‘WE LEARNT A LOT FROM OUR VENDORS’: CATHRYN RILEY, AVIVA GLOBAL SERVICES CHAIRPERSON

Earlier this month, in one of the more complex transactions concluded in recent times, UK insurance major Aviva that was running some of its insurance and back-office processes through build-operate-transfer contracts with three vendors in India, sold the entire operations to WNS Global Services for a consideration of $228 million. In addition, WNS also received a commitment from Aviva that is expected to generate $1 billion in revenues over a 100-month period.

In an interview Aviva Global Services chairperson and Norwich Union Life COO, Cathryn Riley, talks about why Aviva decided to sell the operations rather than run them itself, and its future plans with WNS.

You initially transferred two of your facilities, one in Sri Lanka from WNS and one in Bangalore from 24x7. Why did you decide to sell instead of transferring the rest?

Let me go back in time to when we first set up in India about five years back under the build-operate-transfer model. The model enabled us to have a low-risk rapid entry and also benefit from the expertise of established partners over here. That has been a very successful venture but a lot has changed both in our market and in the BPO (business process outsourcing) market since. Over the last five years, we have seen the benefits of a hybrid-operating model because some facilities were with our partners and some, we had transferred. We felt it would be right to do a strategic review of the best model we should have for the next 5-10 years.

Was the review also part of the original plan or did something trigger it?

It came about later. Any sensible company takes the opportunity to step back and think about what the strategy should be after a period of five years. It’s a good, sensible business practice. When we started out on our journey, we had an open mind. We didn’t start the strategic review with the intention of doing this.

There have been a couple of studies talking about the high costs of captives and captives not being as efficient as third-party operations. Did some of these factors influence your review?

As part of the review, we looked at what was going on in the marketplace with our competitors — we looked at costs but not only at that. This wasn’t only about whether we could run this as efficiently as WNS, there were other factors as well. But I think it’s fair to say we’ve seen the benefit WNS’ expertise. They’ve been helping us over the last few years to run an efficient operation and help us manage our processes — that was one of the considerations. There were others: financial, customers, people...

What are the kind of services you’ve been doing from India and what will it be going ahead?

They range from finance and accounting, actuarial services, customer service, claims, and back office administration. We don’t intend changing that. We are looking to develop Bangalore as a centre of excellence for liability claims and Pune for motor claims. We’ll see more of a trend towards centres of excellence in line with what is happening in UK. The sale to WNS in no way changes our commitment to offshoring. Signing a 100-month deal (with WNS), in fact, underlines our commitment.

Do you expect outsourcing in insurance to pick up? Compared to the rest of banking and financial services, insurance is still small.

I don’t think insurance is different from any other industry. You’re right; banking has been a hit, which is fairly typical. Many of our UK competitors are now here. But one of the things that’s differentiated us is the way we’ve jointly managed our relationships. From day one, we’ve had very strong partnerships, whereas some other companies have been more hands off. It’s not just about coming here but how we’ve operated that’s given us competitive advantage. That has enabled our partners to understand what is it we want, what our strategic imperatives are, and to be able to keep pace with processes, practices, and changes at all levels. That marks us out from the competition.

Has there been a rise in the backlash against outsourcing in the US or the UK?

There has been some backlash over call centre operations, not so much in other areas. We as a company have been in the forefront of offshoring. We’ve been very public about our offshoring and very proud of it. The fact is, service speaks for itself. We continue to seek and listen to our customers’ feedback and work accordingly but I think the perception of the noise in UK is greater than what it really is.

What is the amount of offshoring you’ve done in the last five years?

We have around 6,000 employees here. The market was very different then from what it is now. It was a relatively immature market. We weren’t able to come in and say, this vendor is the best. We selected vendors we felt we could work in a partnership with to build something. No one vendor had one particular process. It was a low risk model for us and we were able to learn a lot from each of those of vendors. Now we’ve got something that we’re very proud of and something we intend to build on in the future.

Did you look at the option of outsourcing BPO work to your IT services vendors, Wipro and Tata Consultancy Services?

We looked into it. But we were more comfortable with the existing arrangement. We had a very successful model and we wanted to build on it. I know that is the trend to combine business outsourcing with IT, but it is more the trend in thought than in practice. I’m not sure how successful that’s been yet. But it’s something we’re aware of and which we’ll keep in mind.

Source: Shivapriya/P P Thimmaya, The Economic Times

INVESTORS CONTINUE TO PREFER ULIPs: SHIKHA SHARMA

With the government focus shifting to reforms, insurance sector could be a big beneficiary. In an exclusive interview, ICICI Prudential managing director Shikha Sharma tells ET about the state of the industry and a possible hike in the FDI limit for the sector. She feels that an increase in the limit, to 49%, would help Indian companies build a stronger and long-term relationship with their foreign partners. Excerpts:

Do you see insurance reforms happening anytime soon, now that the UPA is no longer dependent on the Left?

