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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