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Monday, October 17, 2011

LIC joins the Online Term plan bandwagon

Life Insurance corporation of India (LIC) finally plans to release their first online term product. While this might look surprising for a company which banks heavily on its strong agent’s network, it would also seem logical as the other companies (like ICICI and Kotak) which offers pure online term product are about 50-60% cheaper than LIC. To keep up with the competition, LIC believes that they must join the expanding online insurance market. LIC is already the largest and the most trusted life insurer in India. If the online arm is added to its ambit they could reach even higher scales.

Recent reports say that an online term plan is sold every 18 minutes in India and is currently delivering a per day business worth of INR50 crore. In the past six months the seven life insurers offering such online policies have sold almost 15,000 policies with a combined insurance cover of about INR 9100 crore. The reason for the growing popularity of the online insurance plans can be ascribed to the growing internet penetration, more tech savvy population and finally the ease and cheap way of purchasing an insurance (online policies take only about 15-20 mins and is about 50-60% cheaper). However we should not expect a drastic reduction in the charges. Sources say that the rates would be cheaper by 15-20% for now. The other possible reason for these high charges might be that LIC is still using the mortality tables of 1994-95. The advancement in modern healthcare has changed people's lifestyle and life expectancy severely in these 15 years. As policy premiums are directly related to life expectancy the premium rates of LIC currently seem over-valued

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Monday, September 12, 2011

Sanlam Group invests in Shriram Capital

Shriram Group has entered into a joint venture with Sanlam Group of South Africa. This deal involves a Rs 2000 crore investment by Sanlam Group in Shiram Capital which is the financial wing of Shriram Group. This would also result in a 26% stake transfer. Though these two companies have been involved in insurance joint ventures before, this is the largest still now. It is for the second time that an outside company will hold stake from Shriram Group. Till a few months back the whole equity is owned by the Shriram Ownership trust until TRG picked 15% stake by investing around Rs 700 crore.

This deal also gives Sanlam Group access to the Indian market. From Shriram Group’s perspective it is a strategic venture which is meant to expand their financial arm. Sanlam’s investment would provide for up-streaming life and general insurance and would also include a cash component. In this way, Shriram Capital would still hold 100% equity which Sanlam Group would indirectly own 26% holding in the insurance venture by virtue of its 26% stake in Shriram Capital. The deal would take six to nine months as they await approvals from IRDA and Sebi

Friday, September 9, 2011

Motor Insurance India registers 22% growth this quarter

Motor Insurance India has had a shining last quarter as they registered a 22% growth in the topline with a total premium collected being Rs 14,046 crore. This is a direct result of IRDA allowing insurance companies to hike premium on third party cover by 10% for cars and upto 65% for commercial vehicles from April 2011, For the same period last year, the premium collected was Rs 11, 478 crore. The premium collected in the third party cover went up to Rs 2.043 crore compared to Rs 1467 crore (a whopping 39.2% increase).

In India third party insurance is mandatory for all commercial vehicles. Hence another reason for this topline growth can be ascribed to the rising number of new vehicles on the Indian roads. However with the recent hike in the interest rates by RBI, it is reported that demand for cars have dropped and ever since the car manufacturers are introducing attractive schemes to boost sales.

In times of these decreasing motor demands, it remains to be seen whether the motor insurance sector can sustain this growth they achieved this quarter.

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IRDA withdraws the controversial 4.5% guaranteed return on pension products

Life Insurance Companies in India can rejoice at the IRDA’s withdrawal from the controversial 4.5 per cent guaranteed return on pension plans. Usually these returns are fixed according to the reverse repo rate. Reverse Repo rate is the rate at which banks deposits their excess funds in the Reverse Bank of India (in simple words it is the rate at which RBI borrows from the banks). The mandatory return on these pension products was supposed to be 50 basis points more than the reverse repo rate. A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. For example, if the RBI raises interest rates by 50 basis points, it means that rates have risen by 0.50% percentage points. If rates were at 2.50%, and the RBI raised them by 0.50%, or 50 basis points, the new interest rate would be 3.00%.

However amidst this decision the Indian life insurance frontrunner Life Insurance Corporation, India (LIC) has set to offer upto 6% return on it’s unit linked pension product, Pension Plus. Even during the time when the mandatory 4.5 % return was in effect, LIC was the only company to have offered such pension plans. The private players refrained from taking such a risk. The unpopularity of this guideline has forced IRDA to revise it. This revised guideline talks about non zero or capital return instead of a fixed return. Although seeing LIC’s magnanimous premium collected (Rs 400 crore) since the last year through Pension Plus stands testimony to the fact that the guaranteed return guideline should actually work, we should not overlook the fact that other life insurance companies are far behind LIC in terms of size and penetration.

Now we shall all have to wait and see what the private insurers have to offer for pension products.

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Tuesday, August 30, 2011

Attrition amongst agents in the insurance industry.

The changed guidelines on ULIPs has resulted not only in the decrease in premium but also has led to a high attrition of the agents. ULIPs are market linked insurance products where the cash value varies according to changes in the market. The worst hits are those companies who don’t fall in the bancassurance sector. Since the strong agents channel is critical for these companies they are looking into all sorts of ways to contain it. According to the IRDA at least 10.45 lakh agents have left the business compared to 7 lakh who joined resulting in a net 35 percent dip.

This attrition can be a direct result of the changed ULIP guidelines. These days ULIPs are not as attractive and lucrative as it used to be. This change had also resulted in a huge drop of premium collected. Subsequently the commissions earned also decrease something which is prompting agents to leave the business. The commission for selling ULIPs has been slashed from 15% to 5% now. Apart from this fall in commission, the performance of ULIPs has also instigated agents to take a break from it. Earlier some huge proportion of mis selling had happened where agents asked naïve customers to pay premium for three years and get a double return on the fourth year. Now with the poor performance of the market, these agents are seeking refuge and trying to stay away.

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Thursday, August 25, 2011

LIC comes out with its new Single Premium Product

Not many companies remain so active during a pessimistic phase in the market as Life Insurance Corporation of India (LIC). Apart from investing heavily during these turbulent times, it now plans to launch a new product especially suited for the volatile market. The new product would be a single premium policy and is expected to be released in the month of September.A single premium policy is one where a lump sum payment is made into the policy in return for a death benefit. With this the cash invested builds up rapidly as the policy becomes fully funded. The size of the death benefit depends on the amount invested and the age and health of the insured. However these are relatively expensive.

LIC’s latest single premium policy comes after a gap of two and a half years when it launched “Jeevan Aastha”. The success of “Jeevan Aastha” clearly laid down that people prefer paying single payments against periodic payments albeit the higher costs incurred. For the records, “Jeevan Aastha” raised Rs 10,235 crore in just 45 days with around 1.8 million policies sold. With this new product LIC plans to raise in excess of Rs 10,000 crore because of the inclusion of 5-10 tenure term.

However experts and Financial Planners are skeptical of such policies. A simple math would show that investing in FD and using little bits of returns and capitals would generate better results.

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Tuesday, August 23, 2011

India First targets high from new business

One insurance company which has been making news these days is the India First Life Insurance. Apart from the aggressive marketing campaign for the Money Back Plan, it also has lined up a many new products to be launched in this fiscal. The motley includes a group saving product, a product for the high net worth individuals and a pension plan (to be released after the regulatory guidelines for pensions are released by IRDA).

From all these expansion, the insurance company has set an eye on achieving Rs 1,200 crore from new premium from this fiscal. Chief Executive P Nandagopal showed optimism on achieving this target. So far they have successfully achieved the target of Rs 150 crore for the first quarter this July and things are already rolling to achieve their next goal

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Hike in premium for Air India.

The woes for Air India don’t seem to wean off this year. After suffering a series of operational issues, the insurance segment now brings bad news for the airline. AI is charged 15% more for its annual insurance premium effective from the October renewal. The premium this year would be Rs 160 crore as compared to Rs 136 crore paid last year.

