Hi! Welcome to NIASoM Blog. NEWS: National Insurance Academy welcomes all members of PGDM 2011-13 Batch.Congratulations..!!!

Tuesday, September 13, 2011

Curtains on highest NAV guarantee cover plans

In a move that may further dent sales of unit-linked life insurance plans (Ulips), the Insurance Regulatory and Development Authority (Irda) is set to scrap the highest Net Asset Value (NAV) guarantee products.
Highest NAV guarantee products accounted for a fifth of Ulip sales after pension plan sales dried up following the stringent norms on Ulips from September 2010. Under the highest NAV guarantee products, customers are guaranteed returns based on the highest NAV a policy has achieved during the entire term of the insurance plan.
According to insurance industry sources, the insurance regulator is wary of a “systemic risk” associated with the way the funds are managed. Such products lay more emphasis on debt instruments and run the risk of a heavy sell-off in equities in case of a stock market fall.

* Notification by month-end
* Irda not renewing any such products
* Irda won’t approve new schemes based on highest NAV guarantee
* Highest NAV products comprise 20% Ulip sales
* MF players not allowed to have such schemes

Leading private insurers like ICICI Prudential Life, HDFC Life, Bajaj Allianz Life and Birla Sun Life all have at least one such product still in the market, but it is very unlikely that any new ones would be launched. The insurance regulator is neither renewing any existing products nor approving any new products. The markets regulator, Securities and Exchange Board of India, does not allow mutual fund houses to sell such products. Life Insurance Corporation of India (LIC) had launched two products — Wealth Plus and Samridhi Plus — which ensured returns based on the highest NAV. However, both have been withdrawn.
The insurance regulator is not comfortable with the way these products are being pitched to customers. According to industry experts, these products are not expected to do as well as simple equity oriented schemes, since insurers tend to invest substantial amounts in debt.
In addition to these, insurers are also charging an additional “guarantee charge” in these products, which ranges between 0.10-0.50 per cent of the fund value.
Over the last one year, all major life insurance companies launched highest NAV guarantee products and some of the companies also came up with more than one version.
The Life Insurance Council is also examining the issue with insurance companies and is likely to take up the matter with the regulator.

Saturday, September 3, 2011

LIC joins online play with pure term policy

 Life Insurance Corporation will sell its policy through the internet for the first time soon with the launch of a pure term plan.

"We are in the process of designing a pure term product which would be sold through both online and through agents," LIC's ED- marketing S Roy Chowdhury. "The rates will be lower than what is charged at the moment," he added.

LIC currently charges higher premium for its term plans than private competitors. For example, a 30-year-old non-smoker has to pay an annual premium of 7,300 for a 25-lakh policy under LIC's term plan Amulya Jeevan, while she can buy online policies such as ICICI Prudential's iProtect for 3,350 and Kotak Life's e-term plan for 2,750.

LIC plans to reduce this gap with the launch of its online term policy, where it can save on agent commission. Its move is expected to make private insurers reduce their rates further. The state-owned insurer is also betting big on Bancassurance, or selling policies through bank branches.

LIC's ED Vipin Anand said the insurer has set a target to double its income from Bancassurance this financial year to 5% of its total new business income. The insurer is targeting new business income of 54,000 crore this year. At present, 20 banks, including United Bank, UCO Bank, Central Bank, Corporation Bank, BoM and PNB, sell LIC policies.

LIC has announced a bonus of 21,580 crore for its policyholders for 2010-11, which is 95% of its net surplus of 22,716 crore. The rest 5% has gone to the government.

It has announced a higher bonus rate under seven with-profit plans, namely Jeevan Anand, Jeevan Tarang, Jeevan Madhur, Child Future Plan, Jeevan Shree I, Jeevan Bharti I and Jeevan Pramukh. It also announced loyalty additions for the first time in other seven plans.

Health insurers must update customers about list of hospitals

New Delhi: Health insurers offering cashless facility have been directed to keep their customers updated about any change in the list of hospitals as well as about alternative options in the vicinity, Parliament was informed on Friday.

Citing an IRDA report for 2008-09 and 2009-10, Minister of State for Finance Namo Narain Meena in a written reply informed the Lok Sabha that cashless basis of settlement is costing more for all type of diseases.

He was replying to a query whether the cashless health insurance facility was being misused by hospitals.

Meena further said to ensure that interest of policy holders is not adversely affected when the insurers make changes in their partner network of hospitals, directions have been issued to them.

"...It has directed all insurers... to inform the policyholders at all times, the nearest possible alternative hospitals, where the cashless facility is available and the conditions thereof," he added.

Insurance companies negotiate rates for certain medical procedures and normally include in the network only those hospitals, who have agreed to the rates.

Last year customers were left in a quandary following a deadlock between the four PSU insurers and major private hospitals over resumption of cashless facilities.

The four PSU insurers -- New India Assurance, United India Insurance, National Insurance and Oriental Insurance -- have suspended the cashless service at select hospitals from July 1, 2010, alleging over-billing by them.

Later on the Insurance Regulatory and Development Authority (IRDA) came out with a guideline asking insurers to constantly inform customers about the hospitals which offer cashless treatment.

