LIC, Vijaya Bank ink MoU for share out insurance products

LIC on Thursday inked a MoU with Bangalore-based Vijaya Bank for sharing of its life insurance products on an appointment basis.
Vijaya Bank has become the 9th public sector bank to have inked a MoU of the kind with the Life Insurance Corporation (LIC).
Vijaya Bank CMD Albert Tauro said that the union would help Vijaya Bank become a 'one-stop' solution for its clients, offering a range of financial services and products.
With more than 7.5 million customers and a pan-India attendance through 1,163 branches, Vijaya Bank hopes to add to the incremental business of LIC.
A K Dasgutpa, LIC (India) MD, said that the insurance major has a customer support of over 30 crore and banc assurance forms a major component of its business strategy for the future. Partnering with Vijaya Bank would help both the entities match synergies and provide insurance solutions in a method that would be helpful for all.
LIC had collected total first premium to the tune of Rs 42,960.44 crore, and had paid up total claims amounting to Rs 50,535 crore in 2009-10.
The total income generated was Rs 2, 47,310 crore while the total investment had crossed 11 lakh crore.

PNB to choose up partners' 58% stake in life venture

Punjab National Bank will buy out the 58% stake held by two of its partners in a planned life insurance joint venture, which is still pending regulatory approval. PNB holds a 30% stake in the planned life insurance venture, called Principal PNB Life Insurance Company, in partnership with Mauritius-based Principal Financial Group (26% stake), domestic firm UK Paints (32%) and Vijaya Bank (12%).

The company never got narrow approval from IRDA due to differences between the partners. PNB will buy the entire 26% stake held by Mauritius-based Principal Financial Group in the life insurance company, as well as domestic firm UK Paints’ 32% participating interest, the bank learned the Bombay Stock Exchange. However, the other home partner Vijaya Bank would remain with the joint venture. Following the change in partnership, the name of the planned joint venture would also be changed, sources said. Post regulatory approval, the stake of PNB in the venture would go up to about 88% per cent.

The stake sale was formalised under a communication of Understanding inked between the JV partners for reform their existing joint ventures.

PNB and Vijaya Bank will settle on the future course of action in the insurance company after receiving regulatory approvals and finalisation of the deals, it said. At the same time, the Delhi-based public sector lender will also buy out Principal and Berger Paints stake of 26% per cent and 25% per cent respectively in a proposed insurance broking company, which also did not get off the position.

However, in the asset management joint venture with Principal, both PNB and Vijaya Bank will remain as partners for a period of 3 years. As part of the joint venture restructuring, it was also decided that PNB and Vijaya Bank will sell their 30% per cent and 5% per cent stake respectively in a projected joint venture distribution firm to Principal.

Heat up on insurance agents

Life insurance agents are probable to face difficult times.
The regulator has planned to make the norms for selling policies more stringent, while insurers are planning to update their tied agent force to increase productivity as their limits have come under pressure following rule changes over the past 12 months.
The insurance regulator has projected to amend the IRDA Regulations for Protection of Policyholders’ Interests so that the policies are sold based only on the need of the buyer.
The IRDA wants to make it compulsory for agents to prepare a “need analysis document” before selling a policy. “There should be a proper monitoring of implementation of the need analysis by insurers of all the intermediaries they deal through,” the regulator said.
It also said the training set of courses for agents should give high priority to the need analysis. “The regulatory changes will shake out the 30-lakh plus agency force in the life insurance industry,” said Shekhar Bhandari, business head (tied agency), Kotak Mahindra Old Mutual Life Insurance Company. “Not all of them will find it simple to stay in the business.”
According to Bhandari, insurers are feeling the heat of the changes in Ulip charges and others. “In 2008-09, insurers have rationalised their administrative and operating costs and expenses. We’ll have to focus on increasing the productivity of distribution channels,” he said.
Tied agents — entities selling products of one company — is the costliest sharing channel for an insurer. “Agents should now understand that they need to pull up their socks and get double the business to earn the same level of commission they had been earning so far,” Bhandari said.
Birla Sun Life Insurance Company’s chief financial officer Mayank Bathwal spoke along parallel lines. “Agency productivity has to be increased. Besides, an insurer also should look for innovative distribution channels which cost lower.”
The pending Insurance Bill also does away with Section 40A of the Insurance Act that prescribes commission. At present, an insurance company, which is yet to complete 10 years, can pay a maximum of 40(%) per cent commission on the first year premium income, 7.5(%) per cent on the renewal premium income for the second and third years and 5(%) per cent thereafter.
Insurers who have finished 10 years can pay a maximum 35(%) per cent as commission on the first year premium income, 7.5(%) per cent for the second and third years and 5(%) per cent thereafter.
For single premium policies, the commission is 2(%) per cent and it is 7.5(%) per cent for pension plans.
After the insurance regulator has put a cap on Ulip charges, the commissions in an Ulip become less than in a traditional plan.

