LIC not to appoint retired staff on company boards

The Life Insurance Corporation (LIC) has decided not to nominate any retired employee as a director on the board of the almost 90 companies in which it has equity or loan exposure.

The decision, which comes after LIC was involved in a tussle with one of its retired nominee directors over exercise of the employee stock option plan (Esop) in Larsen & Toubro (L&T), will be implemented once retired employees currently serving as nominee directors complete their term.

Confirming the development, sources in LIC said the corporation would send senior officials of the rank of executive director and above to the company boards.

“The average age of senior officers of the rank of executive director and above is 54; so we may not see many retirements in the near future,” they added.

In most cases, LIC appoints one of its high-level retired employees as a director on the board of a company in which it is a lender or an equity stake holder.

Industry experts said the corporation might find it difficult to meet its own criterion— designation of executive director and above—to fill up vacancies on company boards.

However, a top source in LIC said the corporation’s representation on company boards would be significantly reduced in the near future.

“Today, companies go to the capital markets to meet their fund requirements. There has been a reduction in the number of companies approaching us for a term loan and so we may not need that many nominee directors in the future,” he added.

LIC and GIC were caught in a major controversy two months ago with their representatives in L&T – Kranti Sinha and B P Deshmukh, respectively – exercising their Esops and transferring them to their personal demat accounts without informing the institutions.

LIC took legal recourse against Sinha and received a restraint order from the Bombay High Court.

Later, both directors were replaced from the L&T board and also returned their Esops to the institutions.

Source: Business Standard

Postal department to enter insurance space

TIRUCHIRAPALLI: In a bid to augment its revenue, the postal department would soon venture into life insurance space, IT and Telecom Minister A Raja said. Addressing a function at Perambalur, 45 kms from here, Raja has said the life insurance policies would be introduced at post offices across the country. Also, loans sanctioned by NABARD would be distributed to women's self help groups through post offices. This would help effective implementation of the scheme in rural areas, he said. Raja said all the 1.60 lakh post offices across the country would be computerised in a phased manner. In the first phase, Rs 40 crore has been sanctioned and under this phase and one region would be computerised in every circle of the department. At a function to mark the upgradation of a sub-post office into Head Post Office at Perambalur, Raja said a full- fledged complex would be constructed for the post office at an outlay of Rs two crore. A new building would also come up at Thuraiyur Head Post Office in Tiruchirappalli district at a cost of Rs 1 crore.

Source: Times News Network

Insurers can't take shortcuts in countryside

KOLKATA: Insurers will no longer be able to get away with selling low-value, low-premium covers to rural folk to meet their social and rural obligations. Insurance Regulatory & Development Authority (Irda) has decided to clamp down on insurers and define rural and social insurance products in terms of minimum and maximum sum assured. The regulator also intends to include micro-insurance under its definition. In a communique to insurers, Irda has said: “With a view to aligning rural and social sector obligations with micro-insurance regulations amendments, it is now decided to define the rural and social sector products for compliance with statutory obligations.” According to the letter, rural products will have to offer a minimum sum assured of Rs 5,000 for general and life insurance policies. However, health insurance for family and personal accident per person will have to be a minimum of Rs 10,000. There will, however, be no upper limit on the sum assured. Social products, on the other hand, cannot offer a sum assured beyond Rs 30,000 for general insurance covers and health cover for individual and family floaters. For term insurance and personal accident, the maximum will be Rs 50,000 per person if it’s a social policy. Insurers will also have to adhere to the minimum requirements stipulated for rural policies. Irda intends to make a formal notification soon and it is likely to be made effective from the current fiscal. The letter also says micro-insurance will now be considered a part of rural/social policies. Interestingly, Irda has now asked insurers to keep it updated about the number of policies sold. Currently, life insurance companies are required to sell 7%, 9%, 12%, 14% and 16% of their policies in rural areas in the first, second, third, fourth and fifth financial years, respectively. Non-life insurers need to earn 5% of their gross written premium from rural areas after the third year of operation. Both life and non-life insurers have to insure 20,000 lives from the social sector in the fifth year of operation. The social sector includes the informal and unorganised sector, and economically vulnerable and backward classes from the rural and urban areas. “The idea of rural and social insurance is to shield the rural poor and socially backward classes from unforeseen mishaps. It is being defeated as insurers are either selling policies to rich rural folk or are keeping them under-insured with covers that provide meagre value on sum assured,” said a senior insurance official. “A policy with a sum assured of Rs 5 lakh, if sold to someone staying in rural India, is termed rural cover and is accounted under rural/social insurance under the current norms. Similarly, insurers also sold covers with sum assured values of as low as Rs 1,000 or Rs 2,000 to meet their obligations,” the official said. On micro-insurance, Irda said in its letter: “The authority observes that there is considerable scope for using the platform of micro-insurance to qualitatively enhance the level of compliance with the rural and social sector obligation.... All micro-insurance policies may be reckoned for the purpose of fulfilment of social obligations by an insurer.” These new rules, according to Irda, will be useful in benchmarking the performance of insurers in meeting obligations of rural and social sector against the minimum requirements stipulated under regulations. “This would also check attempts to meet the quantitative requirements through low-value/low-premium policies,” the letter mentioned.