The reasons cited are primarily due to the increase in the fleet size and the tragic Mangalore air –crash. Apart from this some stringent norms life upfront payment of claims as well as low margin is also considered as a reason. Apart from the higher premium, AI also lost much of its charm amongst insurers as evident from a drop of bids made this year. ICICI Lombard and New India led public sector insurers have made bids for the tender of AI this year. The insurance policy would cover Aviation hull, terror and war and the deductible insurance.

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Friday, August 19, 2011

M Ramadoss faces suspension

Government has decided to take the extreme punitive measures against New India Assurance chairman M Ramadoss by suspending him over the irregularities in distribution of credit insurance cover to Paramount Airways. The cover was granted in 2009 by Oriental Insurance Company which was then headed by Ramadoss. In his absence chairman of Chennai based United India Insurance, G Srinivasan, will take charge.

The issue which involves insurance covers totaling to Rs 400 crore is currently under the scanner of Central Bureau of Investigation. These credit covers were used for sourcing loans from public sector banks. Trouble began when Paramount Airways came under a bad phase and the banks lined up to seek repayments only to discover that their exposure was not only to Paramount Airways but also to Oriental Insurance.

Earlier government has shown similar ire by denying extension to TS Vijayan owning to the numerous complaints against. The suspension of Ramadoss serves as the second example

Syndicate Bank plans a tie-up with Aviva

Not too long ago, PNB and Metlife created news by entering into an agreement where PNB bought 30% stake in Metlife. However not many know that Aviva Life was also among the final list of companies where PNB had planned to invest. But this miss for Aviva would be short lived as news is brewing that Manipal based Syndicate Bank has set its eye on a 26% stake from Aviva Life.

Although many other life insurance players like Birla Sun Life, HDFC Life, Max New York Life are also included in the list for consideration, Aviva Life seems to be much better placed than these other companies. Aviva started its operations in India in 2002. Last fiscal it recorded a profit of Rs 29 crore. Currently Mohit Burman from Dabur Group holds 74% stake in Aviva and the rest is held by Aviva UK

Friday, August 12, 2011

Future Generalli India’s new Ad mantra

For those who do not switch channels during commercials, there is a high chance that you came across this new campaign from Future Generalli India called “Ab Nibhao Ristedari”. But unlike other advertisements, this one targets the insurance agents. It invites the insurance agents to come and join the growing family of Future Genralli India.
A common advertising trend shown by the insurance companies as well as banks is to target the cultural and sentimental ethos of the country. Taking cue from it, FG’s new ad shows how an insurance agent becomes a part of the families he comes across. An insurance agent is someone who builds the bridge between a company and individuals. Tapping this through an advertising campaign sure looks like a nice strategy.

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Wednesday, August 10, 2011

While the Financial Markets cry, LIC India Invests.

While the stock market reacts to the downgrading of US by S&P, Life Insurance Corporation of India seems to be in an investing spree. In the last three days, LIC India has doubled stock purchases. In the past too, LIC India has been the Government’s tool to take care of a reeling stock market.

Since global turndown brings in pessimistic assumptions, not many companies are keen on coming up with their IPOs. So LIC India has been investing in the secondary market in these days. Currently the country’s biggest investor has stakes in L&T, Axis Bank and Grasim. It has increased its stake in Aurobindo Pharma above 5% by acquiring over 1.67 lakh shares. LIC India has invested around Rs 330 crore in the last three days. Compared to this it invested only Rs 120 crore in the first four months of this fiscal.

While LIC’s move can be welcomed as a stabilizing agent for the stock market, it is after all playing with the common man’s money. Now the question remains: Should the government put a cap on this seemingly limitless power of investing of LIC India?

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Friday, July 29, 2011

Metlife India sells 30% stake to PNB

Very soon Metlife India would be known as PNB Metlife India. India’s 2nd largest nationalized bank, Punjab National Bank (PNB), has decided to take a lion’s share of 30% stake and occupy a dominant position in Metlife’s Bancasurance space (Currently Metlife has tie-ups with Karnataka Bank and Barclays). Rajesh Relan, MD, Metlife India, opined that the addition of PNB will help Metlife convert into a significant player in the insurance industry and in return the insurer can provide insurance expertise and bancassurance capabilities that will be an asset to PNB.

The edge that Metlife enjoyed over a dozen suitors was that it has a diversified Indian shareholding which helped PNB become the dominant shareholder. Metlife will issue fresh shares to PNB which will increase the size of the company’s capital to Rs. 2,596 crore and later buy stake from the other existing stakeholders to maintain its stake at 26% within 120 days. PNB’s entry will dilute the equity of all the existing shareholders which include M Palonji and Co, Jammu & Kashmir Bank and IGE (a Pune-based company), besides a clutch of private equity investors.

Another positive aspect of the move is that PNB will be able to take insurance to the mostly untapped rural and semi-urban pockets of India. Statistics show that 60% of PNB’s branches are in the rural and semi-urban areas, which can help augment the insurance penetration in the country. Industry analysts have also welcomed the partnership believing that it has the potential to drive Metlife into the top-tier of the Indian life insurers and also go a long way in doubling its market share.

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Thursday, July 28, 2011

IRDA Penalizes New India Assurance

Insurance Regulatory and Development Authority (IRDA) has imposed a fine of Rs 100,000 (Rs 1 lakh) on New India Assurance. The penalty came from a case of non-refund of Mediclaim to a policy holder. The insured person, Shri Hemendra Mehta, was staying abroad and refund was refused on this ground. When Shri Mehta emailed New Assurance India that refund can be considered for the period of stay outside India during the policy period, they didn't respond (Email dated 24.11.2009).

So the matter was taken up by IRDA and the regulatory body decided to penalize New India Assurance. With this, the IRDA has once again exemplified the tight regulatory control over the insurance companies. Not too long ago, SBI life faced IRDA's ire. (Read the whole article here).

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Wednesday, July 27, 2011

Ambani brothers may meet head on in the Insurance market.

The strife between the Ambani brothers may take another interesting turn with The Competition Commission of India’s (CCI) latest announcement. The commission has given a go-ahead to the 74% acquisition bid by Mukesh Ambani’s Reliance Industry Limited (RIL) from each of Bharti AXA Life Insurance and Bharti AXA General Insurance. However before the actual action begins, the acquisition is awaiting some more approvals including the implementation of the newly proposed IRDA guideline on equity stake selling (find out more about this IRDA guideline here

For the financial year 2011, Anil Ambani's life insurance venture showed a first year premium of Rs 3,000 crore while Bharti Axa could collect only Rs 360 crore. In the general insurance, Bharti Axa recorded Rs 550 crores as against Rs 1655 crores from Reliance. While Bharti Axa life Insurance ranks 20th amongst 23 life insurance companies and Bharti Axa General Insurance ranks 15th amongst 19 general insurance companies, Anil Ambani has managed to find a place in the top 5.

So is Mukesh Ambani worried? A man with such a brilliant smile would never be.

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Tuesday, July 26, 2011

IRDA plans to change lock in period for stake sale

Effectively managing capital and coping with long gestation period are two factors which determine which companies survive in the competitive insurance market. Earlier this year in June, Sunil Mittal decided to sell its 74% stake both in Bharti Axa Life Insurance and Bharti Axa General Insurance to Mukesh Ambani precisely for these reasons.

Acknowledging this, Insurance Regulatory and Development Authority (IRDA) already has Article 6AA of the insurance act in place. However some aspects of this act may soon change. Currently the guidelines says that promoters holding a 26% stake in life insurance companies needs to be locked in for a period of 10 years. But news is brewing that a new IRDA guideline would allow promoters to escape as early as 5 years. The new draft however does not apply to those promoters subscribing to IPOs of insurance companies. The draft guideline is expected in August and after public comments and recommendations, the final guideline is expected in October.