Life insurers can invest in VC funds

The insurance regulator has opened the doors for life companies to invest in venture capital funds - a move that is likely to result in VC funds making a beeline for the Life Insurance Corporation of India which will have a headroom of close to Rs 30,000 crore to invest in such funds.

Until now life insurers were allowed to invest in VC funds but it was subject to the condition that the investment would be predominantly in infrastructure . Insurers say that this will create new investment opportunities for them. "This is a positive move as it opens up new avenues for investments.

Although for most private companies the size of the traditional portfolio is relatively small, it is growing steadily and should be sizeable going ahead" said Puneet Nanda, ED, ICICI Prudential Life Insurance. In a circular , IRDA said it had received a lot of queries from insurers on whether their investment were restricted only to infrastructure .

"The IRDA after inviting coments and concerns of insures clarifies that ...insurers may invest in any venture fund registered under Sebi Regulaion, which includes VC funds investing in small and medium enterprises," the circular said. IRDA has however barred insurers from investing in funds promoted within the group or by an investment manager, who is indirectly controlled or managed by the insurer or promoters. Insurers also say that this will give companies to participate in promising business at an early stage.

"Today most private companies go for a round of private equity or venture capital funding before they get listed. By the time they go for a listing, it is at a significant premium," said the investment head of a private life company. Incidentally , all Sebi regulated private equity funds are registered as venture capital funds. While IRDA has widened the scope of venture funds, it has retained the investment limits. Overall investment in VC funds will continue to be a part of the 'other investments' of a life company, which stands capped at 15% of the life fund. The maximum that a life company can invest in a venture fund would be 3% of the life fund size.

Thursday, September 1, 2011

Reliance Capital, Nippon Life to explore broader tie-up

 Reliance Capital and its Japanese partner in life insurance, Nippon Life Insurance, will explore strategic tie-ups in finance, initially in the asset management and private equity businesses of the Indian group.

Any strategic collaboration would boost Nippon Life's presence in India, while giving Reliance Capital better access to capital and expertise, analysts said.

Reliance Capital, controlled by billionaire Anil Ambani, manages assets of over $23 billion across mutual funds, pension funds, managed accounts and hedge funds. Its other businesses include insurance, broking, consumer and commercial finance.

The two firms will also explore possibilities for a distribution tie-up in India for Nippon Life's funds. Japanese companies are stepping up the pace of their overseas expansion after the devastating March 11 earthquake provided another spur to escape a moribund domestic economy.

Reliance Capital's net profit in the June quarter more than halved with income across its core businesses dropping.

Last month, brokerage ICICI Direct said it expected the firm's asset management business to improve due to a greater focus on the retail segment while Citigroup said stiff competition, sluggish inflows, and weak recovery prospects would hurt in the near-term.

In March, Nippon, the world's No.7 life insurer, agreed to pay $680 million to buy a 26 percent stake in Reliance Life Insurance, valuing the business at $2.6 billion.

Indian rules bar foreign firms from owning more than 26 percent in insurance joint ventures with local firms.

Reliance Capital saw a 59-percent fall in its annual premium equivalent in its insurance business for the quarter to end-June, but analysts expect the fund infusion by Nippon to boost its valuation.

Shares of Reliance Capital have fallen about 43 percent in 2011 so far, but analysts see this as a good opportunity to buy.

Shares in Reliance Capital closed up 1.8 percent at 384.2 rupees in a firm Mumbai market on Tuesday. Indian markets remained closed on Wednesday and Thursday for religious holidays.


Wednesday, August 31, 2011

Hurricane Irene FAQs: What Is Covered–Or Not–In Your Insurance Policies

Insurance companies are already handling claims and working to get people back to normal after the devastation caused by Hurricane Irene this weekend. Because of the widespread scope of hurricane damage, insurers give those who suffered the most damage first priority. Claims adjusters are already on the scene of the most severely impacted neighborhoods, and in addition to settling claims, they are answering many questions about how insurance works following a natural disaster. The Insurance Information Institute has outlined some of those questions below.