Life insurers deployed Rs 3,941 cr in FY10

The life insurance industry deployed Rs 3,941 crore into the business in financial year 2009-10. According to data from Life Insurance Council, around 98(%) per cent of the capital was infused by private sector life insurers, while LIC, the behemoth public sector life insurer, saw mixture of Rs 5 crore during the previous financial year.

Reliance Life, HDFC Standard Life, Metlife Insurance, Aviva Life Insurance, Bharti Axa Life Insurance and Future Generali Life Insurance were along with the firms that infused capital in 2009-10.

“We infused close to Rs 231 crore in the previous financial year,” a senior official at Reliance Life said. According to him, the company will instill an equal amount of money in this financial year to uphold solvency requirements.

HDFC Standard Life infused Rs 172 crore to take its paid-up capital base to Rs 1,978 crore.

Companies such as ICICI Prudential Life, Bajaj Allianz Life and Kotak Mahindra Old Mutual Life did not infuse any capital in the previous financial year. “We did not infuse anything in the previous financial year as we were relaxed on solvency and profits were retained too,” said Kamesh Goyal, chief executive of Bajaj Allianz Life. According to him, the company will not infuse any capital in this financial year as well.

While the total capital deployed up to FY10 was Rs 28,929 crore (Rs 24,988 crore up to FY09 and Rs 16,692 crore up to FY08), management operating cost too have fallen considerably. Commission as a percentage of premiums has declined by 30 basis points to 6.71(%) per cent in FY10.

A release from the industry council said renewal premium of the industry grew 13(%) per cent to Rs 151,812 crore. Payouts to policyholders (claim settlements, bonus and money back) increased 42.82(%) per cent to Rs 83,327 crore in FY10 compared with Rs 58,343 crore in the parallel period last year.

“Life insurance companies have sold more than 2.8 crore policies in rural areas in FY09 and FY10. India also has the difference of having the largest number of in-force policies in the world,” said SB Mathur, secretary general of Life Insurance Council.

The total assets held by the industry stood at about Rs 1,290,000 crore as of March 31, 2010.

Shriram Group to get bigger insurance biz overseas

Shriram Group plans to take its general insurance overseas by location up operations in countries such as Thailand, Indonesia and Vietnam. Shriram General Insurance is mulling a tie up with private equity or local partners for this function.

“We will take the general insurance business outside India. Now, we are piloting the business in the Philippines. By the finish of this year, we will have a incidence in Indonesia. We might soon have a company in Malaysia, Vietnam and Thailand,” said Shriram group founder R Thyagarajan.

The group operates life and general insurance businesses from side to side a partnership with Sanlam of South Africa. The company will be infusing about Rs 100 crore as capital for the growth. The group will also instill Rs 100 crore in its life insurance business.

This is part of the company’s plan to get bigger business in the north-east region. Shriram Life Insurance will also aggressively use a distribution channel called ‘NEW’ (north east west), that seeks to target the “well to do” sector of the population.

The group announced annual results for its insurance businesses. Shriram Life Insurance recorded an increase of 48% per cent in annual premium equivalent (APE) during 2009-10. The company is targeting APE of Rs 1,500 crore within the next 5 years from the current Rs 284 crore. At the same time, Shriram General Insurance wrote gross premium of Rs 416.93 crore in its first full year of commercial operations. During the year the company made an underwriting profit of Rs 5.45 crore.

