Healthy Growth Figures for both Life and General Insurers in India

The first half of this financial year (April 2012– September 2012) has registered growth for both life and general insurance companies. As compared to the same period last year, Life insurance companies have registered a growth of 11.2 % in new business premium collection while non-life insurance premium collection grew by 24.70%. The total collection for life insurance companies stood at Rs 26,889 crore while that of non life premium totaled at Rs 34001 crore.

The growth in the life insurers was primarily driven by individual regular premium policies which showed a growth of 21% during April 2012 – September 2012 as compared to April 2011 – September 2011. On the other hand single premium policies registered a negative growth of 9.6% for the same period, the possible reason being these policies are less attractive to prevalent tax exemptions.  The frontrunner in premium collection is once again Life Insurance Corporation of India (LIC). The premium collected by LIC helped to boost the overall figures in the life category while the private players suffered a negative of 13.7%. Among the 23 private life insurers only six insurers managed to show an increase in premium collection.

On the other hand the non life insurance category had a completely different story with the private players faring better than the four state owned general insurance companies. General Insurance companies like Max Bupa Health Insurance, Bharti Axa General Insurance and HDFC Ergo witnessed a healthy growth of 65%, 48% and 40% respectively for the period under consideration. Star Health and Allied Insurance was the only private general insurance firm to report a decline of 38% in premium.



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HDFC Standard Life Launches New Immediate Annuity Plan

The market for immediate annuity plan is gaining new ground in India. Although traditionally insurance companies in India have more number of deferred annuity plans, the trend is set to change. At least this is what HDFC standard Life Insurance feels as they prepare to launch their new immediate annuity plan in December 2012. They have already received the IRDA approval for this new product – HDFC New Immediate Annuity Plan.

Executive Vice President (Marketing and Direct Channels) , Sanjay Tripathy feels that there is a lot of potential for growth of Immediate Annuity Plans  in India as their presence in the international market are already established. The new product will offer 11 annuity options for single and joint lives.

An Immediate Annuity Plan start paying you annuity right from day one once a lump sum payment is made. These are typically suitable for people aged above 50 years and having huge disposable income. Some of the immediate annuity plans are LIC Jeevan Akshay, ICICI Pru Immediate Annuity etc.

As opposed to Immediate Annuity Plan, Deferred Annuity Plans have an accumulation phase inbuilt in itself. Premiums are paid for X number of years and post retirement the investor starts receiving pension income. These are quite popular in India and some examples are LIC Jeevan Tarand, LIC Jeevan Nidhi, Bajaj Allianz Swarna Rakhsha etc. 



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Car Insurance - Premium calculation and proposed changes

Car insurance in India is an insurance which every vehicle owner must mandatorily avail if they possess a vehicle. However many people actually don’t bother to wonder how these values are calculated. Although this write-up is about the recent proposed changes by Insurance Regulatory and Development Authority (IRDA) of India, the article would serve more sense if some preliminary information of car insurance is provided. For those who are already well versed with the car insurance premium calculation, please feel free to skip to the last paragraph.

To understand how car insurance premium is calculated we need to understand the factors involved in deciding the premium of the insurance policy. Apart from the car, the city of registration also accounts to variations in the insurance premium. Accordingly there are specific zones and corresponding rate factor for the insurance premium. The different zones are  

Zone-A:  Ahmadabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi and Pune

Zone-B:  Rest of India

The insurance premium charged depends upon the city of registration, irrespective of the place where it is used or where the insurance in renewed.

The basic premium is calculated as per the Indian Motor Tariff. It varies from case to case.

It depends primarily on the following factors:

1. Cubic Capacity of vehicle – Premium increases with the increase in the vehicle CC

2. Age of vehicle – Coverage (or sum insured) decreases with the age of the vehicle

3. Period of coverage – Premium increases proportionately with period of coverage

4. Discounts/ loadings – Premium decreases if discounts are availed.

5. IDV (Insured's Declared Value).

The first four bullets have a somewhat direct proportionality with the insurance cover or premium charges. The IDV is a parameter which is equivalent to the sum insured of the policy. It is calculated taking into account various factors involved in evaluating the car. The age of the car, wear and tear of the car, history of the car etc. are some of the factors involved in determining the IDV. There are different depreciation norms followed to allow an unbiased evaluation of the car depreciation.