Source: Times News Network

Insurance body working on common market wording

New Delhi, June 28 The General Insurance Council, a self-regulatory body of all general insurance companies, along with general insurance companies is working on developing a common market wording. The council hopes to complete the formalities by September end and submit it to the Insurance Regulatory and Development Authority (IRDA) for approval.
The IRDA after a meeting with general insurance companies in Hyderabad on June 11 had asked the non-life companies to finalise a common market wording so that it could decide on considering advancing the second phase of detariffing from April 2008 to January 2008. Market wordings is a document which contains all the policy terms and conditions.
“We are working on developing the common market wording and are likely to submit it to the IRDA by September end. After which it would be up to the regulator as to when the date for introducing the second phase of detariffing would be notified,” Mr K.N. Bhandari, Secretary General of the General Insurance Council, told Business Line.
He added that it would take at least 90 days for the regulator to go through the document and suggest if any changes are required.
Explaining the importance of developing the common wording, Mr Bhandari said: “If total freedom is allowed, then each of the 12 companies might have different ways of wording the policy terms and conditions which might create confusion among the customers. In order to avoid such a scenario, the IRDA has suggested that there should be a common market wording that all the companies have to use.”

No timeframe
Meanwhile, Mr C.S. Rao, Chairman of the Insurance Regulatory and Development Authority, said that they have not set any timeframe for the companies to develop the market wording.
“After the meeting I told the representative of the various companies to come back once they are ready with the document. After the submission it might take at least two to three months for us to go through the contents. Only after this we will be able to decide if the second phase of detariffing can be advanced as requested by the general insurance companies,” Mr Rao said. The Chairman also said that insurers will have to identify the revised terms and conditions, flexibility needed in terms of packaging of insurance products, and alternative wordings in respect of certain areas. “However, in certain conditions there will be no changes in terms and conditions and the interests of the insured will be protected. The initiative has to come from the insurance companies,” Mr Rao said.
Insurance companies also feel that there should be competition on product innovation and packaging of products.

Limiting competition
“At the moment the limitations by the regulator is restricting competition. So what we are asking the IRDA is to do away with the restrictions and allow companies the freedom to rate the policies based on their perception of risks so that the benefits of competition may be enjoyed by the customer,” a company official said.
In the first phase of detariffing, which came into affect from January 1 this year, the IRDA had given freedom to insurance companies to fix premium rates. In the second phase, once the regulatory clearances are obtained, companies will be able to customise products for individual clients.

Source: The Hindu Business Line

Global reinsurers fail in meeting Fac Re contracts

Bangalore June 25 Faced with reinsurers defaulting in meeting claims, non-life insurers are confronted with the first major challenge since the deregulation of the industry.
Highly placed sources said that some global reinsurers had failed to entertain claims made by the primary insurers. This was especially in the case of non-treaty Facultative Reinsurance arrangements. The amount involved is estimated at around Rs 750 crore among all the non-life insurers.
Non-life insurers have entered into Facultative/Excess of loss reinsurance arrangements with some of the East Asian reinsurers. This was over and above their treaty arrangements with national reinsurers and global reinsurers.

Treaty arrangements
In treaty arrangements, the primary insurer cedes a certain percentage of the liabilities of business and the reinsurer is obliged to make good the claims as and when they arise. Facultative Reinsurance (Fac Re) is entered for specific risks that are not covered by treaties. Fac Re is an arrangement where ceding insurers offers individual risks to a reinsurer, who has the right to accept or reject each risk. Excess of loss reinsurance is done for only the portion that is not covered by the treaty reinsurance.
The sources said that most of the Fac Re contracts were placed through international reinsurance brokers. However, the sources added that the brokers had failed to respond for meeting the claims settlements. In fact, some of the primary insurers have approached the Insurance Regulatory and Development Authority (IRDA) for intervention.
But the IRDA Chairman, Mr C.S. Rao, said: "There is no question of our intervention at this juncture. This is an issue to be settled by the insurers and their customers."
However, Mr Rao made it clear, that irrespective of the reinsurers failing to settle claims, primary insurers would be expected to meet their obligations to policyholders.
Consequently insurers would have to take a hit on their own respective balance sheets for claims settlements.
Non-receipt of reinsurance claims would have to be provisioned and treated as bad assets in the balance sheets of the private sector insurers. This would though substantially damage solvency margins. Insurers are currently expected to maintain a solvency margin (the excess of value of assets and capital in excess of the insured liabilities) of 150 per cent.
The sources said that such a situation was taking place when reforms in the sector were entering the second phase. Private sector insurers have focused on building business, and ceding the same to overseas reinsurers in a bid to take advantage of high commissions and build high toplines. The commission till last year were as high as 40 per cent, though this has now declined to less than half.
Besides the major global reinsurers are unwilling to accept all the post deregulation tariffs and accordingly have opted to cherry pick. This has prompted private sector insurers to increasingly shift to second rung companies in East Asia, through intermediaries for complying with solvency.

Source: The Hindu Business Line