Insurers may get to innovate before april

NEW DELHI: The general insurance industry is likely to get flexibility to introduce innovative products much earlier than the April 2008 deadline set by the insurance regulator. Indications are that the current freeze on innovation would be scrapped by the end of this year. The industry has been asked to prepare a draft by September this year on the changes that should be introduced to make the policy regime more liberal. Once the new norms are approved, insurers will be able to make changes to the terms and conditions of products offered by them. This is expected to result in lower premia for customers. “We have asked general insurance companies to formulate a draft of the standardisation of clauses. The industry is of the view that they should now be able to make changes to products other than just pricing. After examining their recommendations, we may consider advancing the date from April 2008,” Insurance Regulatory & Development Authority (Irda) chairman CS Rao said. After free-pricing was allowed in January this year, policies were driven solely by pricing decisions. The costs of policies have come down and are expected to fall further once insurers get leeway to issue customised policies. The general insurance industry feels it is ready for the next stage in detariffing. But analysts feel companies are still in the process of building their databases. Companies will have a better idea of pricing risks by examining the claims ratio based on the databases of the recent past. Pricing, rather than underwriting, is raking in volumes under the free-pricing regime. This will change after product innovation is allowed. “Prices are expected to fall further, when each company gets more innovative with the terms and conditions of policies. It will require companies to have a thorough understanding of the risks they will be underwriting. It will not be an open-and-shut case of giving discounts to woo policyholders,” an industry insider said. After detariffing, Irda restricted discounts to 20% for fire and engineering, and 10% for motor rates for the first month till filed rates were approved. The bands prescribed further allowed an additional 25% discount on new rates. So the effective rate of discount is up to 45% on the old rates. While sections of the Rs 22,000-crore industry have been critical of Irda’s prescription by capping discounts, the regulator had only exercised caution to avoid a price war.
Source: Economic Times

United India Insurance Chief quits

MUMBAI, HYDERABAD, JUN 4: MK Garg, chairman & managing director, United India Insurance has put in his paper on Monday. Garg confirmed to FE that he has resigned from his post on personal grounds.
“I am quitting because of health reasons,”said Garg, who had another four years to go. Garg, a charted accountant, was appointed as the chief of United India two years ago. He had one of the longest stints at the company along with other three chiefs of state owned general insurance companies, Oriental Insurance, New India Assurance and National Insurance.

Garg who was a general manager New India Assurance before taking over as the chief of United India was of late was keen to transferred to Delhi.
However, ministry of finance was to yet act upon Garg’s request to be shifted to Delhi. Meanwhile United India Insurance Company Ltd (UII) is planning to rope in management consultants with professional expertise who can advise, assist and partner with them and help in transforming the entity to meet the future market challenges and customer demands. The company has embarked on this initiative to get back its market share in the non-life insurance industry.

The insurance company, according to information available with FE, has been losing marketshare to its competitors over the past three years. It registered the highest loss ratio of 91.80% and management expenses to net premium ratio of 43.88% among all companies. Claim settlement ratios were lower than other public sector insurers. So to put in place a total connectivity between all operating offices and to stop erosion of its market share, a massive campaign is being implemented all over the country. The company is also developing a core insurance solution. As part of this overall exercise, UII is taking the help of management consultants.

According to information available, the mandate of the consultant would be to prepare a vision statement for UII upto 2025, chart out business strategies to be adopted to become a leader in the insurance industry and identify areas of new businesses which can be explored. Besides, the consultant would also work out strategies for expansion of the company both in the domestic and international markets. The consultant would work on various processes like policy issuance, claims settlement, grievance redressal and redesign them keeping in mind the customer responsiveness and efficiency of the organisation.

Source: Financial Express 4th June 2007 (Bureaus)

'Detarriffing helps exponential growth in insurance sector'

CHENNAI: The detariffing regime has helped an exponential growth in the insurance sector and the past six to seven years have "seen a miracle", Insurance Regulatory Authority of India Chairman C S Rao said today.
"Since 2000, when the market was opened up, all our expectations have been far exceeded," he said after inaugurating a seminar on "General Insurance-Life after detariffing", organised by Industrial Economist here.
"In 2000-01, the first premium collected was Rs 9,000 crore. In 2006-07, the first premium grew to Rs 75,000 crore..That is the kind of exponential growth we have been seeing," he said.
He also called upon insurance companies to take cognisance of the shift in segments in non-life insurance. "Till sometime back, health insurance occupied the fourth place. Now it is in the third place...In an year, health insurance may occupy the second place behind vehicle insurance," he said.
The Chairman also lauded the efforts of the industry in responding to the detariffing regime. "The industry responded exceedingly well. They have been able to transform the non- life insurance."
Rao further said that a few more steps remained to be taken. "We have to give insurance companies the freedom to fix the terms and conditions," he said.
Source: PTI