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Friday, July 22, 2011

This week’s top Investment News in the Insurance Sector

Some of the top investments news in the investment sector this week

• Reliance Life Insurance plans to divest 23% stake in the domestic public and private lenders or banks. This come after Reliance has already signed a pact to sell 26% to Nippon Life. Some of the banks which have taken interest in this deal are Axis Bank and Syndicate Bank
• Exide plans to pump in another round of investment in ING Vysya Life Insurance Company. This time the amount would be somewhere around Rs 150 crore. It should be noted that Exide has already been investing in ING Vysya Life Insurance.
• Piramal Healthcare is planning to buy Enam Financial’s stake in ING Vysya Life Insurance. The present valuation of the insurance company stands at Rs 2400 crore. Last year Piramal Health got Rs 17,190 crore from Abbott Laboratories for its generic unit.
• Life Insurance Corporation of India (LIC) plans to invest more than Rs 2 trillion through the March fiscal. Apart from this its planned investment in equities will exceed last year’s Rs 400 billion.

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Monday, July 11, 2011

SBI launches Flexi Smart Insurance

SBI Life, the joint venture between State Bank of India and BNP Paribas, has launched a new Variable Insurance Product (VIP) called the Flexi Smart Insurance. Under this the customer would pay a minimum premium of Rs 1500 per month to subscribe and with the flexibility to pay premiums at yearly, half yearly, quarterly or monthly. This premium is liable to earn an interim interest of 7% during 2011-2012 apart from the additional interest rate declared at the end of the financial year.

VIPs were earlier known as Universal Linked Plan. Earlier IRDA issued a new guideline to change its name to VIP and also asserted that these products be offered only on non-unit lined products. SBI Life is the first to introduce VIP with the launch of Bima Account Number 2. The Flexi Smart Insurance is their second offering so far.

The VIP offers choices across different levels of risk exposure. It can also provide stable returns and safe investments for the risk-averse customers. The key feature is that it gives the customer to vary the assured amount as well as premium payment.

Friday, July 8, 2011

SBI Life Faces Regulator's Ire

IRDA, the insurance regulator, has levied a fine of Rs 70 lakhs on SBI Life Insurance company for paying commissions to a master policy holder. As per the rules in India, Insurance companies can pay commissions only to life insurance agents, corporate agents or brokers, and not to a policyholder. There were 14 instances of commissions being paid, and IRDA has levied a fee of Rs 5 lakhs per instance, totalling to Rs 70 lakhs. SBI Life is a joint venture between SBI, India's largest bank and BNP Paribas Cardif.
In all insurance companies where one of the prominent share holders is a bank, the regulator needs to watch out for this particular practice: the bank which owns the insurance company bundles an expensive insurance policy with their loans disbursed. A retail or corporate customer, seeking a loan from the bank and at a moment in time when the bank is in a position of strength, cannot refuse the insurance policy. This is especially true if there are veiled indications that the loan disbursement itself might not go through if the preferred insurance policy is not bought.

HDFC Life Insurance

HDFC Life has stated that they are looking at listing in the Indian equity markets within the next two years. The insurance regulator, IRDA, is in the process of preparing the guidelines for listing for Indian life insurance companies. Chairman of HDFC, Mr Deepak Parekh, mentioned that they would also be looking to raise funds through the FDI route when the FDI ceiling on life insurance is increased from 26% to 49%.

In a separate development, HDFC Life has been ranked as the 40th best place to work for employees in a Great Places to Work Survey. At a time when there is a significant difficulty for attracting human talent to the Life Insurance industry because of the the challenges it is facing, this is indeed a positive development. However, a words of caution here for job aspirants: the team here at PolicyTiger, having been part of organisations which have ranked very well in the Great Places to Work Survey, does not feel that it counts for much!

Thursday, July 7, 2011

Delay in Life Insurance Partner Selection for PNB

PNB, which is in the final stages of selecting its Life Insurance Partner, has announced that it will do so by September 2011. The earlier expectation was that they would decide by July.After an elaborate selection process, the list of prospective life insurance suitors has been reduced to two companies- Aviva Life and MetLife. Bharti Axa, which was also in the final round, is now out of the race post the acquisition by Reliance. One wonders why the selection process has been delayed. Some sources feel that the recent developments in the field of Bancassurance where a bank might be allowed to tie up with two life insurance partners might have brought in a new dimension to the decision. Also, PNB is looking at acquiring a substantial stake in the life insurance company that it ties up with. This practice has caught the attention of IRDA which is looking into the matter.
We will watch the developments closely and keep you informed.

IRDA guidelines for Life Insurance Companies: Continued

It is learnt that IRDA might be scrapping the requirement which stated that a life insurance company which desires to go public needed to be profitable over the past 3 years. This will come as a relief for companies like ICICI Prudential, HDFC Standard Life and Max New York Life which were otherwise eligible togo for an IPO but struggling on the profitability norm. Life Insurance Companies , operating in a business which is capital intensive, has been struggling to raise capital as the IPO norms have been strict. At the same time, they have also been handicapped by the fact that the FDI norm on Insurance has been capped at 26% and not increased to 49%. On the other hand, IRDA has come down heavily on the charges levied by life insurance companies on their customers (effective Sep 1 2010) which has reduced profitability margins of these organisations

Sunday, July 3, 2011

IRDA's guidelines on IPO of Life Insurance companies.

The Insurance Regulatory and Development Authority (IRDA) has asked for feedback and recommendations on their newly proposed guideline formally called The IRDA (“Issues of Capital and Disclosure Requirements for Life Insurance Companies”) Regulations, 2011. The guideline maintains that the life insurance companies in India wishing to go public must have spent at least 10 years in the business and have must showed a satisfactory profit record in the past six quarters. In simple words it would consider only the frontrunners in this business. Currently only two insurance companies, viz. ICICI Prudential and HDFC Standard Life Insurance, meet the 10 year eligibility criteria. However if they wish to raise an IPO, they have to first get the approval nod from IRDA and only then can they approach SEBI. Apart from the tenure and profitability, the IRDA would also consider the company specific risk factors and the transparency of the company’s disclosures before they give the final nod.

In a way the new guideline provides security to the common man because it shall endorse only those companies who are serious in this business and have done well. While on one side it provides security, on the flip side it handicaps an important business aspect of the life insurance companies. The Section 6A of the Life Insurance Act allowed transfer of share below 5 % without the approval of any regulator. But if this new guideline comes into effect, it shall override this benefit for a period of 10 years. Keeping all other aspects aside this can prove to be a direct hit on the mergers and would lay the platform for a highly competitive life insurance business.

Monday, June 6, 2011

A few disturbing facts

A few disturbing facts:

80% of healthcare costs in India are paid directly by the people, ie outside of health insurance and govt support
It is estimated that every year, healthcare pushes back 3.9 crore people back into poverty
Every year, an average Indian pays Rs 3000 annually towards healthcare costs. Our per capita annual income is  about Rs 55,000. That is nearly 6% of the annual income of the average Indian!
The government spends only 1.1% of the country's GDP on healthcare. We spend more than 2% of our GDP on defence

While the average Indian struggles with healthcare, medical tourism is expected to become a USD 2.3 BN industry in India.

Life Insurance for Women

Unconfirmed reports suggest that about 15% of the lives covered in India through a life insurance policy are for women. Given the population of women in the work force and thus having an income and thus there being an insurable interest, is the 15% number a fair representation. We are not sure. But it brings us to another question: is there an insurable interest in a housewife with no income. Some people would argue that there is definitely a replacement cost for the work done by a housewife, and thus there is an indirect insurable interest. But how does one take care of malintention- where a policy is taken with the housewife as the insured, but payment made by the husband. Sadly, it opens itself up for a lot of misuse.
As an aside, is there a marketing opportunity in bringing out a policy with special focus on the woman...some companies have done that, but the scale hasnt been impressive.

Comments are welcome!!!

New India announces Policy Portability across countries

While we in India await Health Insurance portability across companies, New India Assurance has started health insurance portability across Oman and India. Policyholders who have a New India Policy in Oman under the family health scheme or group health scheme can now seamlessly enrol in a New India health policy when they return to India, without any preconditions. This would be helpful to a large section of NRIs stationed in Oman when they return, especially for the older set. As of now, we do not know if the reverse holds: that is a New India Assurance health policy holder being able to get insured through the company's policy in Oman under the same set of conditions.

