Legal battle brewing on the TPA front

Third Party Administrators (TPAs) have been in the eye of the storm recently during the entire controversy of cashless claims for the health insurance industry. The four public sector general insurance companies have expressed their dissonance at the functioning of the TPAs, claiming that they have contributed directly to higher claims by not managing the claims process efficiently. On the other hand, the consumers are also not happy with the TPAs, claiming there have been inordinate delays in claims processing and claims have been summarily rejected or reduced.

The four public sector general insurance companies have now decided to set up a TPA wherein they have a substantial stake. They had invited expressions of interest from different quarters, and have finally arrived at a shortlist of 2 TPAS. The insurers argue that they will have far greater control on the claims process through this inhouse TPA.

The existing  TPAs have contested this saying that the insurers should not pick up stake as they are in interested party, and the process will lose its independence. The TPAs claim that they will lose more than 50% of their business, and will have to lay off over 10000 people. 

It seems that IRDA might have to intervene finally, else the matter will end up in the courts. The fact of the matter is that the industry is bleeding through excessive claims.

Distance Marketing Guidelines for Insurance

IRDA has come out with a set of guidelines to regulate the process of distance marketing of insurance policies through telephone or over the internet. The key points of this set of guidelines is as follows:

1. Telecallers engaged in selling insurance over the phone need to have mandatory training of 25 hours

2. Insurers and brokers have to get their telecalling sales scripts approved through IRDA before use

3. In the case of telecalling, the telecaller has to provide all the details regarding the product features and benefits and mention the risks and exclusions

4.Insurers and brokers have to listen to at least 5% of the calls live and 10% of the calls that lead to a sale, to ensure that the guidelines are being met

5.Single premium ULIPs can be sold only upto a premium of Rs 1 lakh. Regular premium ULIPs sold cannot exceed Rs 50000 of premium per year. 

6. Universal Life products cannot be sold through the distance marketing mode

These guidelines come into effect from 1st Oct, 2011.

Child Insurance Plans

Child Insurance Policies are very popular in India, and life insurance companies aggressively sell these policies in India. In this article, we will try and understand the concepts involved in a child insurance policy.

At its heart, a child insurance plan is essentially a endowment plan with a fixed term . It is more of a marketing story rather than an innovation in a life insurance policy. Insurance being essentially a rather dry, emotionless subject, a child insurance policy helps deliver an emotional connect for the life insurance company with the end consumer.

In a child insurance policy, the parent (s) is the sum insured and the beneficiary is the child. Typically, the child's age would need to be less than 18. The basic objective of the child insurance plan is that in case something happens to the parent, this policy ensures that the child's education, marriage etc does not suffer. In the happy situation that there is no untoward incident happening to the parent, this policy ensures that the parent has saved regularly for the child's better future.

One additional feature that has been built into many child insurance plans is waiver of premium and double sum insured. Double sum insured means that in the case of the parent's death, the sum insured is made payable to the child and another sum insured (or maturity value) is paid at the time of maturity of the policy. Waiver of premium means that after the parents death, no additional premiums need to be paid even though the policy continues and regular additions are made to the fund value by the life insurance company. These benefits (riders) of course come at a price but are extremely helpful to the child in case of the unfortunate death of the parent.

There are traditional child insurance plans (which link everything to sum insured and bonuses) and unit linked child insurance plans (ULIPs, which link everything to fund value). Under the present scenario where charges have been drastically reduced in ULIPs, and also because this is a long term savings instrument, one would recommend a Unit Linked child insurance plan over a traditional product. There are many child insurance plans in the market- Aviva's Young Scholar, Bharti Axa's Future Champs, HDFC Life's Young Star, Max New York Life's Shiksha Plus II etc.

Health Insurance Portability: Clarity Required

There still does not seem to be too much clarity on health insurance portability in India. As per industry sources, health insurance portability will come into effect from July 1. It is still anybody's guess as to how pre-existing diseases, which is at the heart of portability, will be treated by the new insurer. There is one concern that health insurance portability might lead to increased costs for the consumer desiring to port, as the new company can use increase pricing as a ploy to turn down underwriting which they think might not be profitable. One concern area for health insurance companies is that they dont have access to a centralised database which has the claims history and health records of every insured person. In the absence of that, it becomes difficult to price the risk

ULIP sales take a beating

Sales of Unit Linked Insurance Plans (ULIPs) have substantially declined in 2010-11 over the previous year. This was mentioned by the IRDA Chairman during a FICCI organised event in Delhi where he mentioned that ULIP sales have gone down by as much as 15% over the previous year. A public row between SEBI and IRDA brought in new regulations for ULIPs from September 1 wherein charges and commissions were dramatically reduced. We feel that this had made a very attractive product category for the end consumer, but the tragedy has been that the life insurance distribution force has been reluctant to sell it due to lower payouts. 

It would be interesting to see whether this 15% decline is for the full year, or whether it is from September 1 when the new regulations came into effect. In case the decline is at an annual level, the real decline would be much more as the new regulations were in force for only 6 months.

In the long term, however, we feel that the market will tide over this and the new regulations will be healthy for the market. The level of misselling leading to record lapse rates would come down through these new regulations. In the short term, we expect to see higher level of sales of traditional life insurance policies.