1. Is damage from hurricane winds covered under my homeowners insurance policy?
Property insurance covers damage from windstorms, such as hurricanes and tornadoes, to the “residence premises,” whether it is a single-family home, a duplex where the policyholder lives in one of the units, or any other building where the policyholder resides as shown on the insurance declarations page. Dwelling coverage also applies to an attached structure, such as a garage or deck. A standard homeowners policy also covers “other structures” that are unattached, such as a separate garage building or shed and swimming pools. The policy also includes coverage for damage to contents.
Damage from flooding, including flooding generated by hurricane-generated storm surge typically is not covered under a standard homeowners policy. Flood insurance is available from the National Flood Insurance Program (NFIP).
2. Does my renters insurance cover damage from hurricane winds?
A “tenant homeowner policy” or renters policy covers personal belongings that may be damaged from the storm by wind. Damage from flooding may be covered under some renters policies, although most require separate policies be purchased from the NFIP. Damage unrelated to your personal possessions, such as part of the apartment’s structure like walls and floors, is covered under the policy of the building owner.
3. Are flood losses covered under my homeowners insurance policy? How will insurers handle claims that involve both wind and flood damage?
While there are a few exceptions, the vast majority of homeowners and renters insurance policies do not cover flood damage. Flood coverage requires a separate policy from the federal government’s National Flood Insurance Program (NFIP). If you purchased a flood policy, in most cases you can file a flood claim with your insurer, although some companies may have you file directly with the NFIP. Some companies may send a single adjuster to handle both the flood and wind claim, while others may send two claims professionals who specialize in distinguishing between the two types of loss. Determining the precise cause of damage is necessary to properly pay the claim.
4. Is storm surge considered flood damage?
Yes, the insurance contract has a clause that excludes the liability for damage caused by flooding, and storm surge is flooding.
5. I live in a condo/co-op. Am I covered for hurricane damage to my unit?
If you have purchased a homeowners policy tailored to condominiums or a co-op, you would be covered for damage to the interior space of your home. The condo association’s insurance might have coverage for your fixtures, wiring or plumbing, or it may only provide coverage from the “bare walls” and not what is behind them, so you should obtain a copy of the master policy to understand what is covered.
6. Is flooding covered under a condo/co-op insurance policy?
Flood damage to the building is covered only if the condo/co-op association purchased a separate flood policy, either from the NFIP or through a private insurance company. This flood insurance would cover only the structure itself, including common areas; the condo-co-op flood insurance policy will not pay for damage caused by flood waters to the personal belongings of individual tenants. Tenants would have flood damage coverage only under their own flood policy, if they purchased one.
7. My car was flooded in the storm. Is it covered?
Flood damage to vehicles is covered if you have purchased comprehensive coverage, also known as “other than collision” coverage, which is optional with a standard auto policy.
8. If I make temporary repairs to my home, will I get reimbursed?
Yes. Do not wait until a claims adjuster arrives to make temporary repairs needed to prevent further damage. Most policies have a provision to reimburse you for the expenses of reasonable and necessary repairs that protects against more damage, up to a specified dollar amount. Be sure to save all the receipts from your repair purchases.
9. The power went out during the storm and food in the refrigerator and freezer were spoiled. Is that covered?
Following a hurricane, most insurance companies include food-spoilage coverage, usually for a set amount that can range from $250 to $500 per appliance. In a non-storm situation, however, if you lose electrical power without damage to the residence, it is typically not covered in the insurance policy.
Most policies include coverage for “sudden and accidental damage from artificially generated electrical current,” meaning that a power surge would be covered that damaged the building and items considered part of your home, such as a built-in range or heating/air conditioning system, but not damage to transistors, computer chips and other similar items. This means damage from a power surge would not cover items such as televisions, VCRs, and computers.
10. Should I file a claim if the damage is less than my deductible?
Yes. Sometimes there may be additional damage that becomes evident in the months following a significant storm. Filing a claim, even if the damage total is under your deductible, will protect you in the event further repairs are needed. And if your home suffers damage from more than one storm in a single season, the damage from the first storm may apply toward the deductible amount.
11. My home was not damaged, but can I file a claim for the large tree that fell in my yard?
Homeowners insurance policies do not pay for removal of trees or landscaping debris that did no damage to an insured structure. If a tree hit your home, that damage is covered. If your tree fell on your neighbor’s yard, his or her insurance company would pay for the damage; however, if the felled tree was poorly maintained or diseased and you took no steps to take care of it, their insurer may seek reimbursement from you for the damages.
12. My home is uninhabitable. Does my policy cover temporary living expenses?
Most policies cover additional living expenses, which are the extra charges over and above your customary living expenses incurred when you are displaced from your home and need temporary shelter. The amount is generally 20 percent of the insurance you have on your home. Some insurers pay more than 20 percent; others limit additional living expenses to an amount spent during a specific time period. You should always check with your insurer to be sure you understand what this coverage allows. Keep all your receipts to document your expenditures.
13. If I evacuated due to the storm, are my evacuation expenses covered?
It depends on what is stated within your insurance policy. Generally, mandatory evacuation expenses are covered under certain conditions.
14. I have a percentage deductible for hurricane damage. How do I know what my out-of-pocket costs are?
The declarations page of your insurance policy details the exact dollar amount of your hurricane deductible. Whether a hurricane deductible applies to a claim depends on the specific “trigger”, which can vary by state and insurer and is usually linked to wind speeds. Percentage deductibles were adopted by many coastal states to lower the cost of annual insurance premiums and have those impacted by the storm more directly pay for recovery costs.
Source- Insurance Information Institute.

Sunday, August 28, 2011

Irene's Caribbean rampage could cost insurers $1.1bn - AIR

Insured losses from Hurricane Irene's rampage through the Caribbean will cost insurers between $500m and $1.1bn, risk modelling firm AIR Worldwide estimates.

The modeller expects losses from the Bahamas, which Irene hit yesterday, will account for 60% of the total - between $300m and $700m.