With the UPA winning the trust vote, it is reasonable to expect the government will pursue reformist policies more vigorously than it did in the past four years. But I think it may take some time before the final Act is passed on these lines. In fact I am less optimistic about it happening immediately as the government may first want to look at tackling some of the larger issues such as inflation. However, once the appropriate regulatory structure is in place, the industry is likely to witness consolidation. The sector is relatively new and there are currently about 18 players of which some are still small. Reforms may eventually lead to fewer but stronger players in the country.

Has the low FDI limit imposed any capital constraints on you? Do you plan to expand your capital base this year?

We plan to boost our operation and for that we definitely need to put in more money. But that is a part of our annual exercise. Our current capital base is around Rs 4,272 crore. We see India’s rural areas as the next big opportunity as the growth there is almost 13-14% compared to the metros, which are witnessing about 7% growth. We are already in talks with MFIs and NGOs to boost our penetration in rural India. Apart from strengthening our presence in the villages, we also plan to foray into the international market. West Asia has good potential as we see a demand for rupee-based products there. We have a representative office there, which promotes our brand. We are in the process of completing the regulatory requirement in India and applying for a licence for a full-fledged office in west Asia.

Will the sharp rise in inflation and the stock market slump dampen appetite for insurance products?

Insurance companies have managed to record a decent growth in this financial year so far, but sales do appear to be easing. Although our product profile hasn’t changed much, the industry has seen a marginal shift away from unit linked plans (ULIP) to traditional products. The insurance sector managed around 20% growth in the first quarter of this year compared to the corresponding period last year that saw over 30% growth. Although the industry hasn’t faced any negative growth so far, there has certainly been a mild deceleration in growth.

Has the volatility in the stock market affected the demand for ULIPs?

ULIPs have so far have been the main channel for retail investment in the stock market and comprise about 85-90% of the overall products of the insurance sector. There has been some drop in investment in ULIPs but I would say it is more like a blip. In fact, in the months to come, ULIPs will continue to be the preferred alternative for investors. For those who are not concerned about the short-term volatility in stocks, I would say this is the right time to buy. Also, while market returns are important, ULIPs cover a variety of needs, and are flexible and transparent. I do not foresee any switch from ULIPs in the long-term.

How have the first-time premium collections grown of late? Has the global slowdown or subprime crisis had any impact on the insurance sector in India?

Premium from new policies has fallen for the insurance industry in the last few months but as I said earlier, it is more like a blip. While there has been a deceleration of growth in the equity-linked and mutual fund-related products, the life insurance industry has seen a sudden jump in sales in the recent past. The global slowdown hasn’t had an impact on insurance companies in India. The industry is relatively new and it’s not dependent on the global economy.

What is your outlook for the stock market? Do you see any sharp recovery?

The stock market has witnessed a lot of fluctuation this year, after touching an all-time high in early January. Such high levels of volatility make it difficult to predict the future. But as far as I think, markets will take some time, may be eight to 12 months, to revive.

Source: The Economic Times

J Hari Narayan IRDA Chairman's first Interview

Insurers will get more options to invest in bonds
Changes in investment norms will ensure better returns for policyholders, IRDA chief Hari Narayan tells Hema Ramakrishnan
J Hari Narayan, the new chairman of Insurance Regulatory and Development Authority (IRDA), takes charge at a challenging phase, when the government is keen on pushing a legislation to increase the Foreign Direct Investment (FDI) in the insurance sector. Given the impressive growth in the life industry, the stage is all set for the next phase of reforms. The non-life industry is also set for a take-off. In his first interview after taking over, Mr Narayan dwelt on a range of issues in the insurance sector and the road ahead.
Do you expect several new entrants in the sector when the cap on FDI in insurance is hiked from 26% to 49%?
A large number of private players are already operating life and general insurance sectors.
Had the size of investment been an inhibiting factor, they would not have come in. I do not
expect several new players to rush for joint venture tie-ups if the cap on FDI in insurance is
raised. But existing players may increase their stake, which, in turn, will enhance FDI inflows.
Capital has so far not been a major constraint for the insurance industry, given the way they
have been expanding their business. Some Indian promoters have restructured their joint
ventures to expand their relative shareholding in the company. This is, perhaps, reflective of
their relative strength. But insurers need capital to meet unexpected claims, expense overruns
and investment losses. And we do see some strain among Indian partners in raising capital
whenever there is a call for greater shareholder funds. A hike in the FDI cap would help then.
Also, comprehensive changes in the insurance legislation will give IRDA flexibility to respond to
emerging market developments.
Promoters of private insurance companies were expected to dilute their shareholding through an initial public offering within 10 years of operations. Is this timeline being reviewed?
The dilution of equity stake would hinge on the final decision on the FDI cap. As the market
matures, the insurance sector would also witness churning in the form of mergers and
acquisitions (M&As). A realistic valuation of companies would be crucial. We need to do some
homework on these issues and are looking at setting up an expert group.
The hike in interest rates and downslide in the stock market have seen a dip in sales of Unit-Linked Insurance Plans. Are you concerned about it?
A rise in yields may yield better returns on fixed income plans. But Ulip sales have dipped,
which is reflected in the first quarter numbers. The data show a drop in the new business
premium of LIC. However, private companies have recorded a higher growth. The average
growth for the life insurance industry is around 14%. But these are dull months. The investment
risks in Ulips are borne entirely by the investor channelling his longterm savings in the equity
market. We will make exposure norms mandatory for Ulips to mitigate the risks arising from
investments in a few companies.
How are you tackling complaints on misselling of Ulips?
We have made it mandatory for companies to give a break-up of the charges in Ulips and the exact amount that will be available for investment during the premium payment period. The policyholder and the marketing official selling the product have to sign the premium-cum-charges statement. Any change in the charges while under-writing or finalising
the deal also has to be approved by the policy holder. We will also codify all complaints from
consumers buying insurance products systematically to have a proper data base.
Are you acting on the recommendations of the panel to provide cheaper mediclaim?