LIC to boost investment 15%

MUMBAI: Life Insurance Corp of India, the nation's biggest insurer, plans to raise investment by as much as 15 per cent this fiscal year to keep pace with premium growth, the company's managing director said. The company will put as much as Rs 1.15 trillion ($28 billion) in stocks and bonds in the year that began April 1, D K Mehrotra said. The Mumbai-based insurer's investments currently exceed Rs 6 trillion, he said. ``We will continue to focus on high-yielding assets such as corporate bonds and long-term government debt,'' Mehrotra said in an interview. ``We expect corporate bonds to remain attractive in the current financial year as well.'' The added investment by Life Insurance Corp, which last fiscal year bought government debt equal to more than a quarter of federal borrowings, may help India meet rising demand for funds to fuel the second-fastest growth rate among major economies globally. India estimates it needs as much as $320 billion by 2012 to build roads, ports and power plants. Life Insurance Corp. slowed government debt purchases in the year through March to focus on higher-yielding corporate bonds. Investment in corporate debt grew ``many times'' to almost Rs 100 billion, V K Kukreja, head of investments, said without elaborating. The company purchased Rs 430 billion of federal and state government debt in the past fiscal year, which ended March 31, lower than in the previous year, according to Mehrotra. It holds Rs 2.75 trillion of federal debt and Rs 650 billion of state government debt. India's government sold Rs 1.52 trillion of bonds in the past fiscal year.

Rising Yield

Life Insurance Corp, formed in 1956, was India's only life insurer until 2000, when the nation began allowing private and overseas investment in the industry. India now has 16 life insurers, according to the country's Insurance Regulatory & Development Authority. Premium income at Life Insurance Corp. more than doubled in the year ended March 31, giving it a 74.2 per cent share of the country's market for life coverage. Rising interest rates in India helped increase the average yield on the company's debt investments last year, Mehrotra said. India's central bank has raised borrowing costs nine times since October 2004 to curb inflation stoked by economic growth that reached 9.4 per cent last fiscal year. It boosted the benchmark rate to a five-year high of 7.75 per cent on March 30.

Equity Investments

``We expect debt yields to remain attractive,'' Mehrotra said. ``Interest rates should remain high as long as the central bank maintains its current monetary stance, which aims mainly at moderating inflation.'' Benchmark 10-year government bond yields have climbed 55 basis points this year. A basis point is 0.01 percentage point. Corporate bonds yield relatively higher, making them more attractive. The yield on the benchmark 10-year corporate bond is 10.2 perc ent today, compared with 8.21 per cent on the comparable government note. Life Insurance Corp. will keep the proportion of equity investments at 10 per cent, Mehrotra said. ``Also, we put around 15 per cent of our funds in the infrastructure sector each year, buying bonds and extending loans. We will do the same this year too.'' Last month, the company bought 13 million shares of Maruti Udyog Ltd, India's biggest carmaker, when the government sold its stake. It now owns 14.8 per cent of the company and is the second-biggest shareholder.

Source: Economic Times

Ergo in talks with L&T for insurance biz

NEW DELHI: German insurance major Ergo is looking to enter India’s growing insurance business. The company is in talks with L&T Finance for a possible 26:74 joint venture in life insurance. Ergo, part of the Munich Re group, is also in talks with others in India for a separate alliance for general insurance.

“Discussions with L&T took place to understand their interest to venture into the insurance arena. Venturing into the non-life and life insurance sectors with the same partner has some potential for synergies. But it can be overall more beneficial to venture with two separate partners, depending on the respective value proposition of the individual partners,” said an Ergo spokesperson. According to industry buzz, Ergo is also holding negotiations with Indiabulls for its life insurance business. Ergo is talking to financial services major HDFC for its general insurance foray. “Ergo is, as many other foreign insurance companies planning to enter the Indian market, in regular discussions with a number of potential Indian companies,” the spokesperson added, refusing to disclose the names of the players Ergo is talking to. Several business groups like the Hindujas are planning to enter insurance through joint ventures with foreign insurers. Hindujas were earlier said to be in talks with a European insurer for its planned life insurance foray. A leading European insurer, Ergo has a premium income of almost $22 billion and is No. 2 in the German primary insurance market, with $133 billion investments. The group, which operates in 24 countries outside Germany, has 28,310 employees. Besides India, China is the other market which is high on the company’s priority list. Ergo intends to have a strong presence in both India and China by establishing new corporations and expects high returns in the property, casualty and life business segments. Following the 110% growth in the life insurance business in India in 2006-07, there has been a rise in interest in the Indian market. Similar growth rates have been witnessed by the general insurance segment, forcing International insurers to look at launching operations in India.
Source: Times News Network