AIR said the estimate includes wind and precipitation-induced flood damage to insured onshore residential, commercial and industrial properties (and their contents), automobiles, and business interruption losses. The estimate covers the Bahamas, Puerto Rico, Dominican Republic, Turks and Caicos, and other Caribbean territories.

As of 08.00 Eastern Time on Friday Irene was rated category 2 on the Saffir-Simpson scale and was located 375 miles south-southwest of Cape Hatteras, North Carolina. The storm is expected to make landfall on the Outer Banks of North Carolina on Saturday afternoon local time as a category 3 storm.

Forecasts suggest Irene could make a second landfall on Long Island, New York, as a category 1 storm on Sunday. Risk modelling firm RMS said there is a high potential for New York City to be affected by the storm. Irene's large windfield could mean that some effects of the storm will extend beyond the Tri-State area of New York, New Jersey and Connecticut, the modeller said.

Sunday, July 31, 2011

Q&A: US debt crisis

The battle between the White House and Congress continues over how to raise the US debt ceiling. If the 2 August deadline is missed, the government could quickly run out of money.
Why is the debt ceiling so important?
The US government has a legal limit on how much debt it can run up – $14.3tn at present. It reached the cap in May, which means it cannot borrow any more money.
So how has America been keeping afloat since then?
Treasury secretary Tim Geithner managed to stave off default by suspending payments into two federal pension funds, pledging to repay the money once Congress has approved a higher debt ceiling.
Why can't Barack Obama just raise the debt limit?
Under the US constitution, all government borrowing has to be approved by Congress, and this has led to a protracted stalemate between Republicans and Democrats. The borrowing limit was introduced in 1917 to make it easier for the government to fund its efforts in the first world war. Since then the ceiling has been lifted numerous times – usually it is just a formality. It can also go the other way. During the 1950s economic boom, Congress voted to lower the limit twice.
So what's different this time? Why can't the two sides agree?
Since the financial crisis and recession government spending has soared while tax revenues have suffered, driving up the government's deficit. The Republicans, who control the House of Representatives, insist that the government must cut the deficit first before any agreement on raising the debt limit can be reached.
Has there been any progress in the debt talks?
Both sides accept that the deficit needs to be brought under control, but have different ideas about how to go about it. The main sticking points have been the Republicans' resistance to tax rises and calls for bigger spending cuts than have been backed by the Democrats. The Democrats also want to shield healthcare programmes for the elderly and poor from the cuts. After chaotic scenes in the House on Thursday night, Republicans called an emergency meeting for Friday morning to try to get their plan through the House.
What happens if a deal can't be agreed by Tuesday?
The US treasury estimates that funds will dry up by then, which would leave the government unable to pay its bills – such as social security payments, Medicare, military salaries and debt interest payments. The Republicans claim that the government would get by for a few more days after 2 August, but there is no doubt that the two sides need to agree a deal soon.
How have financial markets reacted?
Investors have become more nervous, and the dollar was under pressure on Friday. Moody's has put America's credit rating on negative watch.
What impact would a default have?
US treasury secretary Timothy Geithner has said a US default would have 'catastrophic' results.
 It would trigger a major global panic. Standard & Poor's has said it would slash the US credit rating from AAA (the top) to D (the bottom). That means banks would technically be barred from using US debt as collateral with central banks, although these rules could be changed.

Monday, July 18, 2011

Soon, your visit to doctor too could be covered by insurance

A government health insurance scheme providing hospital cover to over 23 million poor households will also pay for visits to the doctor and medication if pilot projects currently underway prove feasible. The labour ministry, in collaboration with the International Labour Organisation (ILO) and ICICI Foundation , has launched the first Rashtriya Swasthya Bima Yojana (RSBY) pilot project in Puri, Orissa, this month, covering both outpatient and inpatient care for the beneficiaries of the flagship scheme, which has been extended beyond BPL families to unorganised sectors such as construction workers, beedi makers, domestic workers and street vendors. 

Under the the proposal, RSBY beneficiaries can make 10 free visits a year to empanelled hospitals and doctors and get free medicines. The pilot scheme entitles empanelled doctors and hospitals in Puri to insurance claim of Rs 50 for every visit by RSBY beneficiaries. It covers medicine costs too, though up to a limit that would be prescribed later depending on bids put in by insurance companies. To ensure that medicine costs do not push up the insurance cover, the labour ministry is working with the National Rural Health Mission on a list of cheap generic medicines that the doctors will have to provide.The extension of the scheme is feasible as the government would have to give only about Rs 200 more annually for each beneficiary family, Swarup said. This would be over and above the premium charged currently by insurance companies for the RSBY scheme. It varies in each state, averaging around Rs 500 per family. What needs to be tested, however, is the practicality of implementing the scheme because it would be more difficult to monitor than the hospitalisation scheme as here patients would walk away after being treated. When a patient comes for consultation, his card is swept in the scanner and his ailment, diagnosis and medication fed into the reader. This data is then transmitted to the central server and monitored by insurance companies and the government. The patient is given a printout of the details of visit and treatment. The RSBY covers a family of five for a token registration fee of Rs 30 and provides annual hospitalisation cover of Rs 30,000.