What are the core issues in health insurance?
Voluntary health insurance policies such as mediclaim come up for renewal annually.
Companies can look at a longer-renewal period. Can we have medium and long-term health
insurance products? We also need to look at actuarial issues in the pricing health insurance
products. Can we draw from countries such as Brazil and Chile that have advanced health
insurance schemes?
When will you change the investment regulation norms for insurers?
We are planning to notify the changes in investment norms shortly to give greater flexibility
to insurers to invest in debt and equity instruments. Insurance companies will be given more
options to invest in bonds floated by infrastructure companies. They will also have the leeway to
invest in mortgage-backed securities. The changes will also ensure better returns for
policyholders.
When will general insurers be given the freedom to innovate and offer composite
products?
The issue here is one of tariff wordings. The General Insurance Council (GIC) is ready with
common tariff wordings, but a section of the industry reckons that there could be scope for
misunderstanding in some terms and expressions used. GIC has been asked to take a relook at
this. The new tariff wordings will be ready by the end of this year. We will remove impediments,
if any, to product innovation.
Will you allow banks to have tie-ups with multiple insurers?
Banks are allowed to tie up now only with one company in life and one in general insurance.
One option is to have open architecture which would mean giving banks the flexibility to act as
a corporate agent for multiple insurers. We also need to have more professional insurance
agents to deepen insurance penetration in the country.
Are you looking at a risk-based capital model for the insurance sector?
Insurance companies have to transit to a risk-based model in future. This transition and the
adoption of International Financial Reporting Standards (IFRS) by 2011 have several
commonalities.
It will equip companies to handle future accounting standards and also have proper risk
management systems. When Indian insurers adopt this model, known as Solvency II, they
would have to set aside much less capital than they do now, say, for (Ulips) compared with
traditional insurance products.

‘YOU SHOULDN’T BUY A ULIP FOR INVESTMENT AND A MUTUAL FUND FOR INSURANCE’: ZANKHANA SHAH, MONEY PLANNER

Two mutual fund houses recently launched insurance features in their respective equity schemes. Rahul Jain of The Financial Express discussed the benefits and the caveats of the same with Zankhana Shah of Money Planner. Excerpts:

What could be the prime objective for adding the insurance feature in an equity mutual fund scheme, considering the current equity market situation?

There is no link between the negative sentiment in the market and providing an insurance benefit. The insurance benefit provided in an equity mutual fund scheme is a type of risk management and also gives personal cover. This feature is a very cost effective way of getting insurance with no extra cost to the investor. It is lucrative for the person who is going to take a cover for first time.

Do you think addition of the insurance component in a mutual fund scheme is actually beneficial to investors? How?

Not really because it is not substituting insurance. Insurance feature could be different in each fund house. In case of Reliance MF the insurance ceases to exist after tenure completion. Term insurance would be better for the ones who are going for a higher amount. The objective of going for investment and insurance cover is always different. You shouldn't buy a unit-linked insurance product for investment and a mutual fund product for insurance. Investors should not go for a mutual fund scheme because it has an insurance benefit.

The insurance feature in the mutual fund is limiting to switch or redeem the units because if one does so before three years, then the insurance cover expires. Your cover is related to your investment. The same is true with ULIP, where if the investment is reduced, there would be a proportionate reduction in the insurance cover.

Does this feature make the product better than ULIP and can it replace ULIP, considering the high cost structure?