Comparison of Health Insurance Schemes for Senior Citizens

It is absolutely vital that as one approaches old age, one has a substantial health insurance cover. The probability that one’s health care expenses would increase substantially is almost a given. In this piece we look and compare the different health insurance plans that are available in the market for senior citizens. While every health insurance company wants to insure the young (and almost by definition, more healthy), there are very few plans which provide health insurance to people beyond 60. Another interesting thing to note here is that most of the health insurance plans for senior citizens is offered by the public sector general insurance companies.

The health insurance plans available for senior citizens are:

  1. Varistha Mediclaim by National Insurance
  2. Senior Citizen plan by Oriental Insurance
  3. Mediclaim for Senior Citizens by New India Assurance
  4. Senior Citizen Plan by United India Insurance
  5. Red Carpet Plan  by Star Health Insurance

Varistha Mediclaim by National Insurance: This policy can be bought by anyone between 60 and 80 years of age. Renewals can be done upto the age of 90. Between the age bands of 76-80, premiums have an added factor of 10% and between 80 to 90 years of age, premiums are grossed up by 20%.  The sum insured under this policy for hospitalization is Rs 1 lakh. For critical illness, the sum insured is Rs 2 lakhs. Under the critical illness cover, diseases such as cancer, renal failure, stroke, organ transplants etc are covered. If the person has already been insured for 3 years through a health insurance policy, then he or she does not have to undergo a medical test, else there has to be a medical test under the prospective customer’s costs. For domiciliary treatment, the maximum claim is fixed at 20% of the sum insured. Ambulance charges upto Rs 1000 are covered under this policy. For a mediclaim cover of Rs 1 lakh and a critical illness cover of Rs 2 lakhs, the premium varies between Rs 6200 (for a 60-65 year old) to Rs 9200 (for a 75-80 year old). One interesting feature of this policy is that pre existing hypertension and diabetes are covered from the 1st year itself of the policy by paying 10% additional premium for each of the two diseases. Pre existing is of course not available for the critical illness policy. Other pre existing diseases are covered after 1 policy year. Dialysis, chemotherapy and radiotherapy for preexisting ailment is never covered. Claims are paid only for events that occur within India. Claims which occur within the first 30 days of the commencement of the policy will not be covered, unless in the case of the person being insured with an Insurance Company without break for the past 12 months. For the purpose of this policy, pre existing diseases such as cataract, piles, fistula, hernia, benign lumps, joint replacement etc will not be covered in the first 12 months. War related medical claims, vaccination, spectacles cost, plastic surgery, corrective dental surgery, venereal disease, vitamins and tonics which are not part of the treatment, nuclear disaster related health claims, alternative treatment like homeopathy etc are excluded.

Opinion: We think it is one of the best policies for senior citizens, except that the sum insured is low. They are quite generous as far as the norms for entry age and pre existing diseases are concerned.

2. Senior Citizen Specified Disease Plan by Oriental Insurance: In this plan, the policyholder has the option to choose sum insured of Rs 1 lakh, 2 lakhs, 3 lakhs, 4 lakhs or 5 lakhs. One restrictive feature of this policy is that 20% of any claim amount has to be co-paid by the insured. Cashless payment through TPA is restricted to Rs 1 lakh.  This plan covers 10 specified diseases: cancer, renal failure, heart diseases, liver related diseases, COPD (lung ailment), stroke, prostrate, orthopaedic disease, ophthalmic disease, accidental injury and knee replacement. The amount that one can claim for a particular disease is restricted as a percentage of the sum insured (for e.g., 50% of the sum insured can be claimed for cancer, while 20% of the sum insured can be claimed for stroke). A sum insured of Rs 1 lakh will cost Rs 4500 for a 65 year old, while it will cost Rs 6400 if one is eighty years old or beyond. While this may seem cheaper than National Insurance’s Varistha medical scheme, it is less wide in scope. This policy has an interesting refund of premium clause if one withdraws from the policy: if the policyholder gets out of the policy within the first month, 75% of the premium is returned and if he opts out between 3 to 6 months of the policy, 25% of the premium is returned.  In this policy, pre-existing diseases are not covered for a period of 2 policy years. Other exclusions are very similar to those of National’s Varistha medical scheme.
Opinion: a good scheme in terms of the level of sum insured and price, but the scope of diseases covered is restrictive. Another issue is that pre-existing is covered only after 2 policy years.

Mediclaim for Senior Citizens by New India Assurance: This policy is available for senior citizens between 60 and 80 years, and the sum insured can be Rs 1 lakh or Rs 1.5 lakhs. Pre existing diseases are covered after 18 continuous months of coverage , while for diabetes and hypertension to be covered,  additional premium needs to be paid. Pre hospitalization is covered for 30 days, while post hospitalization is covered for 60 days. An insurance of Rs 1 lakh for a 65 year old will cost Rs 3850 while it will cost Rs 5150 for an 80 year old. Thus, premiums are very competitively priced. If one wants to extend beyond 80 years, then loading of 10% or 20% has to be paid. For pre existing diabetes or hypertension, an additional premium of 10% each has to be paid. One interesting feature is that there is a 10% discount if one’s spouse is also covered under this policy. This policy also has the same partial refund norms on cancellation as Oriental’s Specified Disease Plan. Claims would be paid only for medical treatment in India. The exclusion conditions are standard, and are very similar to National’s Varistha  Mediclaim.
Opinion: Attractively priced. Sum insured ceilings are low. The product brochure is silent on co-pay, and thus there is no co-pay requirement in all probability.

United India Insurance’s Specified Disease Plan: In this policy, sum insured of Rs 50,000 to Rs 300,000 is available to people between 60 to 80 years of age.   Sum insured of Rs 1 lakh will cost Rs 3715 for a 65 year old, and Rs 8613 for an 80 year old. So while it is cheaper for the younger age bands, it is a bit expensive for the older age groups. An interesting feature of this policy is that there is a hospitalization cash payment from the 3rd day of hospitalization on payment of a particular additional premium. While other exclusion features of this policy are comparable to that of the previous 3 policies that we have discussed, the biggest problem of this policy is that this has a pre-existing waiting period of 4 years.
Opinion: Pre –existing waiting period of 4 years is restrictive

Star Health’s Red Carpet Plan: This plan has been a good marketing success. While one barely gets to hear about the reasonably broad, well priced schemes of the 4 nationalised companies, the market is quite excited about Star Health’s Red Carpet scheme. The sum insured under this policy can be for Rs 1 lakh, Rs 2 lakhs, Rs 3 lakhs, Rs 4 lakhs or Rs 5 lakhs. Age of entry is restricted between 60 and 69 years. Pre existing diseases are covered from the 1st year itself, except for those preexisting diseases for which the insured received payment in the preceding 12 months. Subsequently, these pre-existing diseases are covered. There are sub limits under this policy wherein different diseases have different limits as a percentage of the sum insured.  Sum insured of Rs 1 lakh will cost Rs 4900 at entry, while a sum insured of Rs 5 lakhs will cost Rs 20000.. The biggest catch in this policy is that there is a 50% co-payment for pre existing diseases and 30% co-payment for other diseases!! Other exclusions are very similar to what is there for the nationalized companies.

Opinion: Simple, well marketed claim. But the co-payment terms are a huge negative! The ceiling for maximum age at entry is quite low (69 years), though the guaranteed renewal feature is a big positive. Also, the sum insured levels of Rs 5 lakh is quite high and attractive in these days of escalated medical costs.

In summary, we feel that National’s Varistha Plan is the widest in scope. The only issue with the plans of the Nationalised Insurance companies is that the sum insured levels offered might not be adequate for today’s high healthcare costs. On the other hand, they are at least offering senior citizen health plans. It is very difficult to locate any meaningful health insurance scheme for senior citizens offered by any private health insurance company, except Star Health. The only problem that we see with Star Health’s Red Carpet plan is that of the Co-pay restriction.

Friday, June 3, 2011

Exclusions in a Health Insurance Policy

What does a health insurance policy not cover i.e exclude?

The moment of truth in an insurance policy is at the time when a claim arises. One of the most common reasons for a health insurance claim not being paid by an insurance company is when they say that the particular disease is not covered by the policy and is an “exclusion”. It leaves a bitter taste in the mouth of the policyholder and can sometimes put the policyholder in great financial difficulty. Thus, it is very important to know in detail about the exclusions in a health insurance policy before purchasing it. In our opinion, it is a far more important variable than price. A policy might be 10% cheaper than a competitor’s policy but might have many more exclusion clauses-in such a case, the policy with the lesser number of exclusion clauses would be the better choice for the policyholder.