Wednesday, July 13, 2011

New Swiss Re sigma study “World insurance in 2010” reveals growth in global premium volume and capital

  • Global premium volume rose solidly in 2010, driven by economic growth, rebound in capital and solvency
  • Emerging countries continued to gain in importance - China became the 6th largest insurance market
  • Investment income suffered from low interest rates

According to Swiss Re’s latest “World insurance in 2010” sigma study, world insurance premium volume increased 2.7% on an inflation-adjusted basis. Life premiums rose by 3.2%, non-life by 2.1%. Premium growth in emerging markets accelerated. The industry’s capital and solvency improved, while low interest rates weighed on investment income.
The insurance industry is back to growth, as shown by Swiss Re's annual assessment of global insurance markets for 2010. Premium volume grew in three quarters of the 78 markets covered in the publication. Growth was particularly strong in emerging markets. At the same time capital and solvency in the insurance industry improved robustly but low interest rates still had a negative impact on profitability.

Global life premiums rose by 3.2%

Life insurance premiums globally grew 3.2% to USD 2 520 billion in 2010. Growth was especially strong in Asian emerging markets and robust in some large European markets. In the US and the UK, premiums declined, though at a more modest pace than 2009. While low interest rates negatively impacted life insurers’ profitability, they contributed to a strong improvement in the life industry’s accounting capital position by increasing the value of life insurers' bond portfolios.
Daniel Staib, one of the authors of the new sigma study, says: “The dominating picture is that the industry is on the way back to the long-term growth trend. In fact, in some continental European countries, growth in the past year could be said to be very strong because sales of single premium products with comparatively attractive guarantees increased strongly."
In emerging markets, life premiums rose by 13%. South & East Asia was the region that had the strongest growth, at 18%, led by China, with strong demand for both traditional and investment-linked products. Latin America and the Caribbean were not far behind, at 12%, led by Brazil.

Non-life premium increased by 2.1% in 2010

Global non-life insurance premiums rose by 2.1% in 2010. In emerging and newly industrialised Asian countries, the strong economic rebound increased demand for insurance cover. Premium volume rose in Europe and the US as well. Industry capital continued its positive development and rose to a record high in 2010.
Underwriting results deteriorated by most in the US and turned negative in large European markets, in the latter case due to dismal motor results. In the eight largest markets, premium income did not fully cover claims payments and other costs for the second year in a row. “The average combined ratio of these leading markets worsened to 103%, compared to 101% in 2009. Given recent catastrophe loss events, it is clear that global underwriting results will deteriorate further in 2011. This indicates that prices are inadequate. In some markets, such as Italy and the UK, rates began to mount, most notably in the personal motor business, signaling that the underwriting cycle is at long last beginning to turn,” says Staib.

Outlook: Strong focus on growth in 2011

Despite lingering uncertainty, the economic recovery should continue and bolster premium growth in the life and non-life sectors globally in 2011. However, investment income in both life and non-life sectors will remain low given that interest rates will only rise slowly, at best.
"In terms of the mature markets, growth in life insurance is expected to turn positive in the US, while in Western Europe, premium growth could slow down slightly, as rising interest rates will make life policies with interest rate guarantees less attractive,” says Staib. Over the longer term, the fact that our ageing societies increasingly need provisions for old age continues to be positive for life insurers. In non-life, the trend is towards higher premium growth in 2011. This trend will strengthen as premium rates begin to get adjusted upwards.
The global market share of emerging countries is expected to continue to increase strongly from today’s 14% over the next ten years. China is likely to become the second largest insurance market within a decade (in 2010 it is the sixth largest).
The main risks to the outlook are an escalation of the euro sovereign debt crisis or a major oil shortage caused by turmoil in major oil producing countries.
The study is the first public assessment of the performance of global insurance markets in 2010. The 78 markets, where data or estimates for 2010 are available, account for 98% of global premium volume. Overall, the report is based on 147 insurance markets.

source-swiss-re website.

India's biggest farm equipment maker Mahindra & Mahindra plans to venture into general insurance business

MUMBAI: Mahindra & Mahindra Group , the biggest farm equipment makers in the country, is planning to tie-up with an experienced company to venture into the Rs. 40,000-crore general insurance business, which is growing at around 20% a year. 

The group, which has a lending business in Mahindra & Mahindra Financial Services Ltd , has mandated consultants KPMG to find a partner who would have technical experience in running a general insurance business, including writing covers for industrial accidents and automobiles. 

The group is present in the insurance broking business through Mahindra Insurance Brokers . Magma is the last NBFC to enter into non-life space by manufacturing insurance products. 

Magma Fincorp and its associate company, Celica Developers , have formed a joint venture with German insurer, HDI-Gerling to foray into insurance. Another conglomerate L&T has started an insurance subsidiary last year. The general insurance arm of the company is a 100% owned subsidiary of L&T without a foreign partner. 

Mahindra will be the 24th non-life insurer in the industry. There are 23 non-life insurance companies, of which four are public sector insurers. The entry of new players could put pressure on premium rates. 

