. “We estimate 35-45% growth in annualised premium over the next two years for large and medium private players, lower than half of their historical growth rates”, the report said.

The numbers for the first quarter of the current fiscal show that the public sector players have fared even worse than their private sector peers. While the overall sector grew by 14%, private players logged a 73% growth. Life insurance giant LIC saw a 12% drop in new business premiums.

Source : DNA

ADVERTISING FOR INSURANCE PRODUCTS COMES OF AGE

Mumbai: In a category where an emotional pitch is often made by the advertiser, here’s a turnaround of sorts. Life insurance, which was hitherto sold through a rather guilt-inducing “buy me” proposition, is now being pushed differently.

Take for example Contract Advertising’s intrigue-building campaign for Aegon Religare Life Insurance, a new entrant in the life insurance category. Prior to its launch, the agency ran a week-long teaser campaign across the country. The ads featuring actor Irfan Khan warned people against KILB, an abbreviation which was later revealed was short for ‘Kum Insurance Lene Ki Bimaari.’

Aegon Religare chose to use under-insurance as the differentiator, almost to the point of calling it a bimaari (disease). Raghu Bhat and Manish Bhatt, executive creative directors at Contract Advertising, said AIDS or cancer kills only the infected person. “But under-insurance can ruin the entire family.”

Aegon Religare said their research provided an insight into how people usually didn’t remember their exact insured amount or how much they were paying as premium. Rajiv Jamkhedkar, CEO, Aegon Religare Life Insurance, said, “There is usually a huge gap between the lifestyle that people lead and the lifestyle that their insurance covers.”

The Rs 10 crore campaign will be unveiled across the country over the next six weeks and will include television, radio, internet and outdoor ads. The call-to-action TVCs and hoardings that were unveiled to the public on Friday urge people to call a toll-free-number to know about the “right amount” that they should invest for getting a life insurance cover. Aegon will take into consideration the consumer’s current lifestyle, expenses, family size and other factors to determine the amount.

Source- DNA