Reliance Life Insurance introduces mobile phone-based services

Reliance Life Insurance Company Ltd (RLIC) on Monday announced the launch of a mobile-based insurance proposal - ‘Mobinsure’ - a mobile portal present a comprehensive range of insurance related services on mobile phones.

This service would make it easier for its policyholders to path their policies and premiums, do fund switches, pay insurance premium and determine policy-related queries instantly using their web-enabled mobile handsets. It would be available on both CDMA and GSM platforms.

This was announced by Malay Ghosh, president, Reliance Life Insurance, on Monday. “With Mobinsure, most features of internet insurance will now be available on mobile phones, providing a breakthrough improvement in insurance services. Besides easy access and anytime anywhere insurance, the new application offers whole services and security to customers transacting on their mobile phones,” said Mr Ghosh.

Customers can log on to their Reliance Life Insurance accounts on their cell phone handsets and get important information on policies, applications, funds, profile, advisors and also make active online transactions, including premium payments, future allocations and change of address, free of cost.

“All online transactions are real-time transactions. There is no time wait between a transaction done by the customer and its effect on the system. We will offer this service free of charge to our customers,” he added.

Mobinsure application has been developed to ensure complete safety and protection to a customer while doing financial transactions. This is ensured by the high-end encryption used in the application. Unlike a lot of other applications, Mobinsure does not require a customer to download and install any application. Customers can easily use the mobile browser for their transaction.

Customers are required to register for the first time and key in their policy and personal details which will be validated against customer details submitted at the time of new business for protection reasons.

Foreign firms can have to cut venture in insurance JVs

Foreign partners may have to reduce their stake in insurance joint ventures (JVs) on listing to abide by the government command that all listed companies must have 25(%) per cent public shareholding.
“We want Indian promoters to have a minimum 51(%) per cent stake in insurance companies. It is for the government to choose on disinvestment and take a call on raising the foreign direct investment (FDI) limit to 49(%) per cent. Foreign partners will have to reduce their stake if the government sticks to the 25(%) per cent public shareholding standard,” said a senior official with the Insurance Regulatory and Development Authority (Irda).
The government had last week implicit that it was open to a review of the 25(%) per cent public shareholding norm, but as of now, the rules stay in force.
Indian partners own 74(%) per cent in insurance JVs, while foreign partners own the relax. FDI would be raised to 49(%) per cent after the Insurance Amendment Bill, cleared by a parliamentary Standing Committee and pending before the Parliament, comes into force.
According to the Insurance Act, companies can valve the public market after they complete 10 years of operations. The insurance regulator is working out the modalities of the first public offer (IPO). The regulator has optional to the standing committee that both partners reduce stake proportionally after they go public.
As life insurance is a capital thorough business, insurers have been trying to beat the public market. The government had earlier thought of bringing down the minimum term for listing from 10 years to 5 years. However, it later decided to delete that section from the Act and allow insurers to go public at any stage. This is also a part of the Insurance Amendment Bill.
HDFC Standard Life and ICICI Prudential will complete their 10 year of operations in the next few months. Irda is waiting for amendment to the Act before it comes out with the IPO norms. There is an inter-regulatory subcommittee about this, including members of the market regulator, Securities and Exchange Board of India (Sebi), and Irda.
Reliance Life Insurance was the first insurance company to explain interest in listing to raise resource. The company is totally owned by Anil Dhirubhai Ambani Group.
Industry experts said some companies such as Tata AIG Life Insurance, Reliance Life, Shriram Life and ING Vysya Life Insurance would greeting the government’s move on 25(%) per cent public shareholding, as their foreign partners were either looking to dilute stakes in their Indian joint ventures or they were 100(%) per cent owned by an Indian advertiser.
Most foreign partners had expressed their motivation to increase their shareholding in their joint ventures as and when the regulations allowed. Insurers like Bajaj Allianz had even fixed the price at which it would increase its stake.

LIC expects nod shortly to start biz in Singapore

The country's largest insurer, Life Insurance Corporation, on Friday said it is expecting a favourable choice from the Singapore authorities to enter the insurance business in the island state.

"LIC had asked for authorization to set up a supplementary. The process is going on (regulatory clearance)," LIC Managing Director A K Dasgupta said.