The table below would help the reader understand how the depreciation of a car is calculated.
TABLE 1

PARTS OF VEHICLE	% OF DEPRECIATION
1. For all rubber/ nylon/ plastic parts, tyres and tubes, batteries and air bags	50%
2. For fibre glass components	30%
3. For all parts made of glass	Nil

For all other parts including wooden parts, the following depreciation rates apply.
TABLE 2

AGE OF VEHICLE	% OF DEPRECIATION
Not exceeding 6 months	Nil
Exceeding 6 months but not exceeding 1 year	5%
Exceeding 1 year but not exceeding 2 years	10%
Exceeding 2 years but not exceeding 3 years	15%
Exceeding 3 years but not exceeding 4 years	25%
Exceeding 4 years but not exceeding 5 years	35%
Exceeding 5 years but not exceeding 10 years	40%
Exceeding 10 years	50%

Now a certain change is being introduced in table 1. Paint items are also proposed to be added to this list of items which have depreciation rates. The authority said that paint will be included in the category of 'rubber, nylon/plastic parts, tyres and tubes, batteries and air bags' which presently attract 50 per cent depreciation. IRDA added that since paint material is polymer based and hence the depreciation applicable to plastic parts can be applied for it. As such a depreciation rate of 50% is proposed for painting charges too. This would be 35% of the total painting charges or the actual whichever is lower. Currently this proposal is under review and suggestions are sought from the stakeholders by 9^th November 2012.

Postal Life Insurance and Rural Postal Life Insurance initiates improvements in their schemes.

While the whole insurance industry is buzzing with competitive products and expensive promotions, the Postal Life Insurance (PLI) and the Rural Postal Life Insurance (RPLI) are working their way to glory. At least that’s what the statistics show. The PLI was introduced in the year 1884 and the RPLI was introduced 1995. These schemes are only available to Government and Semi government employees. The contract is guaranteed by the Government of India and it enjoys high bonus for a lesser premiums.   The RPLI is implemented in the rural areas.

Many technological and administrative steps are taken towards making the two insurance schemes attractive to the customers. As many as 6,000 Gramin Dak Sevaks and 1,000 Direct Agents are contributing to service procurement and taking care of hundreds and thousands of customers. Now, all the after-sales services including maturity and loan cases are handled by local divisions. Policy documents are now printed and submitted to the insurants within 30 days. Facilities that the customers can now avail of include enhanced life cover of up to Rs 20 lakh, online premium deposit for a policy in any Post Office anywhere in the country, option of a variety of products, easier revival process and customers’ care centres at Divisions, Regions and Circles to take prompt care of grievances.  Nomination change, transfer, assignment facilities can be availed at Circle/Regional office level.

These implementations would hopefully bring in more revenue from these Government Initiatives. Statistical Data from the website also shows that RPLI is gaining better ground in terms of growth. Without any promotion, these two schemes are silently adding substantial revenue to the Indian Government.

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General Insurance gets two more Companies in India

The general insurance sector of the Insurance industry grew more competitive as two new players have formally launched their operations. These new players are Religare Health, an initiative of Religare Enterprises Limited, Union Bank of India and Corporation bank, and Magma HDI General Insurance, a joint venture between non-banking financial company Magma Fincorp and HDI Gerling, a leading German Insurer. 

Religare Health had launched their operations in July 2012. In the last 3 months, it has an impressive performance of collecting around 14 crore premium, operating in 134 centers and servicing more than 34,000 customers. Although currently they have only one insurance product named “Care”, they have ambitious plans on board to launch products for critical illness, overseas student travel medical insurance and also policies for HIV patients.  Currently their health insurance product “Care” comes with certain salient features outlined below

•           It offers a sum assured upto 60 lakhs to suit the customized requirements of every consumer.
•       It has the option of availing specialized treatment anywhere in the world of sum assured over 50 lakhs
•      It offers annual health check up facility, automatic recharge of sum insured in case the claims exhaust and no claim-based loading on premiums.
•      It offers lifelong renewability and daily allowance to cover incidental expenses during hospitalization
•       It has tie up with around 1800 hospitals across India.

Magma HDI General Insurance (MHDI) would target offering a comprehensive end to end solution to customers by financing vehicles and offering insurance to the assets purchased. Magma Fincorp (one of the partners in the JV) are mostly present in semi urban and rural areas which are relatively unpenetrated markets for insurance products. Thus they aim to explore these markets and chalk out a strategy to survive in the already competitive market of insurance. They plan to launch operations in 39 locations with work strength of around 500 people.

