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.

CHANGE OF COURSE

* 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 However, both have been withdrawn.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.

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.

http://zeenews.india.com/business/news/news_content.aspx?newscatid=3&newsid=29580

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.

http://timesofindia.indiatimes.com/business/india-business/Life-insurers-can-invest-in-VC-funds/articleshow/9843549.cms

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.

http://economictimes.indiatimes.com/personal-finance/insurance/insurancenews/reliance-capital-nippon-life-to-explore-broader-tieup/articleshow/9825186.cms