Saturday, July 9, 2011

HDFC plans IPO for insurance business in two years

Housing Development Finance Corporation(HDFC) on Friday said that it may come out with an initial public offering (IPO) for its insurance business in about two years. 

"We are planning to come up with an IPO for insurance in two years," HDFC Chairman Deepak Parekh said at the annual general meeting ( AGM )) of the company. 

Parekh said the new Insurance Regulatory and Development Authority (IRDA) guidelines that allow life insurers to float an IPO without three year profitability clause would help but said the firm would need to discuss about it with its partner Standard Life. 

He said Standard Life would have to increase its stake to 49 per cent from the current 26 per cent, so that part of its shares (the increased stake) can be offered to the investors. 

Source- Economic times

Wednesday, July 6, 2011

IRDA scraps profit rule for life insurance IPOs

The insurance regulator has scrapped the minimum three year profitability clause for life insurers to float initial public offerings, throwing a lifeline for many companies that would have struggled for capital. The Insurance Regulatory and Development Authority , or Irda, took the decision in a recent board meeting, two people familiar with the matter said. 

The decision to do away with the requirement, which was part of the draft guidelines for IPOs, follows lobbying by insurance firms that the absence of higher foreign investment and access to public funds could cripple their businesses. Valuing insurance companies in India may become tricky with some arguing they are at a growth stage and the market has huge potential. While insurers may look for high valuations due to market potential, their losses could be talked down as it happened in the case of dotcom companies. The insurance regulator had prescribed a minimum embedded value for which the insurers objected to and sought flexibility. 


Industry welcomes draft Bill on microfinance

The government on Wednesday released the draft of a new Bill to govern microfinance institutions (MFIs) that will, if approved in its entirety, take them outside the purview of state-level legislation, including the Andhra Pradesh law that has thrown the industry into crisis.
The Microfinance Institutions (Development and Regulation) Bill gives more powers to the Reserve Bank of India (RBI) to regulate microlenders. It will cover all MFIs, including the smaller ones. MFIs give tiny loans to poor borrowers at around 24% interest. The Bill has to be approved by the cabinet and Parliament before it becomes law.

More than a quarter of the industry is concentrated in Andhra Pradesh, which promulgated a law in October restricting operations of microlenders. This led to a drastic rise in bad loans as borrowers stopped repaying debt. Banks in turn stopped lending to MFIs. The state law, which had been preceded by an ordinance, followed reports of coercion in recovering loans that allegedly led to suicides.
Early this year, RBI issued regulations to govern MFIs operating as non-banking financial companies, based on the recommendations of an expert committee headed by noted chartered accountant Y.H. Malegam. The new rules capped the interest rate MFIs can charge at 26% and made a minimum two-year tenure mandatory for all loans above `15,000.
While the panel looked into operational issues, the new Bill provides an overarching framework, signalling the government’s stand on the importance of the industry, said Mathew Titus, executive director of Sa-Dhan, an association of MFIs.
In what could affect the larger institutions, the Bill says that any MFI that becomes systemically important will have to register itself under the Companies Act.
The draft Bill also proposes the setting up of a Microfinance Development Council, which will advise the government on policies and programmes required for the development of the sector.
The members of the council will represent the industry, the government, RBI, the National Housing Bank, the National Bank for Agriculture and Rural Development (Nabard) and the Small Industries Development Bank of India. The council will also look into establishing credit information bureaus for the creation of a database of clients who avail of microfinance services from various agencies.
The draft legislation proposes to establish state advisory councils for close coordination between the states and the Centre with regard to the working of the industry.
The Bill also envisages a Microfinance Development Fund to be constituted by RBI to provide loans, refinance, grants, seed capital or any other financial assistance to any MFI and to which all government grants received and fees payable for this sector will go. The Bill will also empower RBI to ask MFIs to cease their activities if warranted upon inspection of the accounts. It will also be able to cancel registration granted to the MFI.
It also gives RBI the option of delegating its powers to Nabard in respect of any MFI or class of MFI. The earlier draft of the Bill had envisaged Nabard as the regulator for smaller MFIs, a move that was opposed by RBI.

Sunday, July 3, 2011

Japan earthquake and nuclear catastrophe leaves a Rs 400 crore hole in GIC books

The General Insurance Corporation of India (GIC), the designated national reinsurer, has seen a claim of Rs 400 crore from the catastrophe in Japan. Japan was hit by an earthquake on March 11 this year. This was followed by tsunami and fire outbreak that lasted for close to a week. The entire catastrophe has taken the total economic loss to the extent of $409 billion. "We have seen a loss to the extent of Rs 400 crore from the crisis in Japan," said GIC chairman and managing director Yogesh Lohiya. He said the total economic loss was estimated at around $409 billion.
The insured loss, however, is estimated to be around $40 billion, he added. GIC had mainly reinsured the property risks for catastrophic events. Mr Lohiya said that the entire loss to commercial properties is borne by insurance companies against 80% of the damage to the residential properties absorbed by the government in Japan, while the remaining 20% is with insurance companies. The recent catastrophic events such as floods in Australia, quakes in New Zealand and tsunami in Japan had led to reinsurers to raise rates.