Yes, it can replace/substitute a ULIP product. In ULIP there are allocation and mortality charges, which are comparatively on a higher side. If a person wants a 10-lakh cover for a tenure of 20 years, one can invest Rs 10,000 per month to get that insurance cover. However, there is a limit of Rs 15 lakh or 20 lakh insurance cover provided, unlike in ULIP where you can take Rs 50 lakh insurance as well. ULIP is being sold on the basis of insurance benefit and not investment because people go for insurance first. But if you go just for insurance, your investment needs are not fulfilled and subsequently your goals cannot be achieved. One should go for investment first and then insurance but practically it is opposite in the market.

This insurance featured product is more beneficial to the ones who are new and would like to have relatively less cover due to income limitation. Hence, one can get insurance by not paying any extra amount. This investment is less attractive for high net worth individuals (HNIs), whose insurance cover can go above 20 lakh.

Does this feature have any hidden charges other than load expenses and will that make any difference in the returns parameter?

There are no hidden charges and also it is better on the returns parameter, considering the cost involved in ULIP. A mutual fund is much more regulated and so the fund house cannot charge more than the prescribed limit unlike insurance, which comes under Irda regulation.

According to you, which one is better, if one excludes insurance benefit, mutual fund plus term insurance or ULIP? Why?

If one excludes the feature or not, mutual fund plus term insurance is much better than ULIP. The most important, as I said above, is cost effectiveness and the other is the choice of more than one fund manager. Because you can buy more than one mutual fund scheme and get the benefit of various fund managers. In ULIP if you buy more than one scheme then your total cost of insurance increases, which is nil in case of a mutual fund.

How many fund houses have introduced this feature/benefit? Do you think more will come in the near future, considering more redemption due to the downward and volatile trend?

As of date, only two fund houses have come out with the insurance feature. We could see others coming into this fray to garner more inflows. This additional feature product is also important in financial planning for any person. One more thing to note here is if all the fund houses came out with insurance, then the investor can get a higher amount of insurance with no extra cost to be borne.

Source: Financial Express

EPF HAS TO EXPAND COVER FOR COUNTRY’S SOCIAL SECURITY; NO CHANGE SEEN IN INTEREST RATE

New Delhi: The employees’ provident fund, or EPF, a savings plan under which employees contribute 12% of their basic salary and the employer contributes an equal amount to a government-administered fund that is paid out either on retirement or disability of an employee, is restricted to establishments with 20 employees and more. Recently, the Union government proposed that the benefits of EPF be extended even to establishments employing 10 persons, and to all industries in the country.

According to the National Sample Survey Organisation, a government body that conducts social and economic surveys, 44.35 million enterprises employ 79.71 million workers in the so-called unorganized sector. In its existing form, as of March 2006, the EPF scheme extends to 441,000 establishments.

Mint spoke recently to A. Viswanathan, central provident fund commissioner of the Employees’ Provident Fund Organisation, or EPFO, on this and a range of issues associated with the administration of the fund. Edited excerpts:

Where does the current decision to expand EPF coverage to firms with 10 or more employees flow from?

It (the decision) is not a sudden one. It has been on the cards for a long time. The second National Commission on Labour (2004) said we have to give security to every individual. How do you do it? Instead of expanding coverage to firms with 10 or more, or five or more and so on, they asked us to extend social security to everyone. Today, luckily we are in a stage called demographic boom. But along with a boom we have a huge lurking liability. In 30-40 years all these youngsters will become old.

What is the income support they are going to have?

The family structure is not going to stay like this. Family support which has been the backbone of Indian society for so long will break up. Due to urbanization there is strain on the family structure. EPF has to expand its coverage, otherwise society will have a problem.

The recommendation (to expand coverage) was made six years ago. EPFO itself had made this recommendation in 2003. The same board had also approved this. But it came with a rider to ensure no difficulties are caused to the workers or management, because the smaller the establishment, you have to take a lot of care to reach them for the purpose of coverage, registration, enrolment and service delivery.

How do you do that?

When this recommendation was sent to the government, they decided that the time was not right. At this time, the unorganized sector workers’ Bill has come. The Bill takes care of establishments with up to nine workers.

So, establishments with 10-19 workers will be left out. So, we thought we must cover this so that the entire population comes under a certain sustainable social security model.
A number of employers were op posing this move.

Would you like to elaborate?

No one opposed it as such.
Employers’ representatives were also of the view that social security must be provided to all. Their fear is, smaller the establishment, the employer becomes the accountant, salesman, he is everything.

They were averse to adding one more administrative burden. Their concern was how to make things simpler, make it Web-enabled or something. It was more to do with processes, the process of registration, giving benefits, etc.

Will the interest rate (on EPF) be reduced to 8.25%?

The board has not taken any such decision; 8.5% can be easily sustained. Estimates are made at the start of the year based on certain assumptions. We always make a very conservative estimate on the interest rate so that we don’t make any overdraw. We would like to sustain 8.5%. In the year 2008-09, I have no means of increasing the interest rate. Maybe at the end of this year, I would be able to say.