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What the Insurers Need

The insurance business in India has come a long way since the Insurance Act of 1938. Some of the key milestones in this sector since independence of India would be the merging of all life insurance companies to form Life Insurance Company of India (LIC) in 1956, the merging of all general insurance companies to form four General Insurance Companies (National Insurance, New India Assurance, Oriental Insurance and United India Insurance) and the deregulation of the Insurance Sector in 1999 allowing foreign players to operate in the market. So is this market movement from monopoly to oligopoly really proving to be worthwhile for the Insurance Companies?

The ironclad regulations thrown by IRDA from time to time, economic and political pressures and tough competition has made it difficult for the insurance companies, especially the private players, to make any meaningful business out of it. This year we have already witnessed the exit of New York Life Insurance from Max India Limited. Others following suit might be ING and HSBC. Future group also plans to sever its ties with Generali while DLF wants to exit its tie up with Pramerica. Nine of the 23 private sector life insurers, including units of HSBC, Italy's Generali and Dutch life insurer Aegon, lost money in the year ended in March. The joint venture between France’s Axa and Bharti Enterprises, owner of India’s biggest cellular carrier, has never made money. 

So to revive and attract more investors and foreign partners certain flexibility must be introduced so that the insurers would be able to compete for higher margin and aim for higher penetration. Currently the penetration is only 4.4% in India against 8% in Japan and 9.5% in Britain. Business margin for India is also around 10-15% against 20-25% in China and 30% in Hong Kong.  A helping hand would be the recent proposed hike of FDI cap to 49%. It must be allowed to pass without any political mess up. Additionally the IRDA must have a more benevolent approach towards private players. Because of strict regulations, insurance products are mostly similar and hence competition is high. Without the option of product differentiation margins for insurers would continue to be meager. 

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Max Life Insurance disinvests 5% stake from Mitsui Sumitomo

The Insurance industry has started showing the first sign of reaction to the proposed decision of increasing the FDI limit to 49% from the existing 26%. Earlier this year in April 2012, Mitsui Sumitomo had acquired New York Life Insurance’s 26% stake in Max New York Life Insurance (Then a joint venture between Max India and New York Life Insurance). Since then the Insurance Company has be renamed Max Life Insurance. The deal was estimated to be around Rs 2700 Cr.

However unlike New York Life Insurance, Mitsui Sumitomo doesn't enjoy the privilege of increasing the stake from 26% in case the FDI limit was relaxed (as proposed now to 49%). Now when the Government has decided to increase the FDI limit, Max Life Insurance has disinvested 5% stake from Mitsui Sumitomo.  With Indian promoters having invested Rs 21,000 Cr and foreign investors putting in Rs 7000 Cr in the past decade in the segment, the new FDI cap raise is expected to draw in another Rs 30,000 Cr in the next five years, given the approval in the parliament.

Max India and Max Life Insurance chairman Analjit Singh stated that the disinvestment is a move aimed at unlocking the valuation from their life insurance business and that the decision is purely commercial. However with the above mentioned figures in terms of proposed FDI investment, can this stake disinvestment be also seen as a planned move for welcoming further foreign investments?

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IRDA to step in over cancellation of cashless cover by PSU Insurers.

On July 1st, 2011 four PSU firms for General Insurance viz. National Insurance, New India Assurance, Oriental Insurance and United India Assurance had stopped their cashless hospitalization facility. The reason was overcharging by the hospitals and non standardization of the treatment charges. Insurance companies have a network of hospitals, known as PPN, which offers health insurance services under cashless facility. The network hospitals are decided through the agreement between the Third Party Administrators (TPAs) and the hospitals and the list is amended from time to time. Insurance Companies have claimed that the cost to claim ratio was around 140 percent of the premium received under the health portfolio as on June 2012. Some 150 hospitals were scrapped from cashless hospitalization scheme. While the insurance companies complain of overcharging, the private hospital authorities maintain that they cannot conduct treatment at Central Government Health Scheme (CGHS) rates.