India's RSBY scheme evokes keen interest overseas

Countries like Nigeria,Ghana,Maldives and Bangladesh had evinced keen interest in India's social security schemes,especially Rashtriya Swasthya Bima Yojana and on implementing similar ones back home, Minister for Labour and Employment Mallikarujuna Kharge said here today.
Addressing a state-level workshop on RSBY here,he said RSBY had been appreciated on global platforms like ILO and G-20 Labour Ministers Conference in Washington."Some countries were keen on learning about the scheme and implementing a similar one in their respective countries," he said.
He claimed that RSBY has been rated as one of the top 18 schemes by an international body.
Anil Swarup, Director General, Labour Welfare, Delhi, said a Bangaldesh delegation had twice met Indian officials while similar interactions had taken place with those from Maldives and Nigeria. They had sought guidance on tehnical matters, issue of smart cards and implementation of the scheme,he said.

Proposed new insurance norms may adversely impact mergers

India's insurance regulator may be attempting to override legal provisions while also seeking to prevent promoters from exiting ventures within 10 years of starting operations, experts feel. 

Their cause of concern is the recent draft guidelines issued by the Insurance Regulatory and Development Authority -- formally titled the IRDA (Issues of Capital and Disclosure Requirements for Life Insurance Companies) Regulations, 2011. The proposed regulations are to govern the initial public offering by life insurers or for dilution of stake by the promoters. The insurance regulator has called for comments and views on the draft regulations before finalising the same. "According to its apparent tenor, the proposed regulations would prevent promoters from exiting their venture or roping in new partners within 10 years of operations," said D. Varadarajan, a Supreme Court lawyer specialising in company and insurance laws. As per the draft regulations, promoters of life insurance companies can dilute or divest their holdings after 10 years of operations by: 
- issuing capital under the inter-corporate deposit regulations; 
- divesting equity through inter-corporate deposit regulations; and 
- issuing capital or divesting through other means.

The catch lies in the fact that under the proposed norms, the 10-year operations clause may become mandatory for insurance companies proposing to raise capital through a public issue under inter-corporate deposit norms, or if a promoter intends to reduce stake. Experts maintain while the Insurance Act does not bar insurers from going public within 10 years of operations, the regulator may interpret the new norms as though the 10-year operations clause is mandatory, which could hit their future plans to raise money. The Insurance Act has two sections on transfer of shares. Section 6A requires prior nod for transfer of stakes above five percent and Section 6AA deals with public issue or divestment by promoters after 10 years to bring down their holding to 26 percent. "Section 6A of the act expressly provides for transfer of shares when the shareholding is below five percent, without the permission of the regulator. Any transfer in excess of five percent requires the regulator's permission," an insurance expert said. But the draft regulations, if they come into force, may restrict any stake transfer during the first 10 years of operations. "The ambit of Section 6A is entirely different. For all purposes, a lock-in period of 10 years as proposed by the insurance regulator as per norms can't be stipulated here," Varadarajan told IANS. He further said Section 6AA comes into play only when insurance companies go for public issues or when promoters have to dilute their holdings after 10 years of operations. Industry officials conceded as prudent the licensing regulation that bans promoters from transferring or diluting their stakes during first five years of operations to ensure that only serious players enter the business.

Monday, June 27, 2011

IRDA defers health insurance portability launch to October 1

Insurance regulator IRDA has postponed the implementation of portability of health insurance products by three months to October 1. 
Portability will help an insurance policy holder to switch from one insurer to the other. The policy holder can carry the existing benefits from previous insurer. Insurers must have historical data on policyholders' health related details of claims to ensure that portability is available in a smooth manner to the policyholders, IRDA said. 
The regulator is setting up a web-enabled facility on which insurers can feed all relevant details on health insurance policies issued by them to individuals which will be accessed by the new company to which a policyholder wishes to port his policy. 

On Friday, chiefs of non-life insurance companies met IRDA Chairman J Hari Narayan to discuss issues related to the modalities of portability. Insurers conveyed that they need more time to process the policy. 

"There are some operational issues. Also we have conveyed that more time should be given to know the medical history of the policyholder," said the head of an insurance company who attended the meeting.

Monday, April 18, 2011

Third party premium rises by up to 70%

The Insurance Regulatory and Development Authority (Irda) has increased the third-party motor premium by up to 70% from April 25. 

The regulator had issued an exposure draft in January, suggesting an 80% increase on all third-party motor policy. Irda said that based on the concerns expressed by various stakeholders during discussions, premium for goods carrying and passenger carrying vehicles has been brought down by 15% and so the real change is 68%. 

In the draft circular, the regulator had suggested an increase of 85% for goods and passenger carrying vehicles. Similarly, private car and two wheeler premium is increased by 10%. The regulator said that the rates are revised at an interval of 4-5 year and such long intervals cast an avoidable strain on policyholders as well as on insurance companies. 

The new rates will be based on parameters, like average claims cost for each class of vehicle, frequency of claims for each class of vehicle and cost inflation index for the year of review. Insurers have made an excess provision of Rs 3,500 crore towards thirdparty motor pool. Insurers, however, are not allowed to cancel the current insurance policies and issue fresh policies to effect new premium rates. 