In this article, we deal with some of the common exclusion clauses in a health insurance policy. Of late, we are seeing some innovation in this area with the new companies not excluding certain ailments which had traditionally been within the exclusions area

  1. Maternity: In most cases, maternity and maternity related expenses are not covered in an individual or family floater health insurance policy. Maternity is typically covered in a group policy. In certain cases, we are seeing maternity being covered after 5 years into the policy.
  2. Diseases or illness contracted within the first 30 days of the policy. The insurance company does this to safeguard itself against customers buying a policy immediately after a disease has been detected
  3. Cataract, Prostrate, Hernia, Piles, fistula, gout, rheumatism, kidney stones, tonsils and sinus related disorders, congenital disorders, drug addictions, non allopathic/alternate treatments, self inflicted injuries,  hysterectomy, fertility related treatments, etc are normally not covered under a health insurance policy. Dental treatment and cosmetic surgery is also typically excluded.  Contact lenses cost is also not covered. HIV/AIDS is excluded, which has been a subject of great debate and criticism in the last few weeks. Some insurance companies do not cover treatment incurred outside the country, so you should check once before buying the policy
  4. Pre existing diseases are not covered in a health insurance policy. Preexisting means a disease that you have had prior to joining a health insurance policy. The policyholder may or may not have been aware of the pre-existing disease. Further complications which arise due to the preexisting disease are also not covered. For example, renal problems which arise due to a person having diabetes at the start of the policy would not be covered. This can sometimes lead to a lot of confusion and heartburn. Someone gets admitted for a kidney related treatment, and the insurance company turns down the claim saying the kidney problem has arisen because the patient had diabetes, and rejects the claim. It can get a little grey here as medical science cannot sometimes clearly pinpoint the root cause of a particular disease outbreak. In most cases, preexisting diseases are covered after 3 or 4 consecutive policy years. This is the single biggest reason why one should buy a health insurance policy at a young age, and continue with the same insurer. Because if you shift to a new insurer, you lose your previous credit and a disease that was being covered by the old insurer might be treated as a pre-existing disease by the new insurer. We have noticed that insurance companies start facing more claims from the health insurance customers from their 4th or 5th policy year, as pre existing begins to get covered and the profitability of the portfolio goes down
  5. Most policies do not cover day care, but a few  like Max Bupa cover daycare, although the premium is higher in this case
  6. War related health insurance claims are mostly excluded from the policy coverage
  7. Abortion related health expenses are not covered in a health insurance policy

Pl do note that with competition heating up, some of the exclusions mentioned above will begin to get covered by a company or two so that it can be used as a selling point. Thus, the lists mentioned above are subject to change. The moot point here is that 10 minutes spent to read the exclusions list of the policy you are considering to buy could save you a lot of headache buyer. Be an informed buyer- there will be no else to blame but yourself

Monday, May 30, 2011

Riders in Insurance

Riders and their use:

Riders are add-ons to insurance policies which help the policyholder cover himself financially for an additional set of risk events (and are not to be confused with Kolkata Knight Riders!!). They are the insurance industry’s innovation for customizing the insurance policy to the extent possible, while keeping a standardized base policy available. Riders provide additional risk protection, and thus the policyholder has to pay a risk premium. In most cases, riders can only be bought in conjunction with the base policy at the time of initial purchase, and cannot be added later. Riders are optional, provide pure risk, and do not have any investment or savings element to them.

Most riders are added on to Life Insurance policies, and have a significant tilt towards health related risk. Of late, we have seen that Motor insurance policies also have begun to offer riders along with the base policy.

Since the riders are typically bundled in with the base policy, they do not have any additional administrative charges or customer acquisition charges,  leading to a low cost.  IRDA has capped that the maximum premium that is paid for riders cannot be more than 30% of the base policy cost. Any benefit arising out of an individual rider cannot exceed the basic sum insured.

The issue in India is that the insurance sales agent is competing on price, and wants to convince the prospect to buy an insurance policy by showing him low price. When a rider is added on, the price of the insurance policy obviously goes up. Thus there is not much thrust on riders at the point of sale, leading to a take up rate for riders which is far lower than its potential.

Some of the most popular Life Insurance Riders are :

a. Double Sum Insured rider (mostly in Child Policies): In the event of a death to the parent, the sum insured is paid to the child (or guardian) at the time of the death, and an additional sum insured is paid at the maturity of the policy.

b. Critical Illness Rider (or Dread Disease rider): In this rider, the sum insured is paid to the life insurance policy holder in the unfortunate event of the policyholder contracting a critical ailment such as heart attack, renal failure, cancer etc. In most cases, the sum insured is paid to the policyholder and the policy terminates. Critical illness riders become more expensive with age, as the probability of contracting a critical disease increases. In certain cases, the insurance company would refuse the rider coverage to the insured due to their health condition at the time of entry. Thus it is better to buy the Critical Illness rider at a younger age.

c. Accidental Death and Permanent Total Disability rider Through this rider, an additional sum insured is paid to the nominee (in case of death) or to the policyholder in case of a permanent total disability.

d. Waiver of premium rider: This rider triggers in when the insured becomes completely financial unproductive (say through an accident or a disease) and is at the risk of not being able to earn. Under this rider, the insurance company takes on the responsibility of paying the premiums till the policy maturity at which stage, the sum insured (or the fund value) is paid to the insured

e. Spouse Insurance rider or Joint Life Rider: Through this rider, the insured and the spouse can be covered through a single policy. Sum insured is paid to the surviving member in case of death to one of the insured.

f. Guaranteed Insurability rider: Through this rider, you purchase the option of increasing your life cover at any significant life stage (marriage, birth of children etc ) which might increase your financial liability without needing to go through a medical examination.

g. Surgical assistance benefit rider: This rider provides much needed financial assistance to the insured during the time of a medical procedure needing surgery for 43 surgical procedures.

h. Investment Guarantee Riders: In case of negative market returns, this rider guarantees claim value to the extent of premiums paid.

Some of the Motor Insurance riders are :

Zero depreciation rider: Through this rider, the car owner can ensure that in the case of any claim, he is paid the full cost of claims on parts such as tyres, bumpers, windscreen etc. In the situation where the rider is not opted for, the insurance company would only pay the depreciated value of the parts whereas you, as the owner, would have a substitution cost which is much higher for the new parts

Return to Invoice rider: This rider ensures that in case of an accident or theft where the car is a total loss, the full invoice value of the car is paid to the car owner

Payments made towards riders (except Critical Illness and Health riders ) enjoy the benefits of Income Tax exemption under section 80C of the Income Tax Act. Critical Illness rider enjoys tax benefits under section 80 D. Proceeds received in the case of a claim are tax exempt under section 10 (10 D )

We have been quoted in the Financial Express

Sunday, May 29, 2011

Indian General Insurance Sector a hidden gem

Standard and Poor's, in  a recent study on the Indian General Insurance sector has highlighted something that we always knew but did not appreciate enough: that India's general insurance sector is a goldmine, poised for excellent growth.

This conclusion stems from the fact that general insurance industry penetration as a percentage of GDP is amongst the lowest in India.  With a combined annual premium of Rs 40,000 crores, the Indian General Insurance sector is about 0.6% of GDP. With rising income levels, galloping growth rates in motor car ownership, increasing awareness of healthcare and healthcare related costs, greater predisposition to travel and home ownership, almost all the sectors within the general insurance industry are poised for impressive growth.

A few dark clouds loom though. The public sector insurance companies continue to bleed with significant underwriting losses ( masked by sale of family jewel investments). Third Party motor continues to be the biggest drain as far as underwriting losses go. Health insurance claims are also threatening to spiral out of control. The public insurance companies will have to get their act together as far as motor and health underwriting is concerned.