"We are expecting to obtain favourable decision from the Singapore authorities and expectantly it should come in due course of time," he said.

The Singapore regulatory authorities have been speedy and their processing has been fast, he added.

Along with a rating from an international agency, the company has submitted other related documents for approval, he said.

However, he said the regulator has asked for various clarifications regarding capital and other details.

The query generated by the Singapore authorities is part of a custom exercise and LIC is in the process of transfer feedback, he said.

LIC set up a representative office in Singapore about two years ago. It has done a lot of market surveys and practicality studies for setting up a subsidiary in the country, he said.

LIC already has an overseas being there in countries like the UK, Mauritius, Kenya, Nepal and Sri Lanka. In the Middle East, LIC is present in Saudi Arabia, Kuwait, Dubai, Abu Dhabi, Oman and Qatar.

During 2009-10, LIC collected a premium of Rs 70,891 crore compared to Rs 52,954 crore in 2008-09, thereby growing by around 34(%) per cent during the year.

The market share of LIC increased to 65 per cent in 2009-10 compared to around 61(%) per cent in the previous year.

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Insurance take wrath on corporate agents

The Insurance and Regulatory Development Authority (IRDA) has cancelled the licences of 4,261 corporate agents, including Housing Development Finance Corporation, HDFC Bank, Development Credit Bank, Standard Chartered Bank, after them unsuccessful to renovate their licences by March 31 this year.
The regulator has asked the people not to do any business with these entities.
IRDA chairman J. Hari Narayan said the licences would not be changed with presentation effect. There are 7,000 agents in the country selling life and non-life insurance policies.
However, Hari Narayan said the policies bought from these entities would stay valid. The insurer concerned will allocate another agent so that the policies can be converted.
Among the 4,261 agents, a famous entity is HDFC, which was selling policies of its general insurance supplementary HDFC Ergo.
The licence of HDFC Bank, which sold policies of HDFC Ergo and Bajaj Allianz General Insurance Company, has also been withdrawn.
The licences of Corporation Bank and Standard Chartered Bank for selling products of Life Insurance Corporation and Bajaj Allianz Life, respectively, have also been revoked.
Others in the list comprise Bajaj Capital Financial Services (Bajaj Allianz General Insurance and ICICI Prudential Life Insurance), Way2Wealth Consulting (Bajaj Allianz General Insurance and HDFC Standard Life), India Bulls Insurance Advisors (Birla Sun Life), India Infoline and Aditya Birla Money (ICICI Prudential Life Insurance policies).
However, Way2Wealth is planning to apply for an insurance brokering licence.
“In a corporate agency representation, one cannot sell products of more than one life and one non-life insurer. But with a brokering licence, products of different insurers can be sold,” an official said.

Low returns, but secure

Buyers of traditional insurance products — endowment and money-back policies — might soon be inundated with options.
Insurance companies, which have been incapable to launch latest investment-cum-insurance plans, better known as unit-linked insurance plans, following the turf war between the Securities and Exchange Board of India and the Insurance Regulatory Development Authority, are introduction a number of traditional products to attract customers.
Some new launches are Bajaj Allianz (BA) Invest plus Premier, Birla Sun Life Insurance (BSLI) Bachat Endowment Plan, Reliance Life (RL) Traditional Investment Insurance Policy and Reliance Life Traditional Golden Years Plan.
The RL Traditional Investment Insurance Policy is the third addition to the traditional crop portfolio of Reliance Life Insurance. Malay Ghosh, executive director and president, RL Insurance, said, “The visible cost structure of the policy is an attractive feature for customers.”
The unique characteristic of the product is that it offers a fixed rate of return – a number which will stay changing every year. This year the rate of return will be 7.75(%) per cent. The next year, a new rate will be announced depending on market circumstances and the interest rate scenario. The only assurance: The return will not fall below the savings deposit rate, which is 3.5(%) per cent at present.
In addition to guaranteed returns, the sum assured in case of RL Traditional will be 7.5 times the premium paid in the 1st year. There will also be riders that one can add by paying extra.
The sum assured, however, will be inconsequential once the accumulation account amount touches the sum assured — a common feature of all traditional insurance products.
The costs include an allocation fee of 30(%) per cent in the 1st year and 5(%) per cent in following years, which is deducted from the premium paid.
Besides the allocation fee, mortality rate (charged per Rs 1,000 of sum assured), policy administration fee (Rs 40 per month) and account administration fee at the rate of 1.25(%) per cent per annum will be charged.
Therefore, if an individual plans to invest the minimum regular base premium of Rs 10,000 this year, Rs 3,500 will be deducted as allocation and policy administration fees.
The rate of return offered is not very competitive compared to other instruments such as the Public Provident Fund, which gives 8(%) per cent and has negligible costs.
Does it make sense to invest in this or similar policies? Financial planners would most probably say no. That’s because the rate of return is quite low. Also, the sum assured is not very high. In comparison, a 30-year-old can buy a 20-year term plan with a sum assured of Rs 20 lakh for a premium of Rs 4,700.
Govind Pathak, director, Acorn Wealth, said, “For sufficient insurance, a simple term plan can be sufficient and a more cost-effective option. And for investment, one can always look for multiple options which will assure higher returns, such as the PPF on the debt side.
On the equities side, there are many more options like mutual funds and stocks. This combination would possibly give higher returns as well as a larger life cover than the Reliance traditional policy.