The regulator has asked companies to be mindful of the concerns expressed by vehicle owners about both the rates and availability of insurance. Moreover, the regulator said that it will treat any complaint of non-availability of insurance or use of methods to deny or delay the client seeking insurance cover, seriously.


Monday, April 11, 2011

Oriental provides Rs 34 cr cover to Dhoni, 5 IPL teams

State-owned Oriental Insurance Company has provided highest ever personal accident cover of Rs 34 crore to the captain of Indian cricket team Mahendra Singh Dhoni, who is also the skipper of the IPL team Chennai Super Kings. The cover includes travel risk, medical emergencies and loss of baggage. Last year, he was given an insurance cover of Rs 10 crore. Besides Dhoni, Oriental has provided insurance cover to five IPL teams -- Chennai Kings, Rajasthan Royals, Deccan Chargers, Pune Warriors and Kochi Tuskers Kerala.

Deccan Chargers, winner of the second edition of IPL 2009, have been provided cover of about Rs 98 crore, said an official source. Indian Premier League is starting on Friday and will continue till May 28. This will be the first time that the league will feature 10 teams with the inclusion of Pune Warriors and Kochi Tuskers Kerala. The cash-rich Twenty 20 cricketing extravaganza gets underway at the MA Chidambaram Stadium in Chennai where Dhoni's Chennai Super Kings (CSK) takes on Gautam Gambhir led Kolkata Knight Riders (KKR).Ten teams would contest for the IPL trophy and there will be total of 74 matches.
Oriental Insurance provided an insurance cover of more than Rs 1,000 crore to the Board of Control for Cricket in India (BCCI), the apex governing body and the owners of different franchises in the last edition. There were 8 teams in the last season of the IPL.

India focuses on insurance ills

In a radical effort to curb misrepresentation of financial products, India's insurance regulator has introduced tough guidelines on telemarketing that will come into force in October.The rules by the insurance regulatory and development authority (Irda) require insurance agents to record all calls while soliciting new customers by telephone.

If an insurance policy is bought, the agent must disclose his commission from that transaction. The customer will be entitled to a copy of the recording at any time until the settlement of the claim."Full disclosures shall be made to the clients under all modes of distance marketing, and the requirements of confidentiality, privacy and non-disclosure shall be complied with," Irda said. The rules are the latest tough regulations introduced in recent years to bring about transparency in India's fast-growing insurance sector, in which malpractice such as the misrepresentation of financial products is common.

In recent weeks, Irda has also run large advertisements in newspapers warning the public against fraudsters masquerading as insurance agents. "BEWARE" screams a signboard held by a comic character dressed as Superman in an ad. "There are certain fraudulent phone calls by persons claiming to be employees of Irda trying to sell insurance policies," it says, advising readers to report such calls to the nearest police station.
India's financial services sector contributes 15 per cent to the country's GDP. The sector's contribution is expected to exceed 17 per cent this year as the country's high savings rate - 34 per cent and expected to reach 35.3 per cent next year - offers the financial markets new opportunities to grow.

Non-life insurance like motor and health will gradually get costlier: Irda

The Insurance Regulatory and Development Authority (Irda) on Monday said that policy holders will gradually have to pay more for motor, health and other general insurance covers as costs would go up due to companies setting aside higher funds for claim settlements. "I think the demand and supply position in the non-life industry will be such that prices should harden and I expect to see evidence of that in the course of next few years. And I would like to make it even harder as we go along," Irda Chairman J Harinarayan said.

Harinarayan, who was speaking at the 'Ficci National Conference on Insurance', said the non-life insurance companies would need to bring in changes in marketing, pricing and modes of claim settlement to become profitable. "Because of the requirement of increase in provisioning, there will be a reduction in capacity and because of that there will be a hardening of prices," Harinarayan added.

Irda has already proposed to increase provisioning requirement for insurers providing motor insurance covers. Irda had increased the provisions made for motor pool to 153 per cent of book value for the four years till March 31, 2010, against 126 per cent maintained by companies.This is aimed at enhancing solvency margins and make higher provisioning for third-party motor pool.

Solvency margin is the minimum surplus on the insurer's assets over liability set by the regulator and the insurance companies are estimated to have provided about Rs 3,500 crore till March 31, 2010, for maintaining this margin.

Harinarayan said in the next three years the insurance companies will see changes in distribution set up, marketing techniques, channels of distribution and also terms of regulatory development. "The agency model that we see right now has serious deficiencies and that requires to be strengthened. I do not think the agency distribution model is going to last very long," he said.

He said agency model in the traditional form has vanished in large markets across the world. "...I do not see why India will be any exception to that particular development," the Irda chief added. He said even as the market widens, "it is not going to go down to the poorest of poor". "The total size of the market we are looking at (for insurance penetration) may be 500-600 million in terms of kind of product we have to offer," Harinaryan said.Going forward in general insurance space, he said, the health and annuity or pension-linked insurance products will gain predominance.