It is hoped that the government will relax the FDI norms allowing higher than 26% FDI in the insurance sector in India. This will greatly help in allowing more capital into this industry, leading to a better growth rate. It is also hoped that public policy, especially in the case of health and health insurance, will contribute towards a higher awareness for health insurance products.

At our end, we wouldn't be surprised if the non life insurance industry outperforms its more glamorous brother -Life Insurance- and becomes a 2 lakh crore industry by the turn of the next decade.

Wednesday, May 18, 2011

10 Factors to Keep in Mind before Buying a Term Insurance Plan

A term insurance plan is the purest form of a life insurance policy. Here, the sum insured is paid to the nominee if death occurs to the insured person during the term of the policy. In the happy situation that the insured survives the term of the policy, nothing is payable in most cases. In that sense, a term insurance is conceptually similar to a long term motor insurance policy. There are certain term insurance products where the premium is returned to the policyholder if he (s) survives the policy period. These policies are called Term With Premium Back policies, and would obviously cost more than a pure term for the same level of life insured.

The basic objective behind a term insurance policy is that it should substitute the financial loss that the death of a person creates for his family members. Thus by definition, a term insurance policy is crucial for a young man married with young children, whereas it might be less important for a man on the verge of retirement with a significant pool of savings and children well settled. There are ten important factors that one should look at before purchasing a term insurance policy

1. Level of sum insured: A broad rule of thumb is 15 times the annual income if one is less than 40 years of age, 10 times the annual income if one is between 40 and 45, and 5 times the annual income if one is 45 or more. If you have a significant housing loan, you should have that loan covered through an additional credit life insurance plan, where the insurance company would settle the loan outstanding with your bank if there is a death. Another approach is Sum Insured = (total loans outstanding+ amount required for children’s education and wedding) + (average annual consumption related expenditure ) *10 . One should also bear in mind that one’s earning potential and expenses are likely to increase through the years, and that we have a high rate of inflation which will continuously erode value. Rs 50 lakhs today might look like a tidy sum, but twenty years later it might not be significant at all.

2. Duration of the policy: The younger you are, the longer should be the duration of the policy that you purchase, synchronizing it with retirement age or the age at which one’s financial liabilities would most probably reduce. A rule of thumb that can be used is that the term of the policy should be equal to Desired Retirement age – Current age.

3. When should I buy: The best time to buy a term insurance plan is NOW. This is because term plans get more expensive as one gets older. The biggest risk is that one might contract certain diseases with time which makes entry into a term plan more complicated. The insurer might refuse to underwrite the risk or bump up the premiums if you have reported any medical condition. Future is uncertain while the financial liabilities are predictable, and leaving behind a set of crippling financial liabilities for one’s dependants is irresponsible and avoidable.

4. Should I buy additional protection through Riders: Riders for an insurance policy are similar to the extra toppings on a pizza. A pure insurance policy pays out only on death. But there can be situations such as a critical illness or a severe accident which can completely eliminate one’s earning power. Riders such as Critical Illness riders or Permanent Total Disability riders come to the rescue here. These riders ensure that the sum insured is paid out to the policyholder in case any of these unfortunate situations occur.

5. Who should I buy from: At the end of the day, an insurance contract is a contract of trust between the life insured and the insurance company. You should buy your policy from someone who you feel will honour the contract the best at the time of the claim. You can have a look at the IRDA site for the claim payment ratios of the life insurance companies. Estimates show that in 2011, about 16000 life insurance claims will be rejected. Price is also a very important variable. Term insurance rates have come down significantly over the last two years because of price competition and increased life expectancy. Thus, you have a wide choice of 20+ insurers from whom you can buy. Look around aggressively for the company offering among the lowest prices on web sites such as Companies such as Aegon Religare, ICICI Prudential, MetLife and Kotak Life have the cheapest rates.

6. Where should I buy from: Given that term insurance rates can vary by more than 50% between different companies, it is important that you do a thorough research before buying. Your friendly neighborhood agent might not be the best person to rely on for advice due to two reasons- the plan he recommends might be way too expensive, and it is most likely that he will try and push you towards buying some other product where his commission is higher. Term products have low commissions for the agents. Over the last two years, term insurance rates have com down by 40%-50% due to increased competition and lower mortality rates. In our view, the best place to buy a term insurance product is online because of the following reasons:
a. You can easily compare the features and price of the different term insurance plans
b. It is fast and simple- would not take more than 10 minutes.
c. Medical tests and all other documentation would be arranged for by the insurance company at home itself
d. Certain companies such as Aegon Religare, MetLife and ICICI Prudential have exclusive products only for online sales where the commissions are lower, and thus the product is cheaper than offline products. Sometimes, the online version might be cheaper than the offline variant by as much as 30%!
e. Online products will progressively get cheaper than offline products as the buyer profile of online policies will have a lower risk rating
f. You can easily pay the premium through credit card or through net banking

Internet and Mobile Association of India (IAMAI) estimates that about Rs 600 crores of insurance premium was paid online in 2010. While a part of that would be renewal premiums, a significant chunk of that would be new term and health insurance policies bought online.

7.What information should I disclose: It is imperative that you disclose all the relevant information truthfully. Even a small half truth might be enough ground for the insurance company to reject the claim later. You should keep the following factors in mind while completing the proposal form:
a. Disclose your medical history in detail: Don’t hide anything. If you have a pre-existing disease, mention it clearly. In case of a death which the insurance company thinks is due to a non-disclosed pre existing disease, the claim will be rejected. This is especially true in non- medical cases
b. Disclose your family medical history too
c. If you smoke or drink, state that clearly. Also state your physical parameters accurately- height, weight etc
d. State your income and occupation accurately. If your occupation exposes you to higher risk (eg armed forces, mining etc), do state it clearly
e. Mention clearly any other insurance policies that you might have
f. Make sure that you submit genuine copies of PAN Card details, birth certificate, income proof etc
g. Try and fill up the proposal form yourself and do not leave it to the agent

8. Multiple insurance policies: It is better to have two insurance policies of say Rs 25 lakhs each than to have one policy of Rs 50 lakhs. In this way, you can have the option of continuing with a lower cover if at some point you have a reduced term insurance need

9. Who should be the policy beneficiary(s): The family members who would be the most affected in case of your demise should be the beneficiaries. In most cases, it would be the spouse, children or parents. You could also allocate different percentages of the sum insured to the beneficiaries e.g 50% to the spouse and 50% to the parents

10. Pure Term insurance or savings related insurance products: The primary objective of life insurance is to provide financial protection to the nominees. It is only after the protection angle has been completed covered through a term insurance plan that one needs to look at building up savings or investment through a life insurance policy

(An abridged version of this article appeared in the Financial Express on 17th May 2011)

Tuesday, May 17, 2011

Article in Financial Express

An article on Term Life Insurance written by us appeared in today's edition of the Financial Express. The article is available under the following link:

Sunday, May 15, 2011

Max New York Life reports PAT of 283 crores

Max New York Life Insurance has reported an impressive set of numbers for FY10-11. Profit after tax has increased to Rs 283 crores from a low Rs 24 crores in the last fiscal. This growth is especially impressive given the new ULIP regulations that came into force from 1st Sep, 2010. However it would be interesting to see if they can carry forward with the same momentum in profits in the current year, given the new tighter regulations.

Max New York Life recorded a total premium collection of Rs 5800 crores. New business premium was Rs 2050 crores while renewal premium was Rs 3750 crores. The total assets under management of the company is Rs 13800 crores.

Max has mostly traditional ( non ULIP products) under their portfolio which is why they have been affected less by the new regulations. Also the fact that they have the Bancassurance relationship with Axis Bank well established will provide them additional fuel for their growth.

ICICI Lombard Group Travel Insurance to Air India Express customers

ICICI Lombard General Insurance Company has entered into a deal with Air India Express to provide travel insurance to the domestic and international passengers flying with Air India Express.

Travellers flying Air India Express can now avail of the discounted group insurance rates that ICICI Lombard has offered to Air India Express. Expenses arising out of flight cancellations, lost luggage, trip delays,loss of luggage, loss of passport etc is covered under a 15 day policy from the date of travel. The interesting bit here is that NON-PLANNED hospitalisation is also covered even though the disease might have been pre-existing. This is the risky element for the insurer as we have heard of certain cases where the insured does a planned hospitalisation in specialised hospitals in Western Europe and US and tries to pass off the expenses as a non-planned emergency hospitalisation.