Bajaj Finserv Shares proceed on Report Buffett May Buy venture

Bajaj Finserv Ltd. raised as much as 10 (%) per cent after VCCircle reports that Warren Buffett’s Berkshire Hathaway Inc. may invest in the Indian financial services company.
Bajaj Finserv, which denied it is in talks, jumped 8.1(%) per cent to 484.25 rupees as of 10:29 a.m. in Mumbai trading.
“We are neither in contact with anybody from Berkshire Hathaway nor are we alert of their interest in Bajaj Finserv,” Managing Director Sanjiv Bajaj said in an e-mail today.
Berkshire may buy a 5(%) per cent to 10(%) per cent stake in Bajaj Finserv from the stock market, VCCircle reported, without say where it obtained the information. Bajaj Finserv is the holding company of Bajaj Allianz Life Insurance Co. and Bajaj Allianz General Insurance Co.
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Irda to control telemarketing of insurance

The Insurance Regulatory and Development Authority (Irda) has now planned to streamline the promotion of insurance products during distance sales channels, such as the telephone and the internet.
It has said it will subject rules in this regard and these will cover selling by ‘voice mode’, which includes telephone calls, ‘electronic mode’ (e-mails, internet and interactive television) and as well the ‘physical mode’, though postal mail and newspapers.
Web-based selling of insurance products is at an emerging stage in India. Although the volumes here are low, the regulator said the rule would cover distance marketing behavior of insurers, brokers at the stages of offer, negotiation and conclusion of sale. It has asked insurers to ensure every telecaller is trained either in-house or at an institute accredited for pre-license training of agents.
Moreover, insurers or brokers will have to get ready standardized scripts for presentation of benefits, features and disclosures under each of the products planned to be sold under telephonic mode. Irda wants the name of the insurer, name of the caller the language options available and the point of approach to be clearly highlighted.
The telecaller will have to ask if the customer is interested in continuing with the subject, and the process of solicitation should proceed further only if he gives his consent in explicit terms. There should be an exit option.
In case of life insurance, pension plan and other products with savings and investment components, the regulator says wherever the investment risk in the solicited product is to be borne by the client, this should be highly highlighted in the communication. The exact nature of the guarantee such as NAV guarantee, capital protection, etc and their implications will have to be clearly explained.
In addition, insurance brokers will be given the freedom to solicit insurance over distance mode. Brokers will, however, have to avoid promoting the products of any particular insurer or a few insurers exclusively, by symptomatic of a product that fits the client’s requirements.
The regulator said price comparison charts should be up to date. Brokers will not be paid any payment other than brokerage towards policies procured over distance mode.
Insurers will have to check the quality of sales through telephonic confirmation, post-sales, under all modes of marketing, including in-person and distance modes, by calling up not less than 20(%) per cent of all the policyholders every month.