There was a request in the CBT (central board of trustees) that the board members must meet the Prime Minister for enhancing the interest rate and to express their views on the same. You might be able to increase rates after March 2009? Even at 8.5%, you seem to have a shortfall of about Rs139 crore.

A clear picture will emerge only later. Maybe there will be no shortfall, because, interest rates have gone up now. All that has to be factored in. As per a calculation I made a couple of months ago, I might be able to maintain 8.4% without any shortfall. We might even get 1% extra. We normally fix the interest rate well before the beginning of the financial year so that any person leaving in the middle will also get a proper rate of interest. We have not been able to do it this year or the previous year also. But when we do the arithmetic later, maybe it will be possible to give a better rate. We may be able to give 8.5% without shortfall.

So 8.5% is a good rate of interest in your opinion?

(Laughs) Yes, I am giving 8.5%, which is tax-free. Secondly, in case the employer does not pay, I am underwriting the money. The big picture is pension. To get some assured money is the greatest security.

If a person is getting more by way of interest money in banks, why would they want to continue con tributing to EPF?

Two reasons. First is that contribution made to EPF is completely tax-exempt. If you put your money in a bank deposit, you are going to be taxed. Second, today the bank rate is high, but two-three years ago what was happening? People were withdrawing because bank rates were low.

In case you are making your own investments, there is an element of risk and administrative cost. EPF can spread its risks. So, there are many good reasons why EPF is good.

Are you thinking of changing the investment mix of your fund since given the current inflation trend, returns are not that great?

We are making investments as per the mandate given by the board and investment pattern approved by the government. It will not allow me to take any risk. It is their call and wisdom. The board has decided that most money will be in bonds, including those issued by the private sector. The board has refrained from investing in equity.

This is an election year, any pres sures to increase interest rate?

No, nothing of that sort.
Even if the board decides to give 15%, the government will act as a check as it is mandated to ensure that there is no overdrawal. There was a demand to set up an EPF-like fund for enabling the Un organized Sector Workers’ Social Security Bill. But the government rejected it.

Would you like to comment?

EPF was designed keeping in mind people are going to stay in one job all their life. That they were all stable persons. What you call permanent employees. But the world has changed. Labour practices have changed. We have to change along with times but we have not done it in a very efficient manner. Until we do that, keeping a track of a large number of people is creating tremendous pressure on us.

Is the pension fund slowly collapsing? What is being done about it?

Yes, pension fund is under certain strain. If the fund is closed today, then we will have to keep paying out current members until they die. So, actuaries are saying that in 60 years, if we close the fund now, we will have a shortfall of Rs22,000 crore. The crisis is not immediate. We have already initiated certain measures to reduce the strain, and we will continue to do it. Already, a panel set up by the labour ministry is reviewing this whole scheme to suggest measures to improve it.




Source: For Mint, Krishna Urthy Ramasubu

`WE HAVE NO LISTING PLANS FOR NOW`: ANALJIT SINGH, CHAIRMAN, MNYL

New Delhi: Even as competition in the insurance sector is on the rise, Max New York Life Insurance Co, one of the top five private life insurance firms in India, has announced plans to tap the financially weaker segments of the country through a new insurance and savings scheme called Max Vijay. On the sidelines of the launch of Max Vijay, Analjit Singh, chairman of Max India, spoke to Joe C Mathew and Prashant Sahu about the company's future plans. Excerpts:

Will the government's proposed plans to raise the foreign direct investment (FDI) limit from 26 per cent to 49 per cent impact Max India?

It will allow New York Life to exercise an option to increase its equity stake in Max New York Life Insurance Co. But there will not be any impact on the joint venture business. We have already announced aggressive growth plans. The move will not have any impact on the five or six large insurance companies in India.

However, for second-tier life insurance firms, where the domestic partners are not very active, this might lead to more activity and aggression in the business. There must be some other foreign insurance companies who are waiting for this to happen to announce their plans for India. In any case, competition will increase and size of the business will grow. Overall, it is a positive for the industry.

How important is the life insurance business for Max India?

Life insurance business accounts for almost 75 per cent of Max India's revenues. It will continue to be our major revenue source. We want to be a $5-billion company by 2011-12, and two-thirds of that should come from this business. We are targeting to achieve revenue in excess of $1.7 billion by the end of March 2009.

How do you differentiate yourself from other private life insurance players?

Unlike others, Max is a pure life insurance player. For all the other existing players, the life insurance business is one among many things. For me, Max India being just a holding company, life insurance is the biggest business. You have also announced a joint venture with UK's leading insurance player BUPA for the health insurance sector. How do you intend to go forward?

There are only two or three standalone health insurance players, who have also just started. So it is too early to comment on their performance. Max Bupa Health Insurance will have a very clear business plan. Others might have announced their plans first. But it is not enough to announce it and fire. You have to aim. We are aiming (firming up business plans) for 17 months so that when we fire, we go.