While every risk can be priced, let us hope that travel insurance for Air India Express passengers is not a sure event, given the recent history of cancelled flights of Air India and its sister concerns!

Rashtriya Swasthya Bima Yojana running into issues

Rashtriya Swasthya Bima Yojana (RSBY), which is the health insurance scheme for the Below Poverty Line (BPL) families in India is running into issues due to delay in payment of premiums by the Government and the delay in claims processing by the Health Insurance companies.

The salient features of RSBY are:

1. It aims to provide health coverage to BPL families who cannot afford to pay for health related expenditures. It is a nationwide scheme.

2.It has been rolled out by the Ministry of Labour. Each beneficiary is entitled to a health insurance coverage of Rs 30,000. It is effectively free for the policyholder with them needing to pay only Rs 30 to get enrolled in the scheme

3. There is no age limit and most pre existing diseases are covered

4. 25% of the health insurance premium is paid by the State Government and and 75% of the health insurance premium is paid by the Central Government

5. The policyholder has a choice of public or private hospitals. SmartCards are issued to the policyholder and the smartcard can be used in any RSBY empanelled hospital in the country. In that sense, there is no locational constraint.

6. The policyholder is entitled to cashless claims

5. 2.5 crore smart cards have been issued across 25 states

But of late, the government and the insurers have started pointing fingers at each other regarding premium payment and health claims payment. Rs 225 crores worth of premium which has to be paid by the State Government is now pending. The Central Govt has cleared its part of the premium payment obligation. Because the take up rate of the scheme has increased very rapidly, state governments have been struggling to keep up with their obligation towards the premium payment.

On the other hand, the government has expressed concern at the high level of claims pending with the insurers. While there has definitely been a great deal of fraudulent claims, the pending claims ratio is still way too high. The four public health insurers are yet to settle 50% of the claims. ICICI Lombard has 35% claims pending while Tata AIG has 28% claims outstanding.Mr Anil Swarup, joint secretary in the Labour ministry, has gone on record saying that the four nationalised general insurance companies have been very slow in the processing of health insurance related claims under RSBY.The official guideline in RSBY is that claims have to be settled under 21 days.The private insurance companies and the 4 public general insurance companies have exactly 50% market share under RSBY.

Saturday, May 14, 2011

IndiaFirst Life to infuse Rs 120 crores of Capital

Indiafirst Life, a relatively new entrant into the life insurance space in India, has announced its plans of infusing another Rs 120 crore of capital into its business, taking the total paid up equity capital to Rs 550 crores. A JV between Legal and General, Andhra Bank and Bank of Baroda, IndiaFirst Life generated Rs 900 crores of premium in the first 500 days of its operation. Led by the redoubtable Dr NandaGopal and blessed with a strong distribution in the south and west due to its parents, IndiaFirst is poised for impressive growth. It has announced aggressive plans for expansion in Chennai and is in the process of setting up an extensive agency force.

It is headed by P Nandagopal, an industry veteran who was earlier the distribution head of Birla Sun Life and the CEO of Reliance Life. The team draws heavily from the Reliance Life team, and it would be interesting to follow the progress made by this company in the coming months and years.

Delhi High Court questions HIV/AIDS exclusions from Health Insurance

In response to a petition filed, the Delhi High Court has questioned IRDA and the Health Ministry as to why Health Insurance policies have an exclusion for HIV/ AIDS. Most insurance contracts have a clause in the health insurance policy documents which states that the policy does not cover treatment for HIV/AIDS even if the policyholder might have contracted it at a far later stage than when he (s) got admitted into the policy. In the view of the court, this tantamounts to a discrimination in a country which has the third largest number (24 lakhs) of HIV infected people in the world. If the insurance companies need to cover HIV/AIDS as a part of the standard list of ailments that are covered, one might see a little increase in health insurance premiums. One however tends to agree that there is no basis to discriminate against HIV/AIDS patients and not provide them an insurance cover.

Life Insurance Corporation appoints New Chairman

LIC has announced the appointment of Mr Rakesh Singh, additional secretary in the department of financial services, as the interim chairman. The incumbent, Mr T S Vijayan, will continue in the post of the Managing Director. The announcement from LIC, which has traditionally combined the post of Managing Director and CHairman, has taken the industry by surprise and many have read it as a demotion for Mr Vijayan. Mr Vijayan's performance report may have been adversely affected by the loan for money scandal that hit LIC housing finance a few months back. However, that is not to take away from LIC's brilliant performance in the last financial year when they increased their market share from 64.86% to 68.7 %. At a time when there was significant degrowth among the private life insurance players becasue of the changes on ULIPS, LIC exploited the field perfectly by selling more traditional products.

LIC plans to invest Rs 60,000 cr into equities

LIC plans to invest upto Rs 60000 crores in the equity markets in India. Out of a total deployment of funds of Rs 2 lakh crores across different asset classes, about 30% i.e Rs 60,000 crores would be invested into equities. The amount that LIC invests in equities has come under pressure due to the reduced sale of ULIPS, 90% of which would be invested in the equities market. Typically a long term investor, LIC is a much needed source of stability for the Indian equity markets.

Axis Bank obtains regulatory approval for Max New York Life stake

Axis Bank, which entered into a Bancassurance arrangement with Max New York Life last year, has received approvals from RBI and IRDA to acquire 4% of Max New York Life at Rs 72 crores. The stake has been acquired by Axis Bank at par and is quite obviously at a discount to Max New York Life's market value. Axis would have bargained to acquire this stake in lieu of entering the distribution agreement with Max New York Life. Previously, Axis Bank had a Bancassurance agreement with MetLife, and accounted for more than 50% of MetLife's total business.

Acquiring stake of the insurer by the bank seems to be a new trend in the Bancassurance space. As the distribution reach provided by banks becomes more crucial for insurers desperate for market share, banks will demand a bigger pound of flesh and ask for more significant stake in the insurer. PNB, one of the largest banks in India, is in the final stages of selecting its Bnacassurance partner for life insurance. Bharti Axa Life, MetLife and Aviva are in the fray. It would be interesting to see how much stake of the insurance company PNB demands.

Edelweiss Tokio Life received final IRDA approval

Edelweiss Tokia Life has received the final approval required to write life insurance policies in India. The company received the final R3 licence and is hopeful of writing policies from July 2011 onwards, subject to the products being approved by IRDA. Led by Deepak Mittal, Edelweiss Tokia Life is the 24th Life Insurance Company in India. It would be interesting to follow the product and distribution strategies adopted by Edelweiss Tokia Life, given the capping `of charges on Unit linked Policies effective Sep 2010.The Edelweiss stock has also been under significant pressure over the last few months, and this might be a positive trigger for the stock. Given that Insurance penetration is only at 4.5% in India, Edelweiss Life sees a significant potential for growth in the Indian insurance market

Monday, May 9, 2011

Life Insurance Industry Performance: Apr 2010-Mar 2011

The annual sales figure of the Indian life insurance industry for 2010-11 are now available.

This has indeed been a tumultuous year for the industry, with the new regulations on Unit Linked Insurance Plans (ULIPs) coming into force from Sep 1, 2010. In certain cases, the private life insurance players have had a sales dip of as much as 35% post the new regulations taking effect. However, the overall dip has got masked due to the robust performance in the first half of the financial year. Gradually, the life insurance industry is finding its feet post the regulations and reported traction in sales during the month of March, 2011. The biggest beneficiary of the new regulations has been LIC, the big daddy of insurance in India.

At an overall level, the life insurance industry has reported a growth of 15% over the previous year. The industry grossed new business premium of Rs 1.26 lakh crores in FY10-11 over Rs 1.09 lakh crores in FY 09-10. However, most of this growth was accounted for by LIC which recorded a 22% increase in premium to Rs 86,444 crores from an earlier 70,891 crores. In the process, LIC increased its market share of the overall life insurance market by 4% from 64.86 % to 68.7%.