Initially Insurance Regulatory Development Authority (IRDA) took a rain check when their intervention was sought. They felt that the insurance companies and the hospitals need to work out an amicable solution themselves. Now with the policyholders stranded for no fault they have decided to step in. In August this year IRDA came up with a circular stating that policyholders would continue to get cashless hospitalization facility even if the hospital were delisted from cashless cover by the Insurance Companies. They are now in the process of standardizing the treatment costs as well as look into the issue of overcharging

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Experts speak on FDI reforms in Insurance

Sometime back in July 2012 we had written about the first positive ripples of investment in the Insurance Sector. We had discussed about the possibility of increasing the FDI investment cap from the erstwhile 26% to 49%. With the recent ongoing parliamentary discussions this possibility might soon be a market changing reality for the Insurance Business. Though we have to wait till November and hope for a smooth approval of this proposed reform, let’s have a look at how the industry is impacted and what the industry experts have to say on this:

Puneet Nanda , executive director ICICI Prudential : “Raising FDI cap will send positive signals to foreign investors and will encourage new players to enter the Indian insurance market. Increased competition will lead to the introduction of newer and lower-priced products and better service from insurance firms.”

Vibha Padalkar, executive director and chief financial officer, HDFC Life: “More companies will enter the sector because India is an underpenetrated country when it comes to life insurance products. Along with lower prices, customers will also see new products hitting the market”

Nathan Parnaby, CEO of Standard Life’s Asia and emerging markets division: “The Indian government and their finance minister are doing the right thing…We would like to look at the opportunity of increasing our stake”

[Standard Life holds 26% stake in HDFC Standard Life Insurance]

Louise Shield, an RSA spokeswoman: “We welcome the move, it’s a step in the right direction”

[RSA holds 26% stake in Royal Sundaram Alliance]

Although RSA has not expressed any interest to increase their stake in Royal Sundaram Alliance, others like Standard Life and Prudential (currently having stake in ICICI Prudential) have expressed interest to take advantage of this reform. As per market experts, Standard Life and Prudential would need around 300 million pounds and 700 million pounds respectively to increase their stakes to 49% in HDFC Life and ICICI respectively. Although a 49% doesn't give any controlling stake to either of them, it induces greater involvement and interest in business strategy, management and implementation.

From every corner of the globe we are getting positive vibes about this proposed reform. Perhaps opening up FDI in Insurance is a great way to explore the full potential of a strong market as India. We certainly hope that this move is not thwarted by unreasonable political aspirations.

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India First Life Insurance Launches MagicBoard

The days of cumbersome sales meeting, extended paperwork and mis selling may soon come to an end for the Indian Insurance industry. For many years now, insurance companies have been brainstorming with their IT to bring out the cutting edge technology which addresses the above mentioned hassles surrounding the insurance industry.  A solution to this would automatically lead to a drop of expenses for both parties viz. the customer and the insurer.

A leap towards this idea has been taken by India First Life Insurance, a joint venture between two of India’s largest public sector banks- Bank of Baroda and Andhra Bank along with UK’s leading risk, wealth and investment company Legal and General. They have launched MagicBoard - a one-of-its kind integrated portable fulfillment device for a fully compliant, truthful and efficient Customer sales and service process that has a potential to be a force multiplier in sales productivity, customer delight and cost efficiency.

The device is an automated sales engine where a customer, distributor, employees and the insurance organization shares an integrated platform at real time to ensure honestly, transparency and agility of the sales process. Each of these stakeholders would have a single page view in his handheld tablet PC for real time access. Thus all the business processes viz. B2B, B2C and C2B are integrated and processed together. A sales person can now complete a sale on the spot (with or without access to internet) within 15 minutes. And instantly thereafter, the sale data is picked up by the MagicBoard command center at Mumbai and a verification call is made to the customer to cross check the information and the call is recorded for future reference by the customer. Once the data is verified, instantly a PDF file of the policy is pushed into the customer email and the summary printout is given simultaneously by the sales person through his blue tooth enabled portable printer which he carries along with him. A hard copy is also couriered to the customer to ensure that he has the same document through different delivery channels for cross check. MagicBoard also allows the sales person cater to customer requests, complaints and claims instantly through live video calls, instant access to key personnel in the corporate office etc.

Summarizing the MagicBoard has the following to offer to the Sales Executive and Customer

-       Helps optimize leads

-       Recommends the right product based on the customer needs

-       Details out the product key features and risk factors honestly through pre recorded product audio visuals

-       Eliminates cumbersome procedures - instant upload of documents, collection of premiums and policy printing

-       Provides business intelligence and MIS reports on a real time basis

-       Offers instant insurance at customer door step with end to end fulfillment

-       Uniform communications visually and verbally across all customer touch points

-       Complete migration of manual sales process to an integrated, IT enabled platform

Going by the habit of idiosyncratic investments by insurance companies in anything that boosts sales, we might be on the advent of witnessing some serious and revolutionary changes in the insurance buying process.

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