How is your healthcare business?

We have big growth plans for Max Healthcare. Four new hospitals, three in Delhi and one elsewhere in the North are coming up. We are growing in the super-specialty area and will be the biggest private player that provides comprehensive healthcare at a single hospital. There were reports about Max India planning to list of each of its business arms as separate entities in the stock exchanges. Your comments.

The report was incorrect. I had said that we will list them at some point in time. It could be two years or 12 years. Right now we are not listing. I guarantee you that we are not listing them at least for the next few years.

What about your speciality plastic business? Any plans to divest unrelated segments as your focus is now on healthcare service, and the life and non-life insurance segments?

I agree that it is an odd ball in our business mix. But it is a very successful business. It is going on very well on its own. Let it continue.

Source: Business Standard

'MARKET MOVEMENT NOT AFFECTING INCREMENTAL PREMIUM INFLOWS': BRYCE JOHNS

Companies in this sector have seen good premium collections and rather in the down market are increasing their exposure in the equity market at regular intervals. Rahul Jain and Rajesh Naidu of The Financial Express discussed the contra-action and other issues with Bryce Johns, chief investment officer and development actuary of Kotak Life Insurance. Excerpts are:

In the first quarter of the current fiscal, insurance companies are estimated to have pumped in at least Rs 15,000 crore or four times what was invested a year ago. What is your take on this?
Currently insurance industry is seeing a growth of 87%. Insurance products being tax exempted, the inflow of premium mainly comes in the last quarter of every financial year i.e., from January to March. Also considering the way market has reacted from October 2007, since then the number of policies distributed has gone up. If one looks at the product portfolio of our company the equity proportion is on the higher side.

The proportion of equity and debt could be 80-20 termed as aggressive fund, 70-30 being and 50-50 as balanced one. So, due to this huge inflow of premiums and majority investors opting for equity products, it is obligatory to invest in equity. We have invested in the range of 1,300 crore to 1,500 crore and a large chunk has come in the last quarter. On the other side as an insurance company we can keep higher cash levels but in a highly inflationary economy keeping cash is not feasible.

Have you seen some action from the investor’s side like redemption or slow down in the number of policies after the crash in the equity market?
Unlike in the case of mutual fund where one can redeem any time, insurance products are much more complex and for long-term like 10 to 20 years. Hence, investors who have invested cannot redeem due to lock-in period of three years in the case of ULIP and longer period for other non-market linked products. We have not seen any surrender or switching off investment from equity to debt or balanced type. On a yearly basis switching off, however, is done on a lower side at around 5% from the total number of unit holders. One more thing to note is our investment in large-cap has helped to protect the asset size or net asset value than investment in mid-cap or small-cap.

Do you see the... current equity market situation improving?
As far as equity market is concerned there would be short-term breaks. Finance and real estate companies have boon the maximum impact. We are seeing more negative news than positive. Negative news like high oil prices due to geo-political factors and speculation in the market is driving the oil prices to an all-time high. In the domestic market, high fiscal deficit in the economy and political uncertainty are major cause of concerns. Other than this the major impact is due to high inflation and interest rates. At this point fixed deposit rates look attractive due to high interest rate environment.

All these factors result in increase risk aversion among the investors and so we do not expect a v-shaped recovery. However, if one looks at a long-term perspective nothing has changed structurally and inflows would remain positive. India’s growth story is intact and would continue in the future.

We don’t see market movement affecting the incremental inflows in premium collections. One of the advantages of ULIP product is that it can be invested on monthly, quarterly and yearly basis. Systematic investment in this market works better by taking the advantage of volatility in the market and averages the cost of investment over a period of policy term.

Can you tell which one is better, ULIP or mutual fund with term insurance?
It depends upon the investor’s time horizon to achieve its goal. If one is looking for a three to five year period then mutual fund investments are effective than ULIP and attracts much lower entry load than insurance products. And due to negative sentiment and risk aversion one can look at term insurance as one time premium paid is much lower on a yearly basis for the sum insured. But one should take caution while dealing with two advisors for two different products.

Investors looking at saving for children and retirement purpose which are for 15 to 20 years, insurance products are better-off than mutual funds as they are tailor-made to fulfill investor’s long-term objective.

What kind of new and innovative products you plan to launch in the market?
We have annuity products which has guaranteed or fixed component if the market goes down or turns negative. At Kotak Life we offer products like Kotak Dynamic fund which are similar to annuity products and has fixed interest component. There is an additional feature wherein... if market goes up the equity exposure is reduced to booked profit and when market is down equity exposure is increased at lower levels.