Birla’s financial division Forecasts business to Grow 20% in India

India’s financial services industry may grow 20(%) percent over the next few years, ambitious by the world’s second-fastest pace of economic growth, the Aditya Birla Group said.
Financial planning, wealth management, infrastructure financing and services for Indians investing overseas may lead the growth, said Mumbai-based Ajay Srinivasan, chief executive officer of the company’s financial services division.
“The economy will double over the next 8 to 9 years if it grows between 8 and 9 percent yearly,” he said. Savings, which account for about 30(%) percent of India’s $1 trillion economy, will increase at a related pace, he forecast. “The pie is huge and we are casting our net.”
About 60(%) percent of the India’s population doesn’t have a bank account and nearly 90(%) percent don’t get loans, K.C. Chakra arty, deputy governor of the central bank, said last month. Equity-related investments form 10(%) percent of savings, compared to 22(%) percent in China and about 40(%) percent in developed nations, according to Vikram Kotak, chief investment officer at Birla Sun Life Insurance.
India’s finance, insurance and real estate sectors expanded 7.9(%) percent in the quarter ended March 31, according to the Central Statistics Office. The nation plans to spend $1.7 trillion on infrastructure over 10 years, Trade Minister Anand Sharma said yesterday.
Retail Broking
Srinivasan, who joined the company in 2007 from Prudential Plc, said he will focus on building the group’s non-banking- financial-services business and might look at areas including microfinance, institutional broking, investment banking and infrastructure financing.
Srinivasan’s unit, which generates $1.3 billion in revenue, has added retail broking and private equity to the obtainable asset management, insurance and distribution businesses. It is currently raising money for a domestic real estate fund and has invested about 800 million rupees from its 8.8 billion rupee private equity fund, Srinivasan said

Tweak commission configuration: Irda

In what may lead to lesser front-loading of insurance policies, the Insurance Regulatory and Development Authority (Irda) plans to increase the commission over the tenure of the policy.
“We are going to ask insurers to propose ways to increase persistency levels. This will happen only after they tweak the commission structure,” said a senior Irda official.
Most insurance policy is extremely front-loaded. For instance, insurance agents earn over 40(%) per cent as commission in most unit-linked insurance plans (Ulips) in the first year. Even commissions for term plan and endowment plans are 20-35(%) per cent in the first year.
The commissions refuse considerably, particularly for term and endowment policies, after the first year. The agent, as a result, loses interest in pursuing the policyholder.
In case of mutual funds, the distributor earns a commission of 1.25(%) per cent in the first year (upfront fees plus trail commission). After that, there is an annualized trail commission of 50-75 basis points every year. This, the mutual fund industry said, keeps the point interested in the investor.
By proposing to extend the commission over the tenure of the plan, Irda thinks agents will continue to follow the policyholders.
Recently, Irda had extended the minimum term of an Ulip from 3 to 5 years. It had also made other proposals, including capping the first year surrender charge at 15(%) per cent for a policy over 10 years. This surrender charge would continue declining and go away in the 6th year.
However, experts said persistence levels were already on the rise.
“Persistency levels are already improving because of the events taken by Irda in the last two years. Tenure of products has left up as the lock-in has increased to five years,” said S B Mathur, secretary general, Life Insurance Council.
The insurance industry reported 80(%) per cent persistency in 2008-09, an increase of 7(%) per cent over the previous year.

Hurry to sell Ulips in front of July 1

Insurance companies are in a hurry to sell as a lot of unit-linked plans as possible before the new strategy force them to package a life or health cover with these popular instruments that account for nearly half of their business.

Insurance executives think selling these policies will be difficult once the new guidelines planned by insurance regulator IRDA are introduced from July 1. Once the new norms are in force, agents will have to convince the customer to buy a health or insurance cover along with pension plans.

“It was an easy product to sell since you don’t have to ask the customer too lots of questions,” said the sales head at a leading insurance firm.

Some of the insurance companies and banks have revised sales targets and initiated incentive schemes such as foreign trips, easy loans and discounts to make sales. Unit linked plans constitute 46% per cent of the total business of insurance companies.

Pension products have been the favourite unit-linked products, as insurance cover was not compulsory with the policy. These were sold as an investment product wherein customer was currently given the option to surrender his policy after a 5-year lock in.