The private life insurance players, with a combined premium of Rs 39,381 crores and a market share of 31.3%, reported only a 3% growth in new business premium in this financial year. However, that tells only part of the story. In the last 6 months since when the ULIP regulations came into force, the private life insurance industry would have had a significant de-growth which has been hidden by the stronger performance prior to the regulations taking effect.

The New business premium and the market share of the private players is as follows:

Company New Business Premium in (Crs) Market Share
ICICI Prudential........7861............................6.3%
SBI Life................7571............................6.0%
HDFC Life...............4065............................3.2%
Bajaj Allianz...........3462............................2.8%
Reliance Life...........3035............................2.4%
Birla Sunlife...........2077............................1.7%
Max New York............2060............................1.6%
Tata AIG................1331............................1.1%
Kotak Mahindra..........1253............................1.0%
Canara HSBC OBC Life....823.............................0.7%
Star Union Dai-ichi.....759.............................0.6%
Met Life................704.............................0.6%
ING Vysya...............660.............................0.5%
Shriram Life............575.............................0.5%
Future Generali Life....449.............................0.4%
IDBI Federal............445.............................0.4%
Bharti Axa Life.........362.............................0.3%
Aegon Religare..........275.............................0.2%
Sahara Life.............91..............................0.1%
DLF Pramerica...........74..............................0.1%

Clearly, the top 5 private players are ICICI Prudential, SBI Life, HDFC, Bajaj Allianz and Reliance Life while there are 14 life insurance companies at a market share of less than 1%. A detailed look at the business premiums of the private companies throws up a list of companies which have had a significant increase in premium, while at the same time, a few have lost ground. IndiaFirst Life has recorded a significant increase of 250% premium growth, though on a significantly low base. DLF Pramerica and Aegon Religare have also shown an increase on a low base, but the most impressive increases are for Canara HSBC Oriental, HDFC Life and ICICI Prudential Life , all of whom have recorded increase of +25%.

DLF Pramerica...........98%
Aegon Religare..........83%
Star Union Dai-ichi.....46%
Shriram Life............37%
Canara HSBC OBC Life....29%
HDFC Standard...........25%
ICICI Prudential........24%

However, a few private life insurance companies have registered significant degrowth. MetLife, which lost the Axis Bank relationship, registered a decrease in premium income of as much as 34% (it is in the final shortlist for the PNB Bancassurance relationship, and could possibly make up the lost ground). Birla SunLife’s new business premium was 30% less than last year, while Bajaj Allianz Life Insurance had a 22% decrease.

It would be interesting to see how the life insurance industry performs in the current financial year, which would be the first full year since the watershed regulations on ULIPs took effect. In the long term, the changes brought about would be healthy for the life insurance market in India. The pensions product, which used to account for 30% of the market and for all practical purposes was killed by the new regulations, would also come back to life in this financial year as IRDA is planning to bring about changes from its earlier guidelines. All in all, it promises to be an interesting year ahead.

Friday, April 29, 2011

Mukesh Ambani led RIL looking to enter the Insurance industry

If newspaper reports are to be believed, Mukesh Ambani led Reliance Industries is looking to buy out Bharti's stake in Bharti Axa Life and General Insurance companies. Bharti has been looking to sell its stake in the insurance venture over the past year. Given the pedigree of the two partners- Bharti and Axa-it must be said that one would have expected these two insurance ventures to have generated more premium income. Bharti Axa Life has a market share of about 0.3% as far as new business premiums in the financial year 2010-11 are concerned. However, Bharti Axa Life is in the final shortlist of three companies for the Bancassurance tie up with Punjab National Bank, which can be a game changer.

On the other hand, Mukesh Ambani led Reliance Industries has been looking to enter the financial services space in a big way after its non compete with the ADAG group came to an end. It has partnered with DE Shaw and at one time was also looking at acquiring IL&FS. Buying Bharti's stake and entering the high potential insurance business in India makes perfect sense for Reliance's ambitions in the financial services area. In fat, Anil Ambani led ADAG had also entered the insurance space by buying out AMP Sanmar, which was a life insurance company. Currently, Reliance Life is ranked 6th among the private life insurance players in India with a new business premium of Rs 3035 crores in FY 2010-11 and has a 2.4% market share in the life insurance industry. Reliance Industries, which is known for the scale at which it operates, might look at acquiring a substantial market share in the insurance area in India through this particular transaction.

Whether the transaction goes through or not, time will tell. But prima facie, it seems a very good vehicle for Reliance to enter into the insurance industry without going through all the license related delays. If RIL does indeed join the insurance industry in India, even LIC will be forced to take notice and observe closely.

Monday, April 25, 2011

Impact of Direct Tax Code on Life Insurance

Come April 2012,  and the Direct Tax Code (DTC) will come into effect.

Let us look at the impact that it might have on life insurance policies.

Currently, insurance premiums paid (upto Rs 1 lakh) and insurance policy proceeds are tax exempt. Once the DTC comes into effect, insurance policy proceeds will be tax exempt if and only if the policy maturity term has been reached (or on death, whichever is earlier) and provided the sum insured is 20 times or more the annual premium paid.

Tax savings is one of the major drivers of life insurance sales in India, as both premiums and policy proceeds are tax exempt. This will have a major bearing on the sales of life insurance policies as most policies (except the pure term insurance covers) have a sum insured of less than 20 times the annual premium. Another feature of the life insurance market is that single premium policies (which are mostly an investment tool) are very popular. These single premium policies have a very low degree of cover. The new DTC will make single premium investments less attractive than earlier. Single premium currently accounts for more than 50% of the total insurance market in India. 

So we expect to see increased sales of pure term products and protection intensive life insurance policies from 2012. We feel that that is the way it should be. In India, life insurance has begun to have less with insurance and more with investment. Before the regulations of Sep 2010, most of the ULIPs were inefficient, expensive investment products masquerading as life insurance products. With IRDA mentioning a lock in of minimum of 5 years on insurance policies, and DTC ensuring higher insurance multiple, chances are that we will begin to see more long term protection policies.

IRDA commissioning study on cost of Regulation

The insurance regulator, IRDA, has mentioned that it will commission a study to analyse the cost of the regulations that it has enforced on insurers, and thus the impact on the cost of insurance policies. Over the last year, there has been a spate of regulations by IRDA and this study will provide quantitative evidence of the impact of the regulations and if the regulator has over-regulated.

This is indeed a bold move and the study will be quite complex as data would be required from every insurance company in India. There can be different elements of increased cost due to regulation: cost of needing to report more, cost of needing more manpower to ensure statutory compliance, sales team trainings, cost of reprinting marketing literature, the opportunity cost of certain business lines turning unprofitable etc . The study will be of more crucial import to the life insurance industry as sweeping regulations were brought into effect from Sep 1 2010. IRDA also mentioned that insurance companies have to prepare quarterly filings, which has its own cost.

Studies of this type are regularly undertaken in other countries, most notably Australia. It would be interesting to note the impact that this study has on more thought through regulation. While insurance companies would not admit it publicly for fear of incurring the wrath of the regulator, there is a feeling among the life insurance companies that they have been over-regulated. But one cannot blame the regulator for this: the horrendous stories of misselling that the industry was resorting to cried out for some really strong regulation. The life insurance industry, in the longer term, will come out stronger because of the course corrections undertaken. The only area where we feel that the regulation has gone a little wrong is on pensions as that category has been more or less killed, but IRDA is relooking at the pension regulation if media reports are to be believed.

Max New York Life on Stable Ground

Max New York Life, one of the leading private life insurance companies, expects to turn profitable in this financial year. The company which would have a total premium collection of approximately 5000 crores in this current fiscal has been relatively less affected by the new ULIP regulations as they have focussed on traditional products.  86% of their sales come from traditional products.  Max New York Life also has a high renewal premium to new premium ratio of about 2:1, whereas the overall industry ratio is almost 1.2:1. This is because they have a higher persistency/renewal ratio, and also because they have a lower component of single premium sales in their product mix. Max also has a strong distribution arrangement going with Axis Bank, wherein Axis Bank has picked up a stake in Max and offers Max's life insurance products to its customer base.