We also have capital protection scheme which suits better in this type of market. It has capital protection feature with insurance component also. We have seen good interest in ULIP products. They constitute majority of our portfolio compared to non-market linked and term insurance products. One can use the switch feature and can convert the units from equity to debt if market goes down and vice-versa if market goes up....


Source: The Financial Express

`POLITICAL REALIGNMENT MAY AUGUR WELL FOR REFORMS`: S B MATHUR

Mumbai: Sunil Behari Mathur, former chairman of Life Insurance Corporation and a veteran insurance professional, has a new challenge. In his new role as the Secretary General of the Life Insurance Council, an industry body that deals with policymakers and regulators, he has enhanced the image of the life insurance industry. Mathur spoke to Prashant K Sahu about a host of issues ranging from mis-selling of products to foreign investment ceiling. Excerpts from an interview

Why is life insurance penetration so low?
Since the insurance sector was opened up in 2000, the penetration of life insurance has more than doubled from around 1.5 per cent of GDP to about 4.2 per cent of GDP. The world average is around 4.5 per cent. We are coming very close to the world average. In terms of ranking, India is now at 18 compared to 30 earlier.

As we have a large population and the GDP is growing fast, penetration will continue to improve. The growth in the life insurance sector was not good last year due to a decline in the single premium and LIC did not do well. However, the insurance penetration will be close to 5 per cent in India in the next two to three years.

Premium will continue to grow at 30-40 per cent annually. Insurance companies may not have done well in April-May this year, but the business has picked up from June.

What will push the growth in life insurance?
The main engine of growth used to be unit-linked insurance products (Ulips). But as the capital markets are going through a rough time, the growth in Ulips is going to be lower this year.

Companies are now launching conventional and hybrid products with ULIP features. Growth will largely depend on how the products are marketed and the number of agents to be added. We expect an addition of about 700,000 new agents this year.

Why does one still hear complaints of mis-selling?
There have been reports of mis-selling. About 50 million policies were sold in 2007-08, of which 10 million were sold in the rural areas where awareness is not very high. There is transparency, but many people do not understand insurance products.

The industry has adopted many safeguards. Only qualified agents are now allowed to sell products. The illustration of products literature is overseen by the Insurance Regulatory and Development Authority (Irda). Moreover, the rate of returns provide a scenario of good and bad times. The council is authorised to revise these indicators.

The returns cannot be more than 10 per cent during good times and less than 6 per cent during bad times. Before the sale of products, insurance companies have to disclose the fees for asset allocation, fund management and surrender for each year.

There is a clause that allows a customer to return a policy within 15 days if some conditions were not explained earlier. These steps are taken to ensure there is no mis-selling of products.

Is the 26 per cent foreign investment ceiling affecting the insurance sector?
Insurance is a capital intensive sector. The Indian promoters, who hold 74 per cent stake, find it difficult to infuse capital as foreign promoters can only bring in 26 per cent.
We hope the realignment of political forces at the Centre will be good for economic reforms. The amendments related to the insurance sector, including more foreign investment, need to be approved.

Should the resource-raising avenues be expanded?
Something can be done right away. Out of the 150 per cent solvency requirement, 100 per cent is obligatory and 50 per cent is at the discretion of the regulator. One does hope that at least the 50 per cent discretionary portion is allowed through tier-II capital and other hybrid instruments.

Source: Business Standard

'INTEREST IN ULIPS CONTINUES TO BE POSITIVE': KSHITIJ JAIN, MD& CEO, ING VYSYA LIFE INSURANCE

There have been a spate of financial products available for the investing community at the moment, and there will be more on offer in times to come. And, there will be many more service providers. ING Vysya Life Insurance, one of the service providers, has been expanding rapidly. Kshitij Jain, MD& CEO of ING Vysya Life Insurance took some time out to answer some snappy queries posed by Akash Joshi of The Financial Express.

Excerpts:
How would you differentiate between your products and that of the competition?

Our products are customer-centric and offer excellent value. The products are easily customisable for premium paying terms (single, limited and regular), simple and easy to understand.

How would you rate your performance in the Indian market?

We have been growing at over 60%, and have 1.2% market share in individual new business premium. Last year, we undertook a major expansion, and ING Life has established its footprint in 231 cities. We have over 7,00,000 customers and over 50,000 advisors selling our products across the country. We aim to grow at a minimum of double the market growth.

Do you see any changes in customer/investor preference for insurance products in the market?

Interest in ULIP continues to be positive, and customers want to participate in the upside of the market. People are becoming more aware of insurance products and are investing more time in financial planning, which is a positive trend. Customers are beginning to plan their financials at a younger age. In the recent past, we have also noticed an increase in retirement products.

What is the strategy your organisation is employing to battle these uncertain times? What is the investing approach you would employ?

Our approach has been simple –Life insurance is for the long term. Short-term cyclical instabilities should not be a cause of concern. Investment in life insurance should be made with a long-term perspective and not short-term gains.