“Given this flexibility, it was easy for a customer as old as 70-years to invest in such plans. Besides the commission from selling a pension plan was more than that of other products,” said a relationship manager with a leading private sector bank.

Traditionally, all unit-linked plans are front loaded and an agent can earn a commission up to 20% per cent by selling such policies.

“This (the new norms) will need more documentation and if the amount is high then an income proof will also be necessary, which will deter customers,” said a sales head at an insurance firm.

As per existing laws, the insurance cover should be 5 times more than the premium paid.

Further, the new law will also limit the customer from surrendering their pension plans, as they will not get the full amount on surrendering their policy. The customers will only get one-third of the invested corpus and the rest amount through annuity or monthly/yearly payments.

Ashish Kapur, CEO of Invest Shopee, feels the new laws will aid the investor from needless buying an insurance product. “There was a lot of mis-selling earlier,” he said.

Of the Rs 2, 00,000 crore-plus life insurance premium collected in the first 11 months of 2009-10, more than Rs 91,000 crore came from Ulips, according to the Life Insurance Council of India, an industry body representing 23 life insurers

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Reliance Life launches Traditional Investment Insurance Plan

Reliance Life Insurance, an ADAG group company, has launched a savings cum protection plan. It’s a traditional investment plan that provides life protection and regular savings with yearly guaranteed investment income. The new scheme is a regular premium plan offer guaranteed investment returns. The guaranteed return module would be confirmed at the beginning of every financial year during the product term, the Life insurance company said in a statement.

The growth rate for the 2010-11 financial years is 7.75% per cent. At any point of time, the minimum guaranteed growth rate will not be less than the savings bank deposit interest rate as confirmed by the Reserve Bank, the company added. The insurance plan is available to children aged less than 30 days and senior citizens aged up to 70 years, with monthly, quarterly, half-yearly and yearly payment option. The fixed sum assured under the plan is 7.5 times of the annualized premium. The minimum term of the policy is 10 years and the maximum is 30 years. Besides the maturity and tax benefits, it offers health-connected cover which will pay a lump sum to the customer for as many as 33 specific surgeries, including open heart, kidney transplant, and 25 critical conditions. These riders can be added by paying an additional premium.

Insurance cos will require to protect capital

Indian insurance companies will need to save capital even with the growth potential since tools for conserving capital are not available to them, says prefessional servives firm Ernst & Young.

Speaking to ET, Ernst & Young partner Rohan Sachdev said different in the West, Indian insurance companies do not have any capital pull reduction tools such as securitisation or reinsurance of their collection. This would mean that companies have to every time provided more capital.

Mr Sachdeva said some mid-sized companies are using up nearly Rs 40 crore to Rs 60 crore a month as a few of their business models are not sustainable under the new regulatory rule and would need to be reworked. He pointed out that in capital efficiency; life insurers promoted by banks have done very well by increasing their operations with minimal staff. For new companies without their own sharing network, it was important that they have a variable distribution cost to keep expenses under check, he said.

In the last decade since the industry was opened up, promoters of life insurance companies have invested in surplus of Rs 27,000 crore into life insurance businesses. The force to get more efficient on capital will also come from new revelation norms that come into effect from July 2010.

Until now, insurance companies have been able to explain their high capital spending saying the funds require to meet the solvency norms. Insurers will be required to provide economic capital, which will provide a break-up of the capital that is required for different business and the extent of capital that they will lose under various scenarios.

According to Mr Sachdev, there are several stress points for the existing business plans of life insurance companies. “Most of the profit drivers for companies will not be there. Some companies have made important lapsation profits which cannot continue once surrender charges are capped.”

Earlier, the insurance regulator had capped all charges, including fund management charges that could be forced by insurance companies on their policyholder’s funds.

Mr Sachdev said he expects life insurance companies to continue to issue unit linked insurance plans but the share of Ulips would decline. He pointed out that the life insurance industry had centred their entire business around Ulips although the Indian markets were not older enough. At present, the life insurance penetration in India is close to 4%.

“The level of maturity can be gauged from the level of diffusion of other personal lines of insurance such as health and householder insurance, which is quite low in India,” he said.