What are the key sectors you would be looking at right now?

We would continue to focus on pension and long-term savings segments. The two sectors have shown immense potential and we are confident that this will only continue to grow in the future.

What would your wish-list for regulatory change be?

That's a good question. The industry is looking forward to an increase in FDI cap to 49%. This will bring in the required capital to grow the market. Life Insurance companies should also be allowed a longer period for availing a set-off of carry forward of losses, as it has a longer gestation period.

What are your current plans and offerings in the Indian market?

ING Life has a large product portfolio to suit the needs for every life-stage of our customers. We have 11 traditional and 9 ULIP plans. Our products offer solutions for protection, savings, retirement, and investments.

Some recent products that were launched were two new protection plans – ING Term Life and ING Term Life Plus and a retirement plan on ULIP platform, called the ING Golden Life.

Source: The Financial Express

Direct agents channel needs to improve: M Ramadoss

Even as the de-tariffing (free pricing of products) move has just begun to take final shape, India's four public sector general insurers have been revamping their corporate structure and business practices.

One of the four — Oriental Insurance — has already kick-started moves to improve operations under the banner of project 'Nayee Disha' (new direction). The pathway to this direction has been laid in consultation with Boston Consultancy Group (BCG).

Three of the four PSU general insurers have hired BCG for the remoulding process. DNA Money's Khyati Dharamsi got a sneak peek into the areas of overhaul that M Ramadoss, chairman and managing director of Oriental Insurance, plans to undertake.

What is the first initiative suggested by BCG?

The study found that our operating officers were spending just 15% of their time in marketing products, while more than 35-45% time was consumed by the claims-settlement process. So we are segregating the claims process to separate offices. We have already established claims service centres in cities where we have more than 7 branches, and have now started focusing on cities where we have more than 5 branches.

What are the other suggestions of BCG apart from enhancing the claims settlement process?

The direct agents channel too needs to improve. Presently, direct agents have to fend for themselves. Even their commissions are delayed and there are no technical inputs, if they need any. There is no one to accompany an agent in case he is dealing with a big client. We need to ensure that he has adequate stationery to clinch a client. To execute all this, we will appoint agent managers. Each will be given 20-25 agents to handle. We have about 35,000 agents and we plan to expand their number.

Any other measures planned?

We plan to set up a centralised office for policy issuance. We also plan to set up a portal for web-based policy issuance. Also, we will enter into more tie-ups with car dealers and manufacturers and add some more distribution channels.

Are the higher commissions offered by life insurance products a hurdle in recruiting agents?

Yes. We cannot offer commissions as high as 40% that life insurance firms can. General insurance commissions are in the range of 5-15%. Moreover, the agent has to ensure that the client renews every year as general insurance products are structured on renewals. In addition, there are several issues when claims are not settled. It is more a regulatory issue. We have asked for an incremental premium. It requires an act amendment.

What has been the effect of de-tariffing on your company?

There was an expectation of an 80-90% fall in premium. But the fall was not to that extent. The fall in premium has been 17%. The fall was offset by people taking extra covers and also as volume rose.

Take for instance an existing 'good' fire policy holder, whose premium was reduced. He was suggested to take extra covers to the extent of which his premium has dropped. In these times, we were more worried about bottom line than top line. The premium on the group policies had gone up. But we lost some premium in the retail segment as competitors offered lower premiums.

Who are the major clients that you clinched this year?

We have entered into a three-and-a-half year deal with Tata Ultra Mega Power Project. We have been able to retain most of our big accounts. IOC is yet to come and we lost Mangalore Refinery and Petrochemical to Iffco-Tokio even though the difference in premium quoted was minor.

What growth are you targeting this year?

We have committed a growth of 8.6%, but we are targeting a growth of 10%.

Any actions that are planned on the third party administrator (TPAs) front?

We are planning to create a separate vertical to handle TPAs to ensure better management. There are operational issues with regards to TPAs. They are not making settlements in time. Our control on them is not very strong. We need to improve this situation to contain losses. Hospitals are losing faith in the organisation.

Some insurers are planning to form a separate division in their own organisation and discard the TPA. Do you have similar plans?

There are no immediate plans to set up a separate division. But it makes sense to do so. Of the total claims settled by TPA, merely 30-35% were cashless, the rest were reimbursements. The huge advantage proposed in having a TPA is not being met. Reimbursement claims are something even our office staff can process.

This year, we will be reviewing the TPAs and then decide what aspect of TPA management can be looked after internally.

What are the new products that you plan to offer?

We are planning to introduce a product in the motor insurance category. We also plan to launch a family floater plan on the health front.

How has the response to the senior citizens mediclaim been?

The response has been good. Agents, who were not getting full commission for selling policies to elderly, have been given full commission. We plan to review the change.

Source:
Khyati Dharamsi/ DNA MONEY