Company directors rush for insurance cover

Six months ago, directors of Kolkata-based AMRI Hospital were part of a closely-knit industrial circle in the city. Since the last couple of days, they are in jail on charges of culpable homicide not amounting to murder, following a fire in the hospital that killed at least 90 people on Saturday.

It is this increasing vulnerability of senior corporate executives towards litigations that has set the ball rolling for directors and officers’ liability cover for insurance companies.

With the upcoming Companies Bill 2011 seeking to introduce a more rigorous regime for board members, especially independent directors, insurance companies are recording numerous inquiries for insurance for directors.

Directors and officers’ liability insurance provides cover against legal expenses in various cases like shareholders claims, accusations of accounting irregularities, exposures related to mergers and acquisitions, corporate governance and compliance with various legal statutes.

“There is definitely an increase in the number of companies opting for directors and officers’ liability insurance. We have seen more inquiries from corporates in the last few months,” said Sanjay Datta, head (customer service- health and accident), ICICI Lombard General Insurance.

In the aftermath of the Satyam scandal, in which Ramalinga Raju, former head of Satyam Computers, was accused of massive accounting discrepancies, insurance for directors gained steam. More recently, the 2G spectrum auction scam and the bribes-for-loans scandal that involved state-controlled banks and lenders, too, landed senior corporate executives in jail.

The Companies Bill 2011, tabled in the Lok Sabha on Wednesday, proposes to introduce class action suits for the first time in the country. This would empower investors to sue a company for ‘oppression and mismanagement’ and claim damages.

Ashok Pareek, central council member, Institute of Companies Secretaries of India, and executive director of Srei Capital Markets, said, “Currently, less than five per cent of listed companies have bought such cover, but going forward, the Companies Bill 2011 would pave the way for many companies to opt for directors liability insurance cover.”

A National Insurance executive said, “In the last few months, we have seen more inquiries for insurance cover for directors. This is especially true for corporates with foreign board members. Outside India, directors’ liability insurance has been quite popular, but it is gradually selling in India as well.”

Interestingly, the scope of the policy differs from companies to companies, as these provide insurances against varied risks.

Bajaj Allianz launches guaranteed maturity insurance plan

Type of policy: A single premium Unit Linked Plan. The investment objective of this fund is to provide capital appreciation by investing in a mix of debt and debt-related securities.

Premium: Minimum premium is 5,000 and in multiples of 5,000.

Term of the Policy: The tenure of the policy is 10 years and you are allowed to make partial withdrawals after five years, limited to 1/3rd of the single premium.

Maturity benefit: Higher of the guaranteed maturity value of all the'guaranteed maturity certificates' held at maturity or the fund value as on maturity date. The plan guarantees 200% returns on maturity - that means your money doubles in 10 year (CAGR of 7.18%).

Death benefit: It is calculated as higher of the prevailing sum assured reduced by the value of the units withdrawn through partial withdrawals from the fund value in two years prior to the death, or fund value as on date of receipt of intimation of death.

The sum assured under the plan is five times the single premium in the first policy year and will, for subsequent years, reduce to 1.25 times of the single premium for those who enter the policy before they are 45, and 1.10 times of the single premium for those entering after 45.

Click here to apply Bajaj Allianz Life Insurance

Eligibility: The minimum age at entry in the plan is eight years and the maximum is 60 years

Charges: There is no premium allocation charge. But the policy administration charges are 1.85% per annum of the total single premium in the first five years of the policy, subject to a maximum of 6,000 and 0.70% per annum of the total single premium subject to a maximum of 6,000 per annum.

Policy administration charges and mortality charges are deducted monthly through cancellation of units. Fund management charge is 1% per annum adjusted in the unit price.

The good: It is a simple plan to understand and offers minimum guaranteed return on maturity

The bad: The policy offers reduced life cover from the first anniversary of the policy. Hence, it doesn't serve the purpose of insurance. Also guaranteed returns under the policy are less than the current 10- year G-sec yield or interest rate offered by most banks, without taking tax benefits into account.

Insurance industry to grow from next fiscal: Swiss Re

India's insurance industry is likely to witness significant improvement by next fiscal, both in life as well as non-life categories, triggered by health, micro-insurance and innovative products, global reinsurance major Swiss Re said today.

"The non-life segment is expected to grow by 7.9 per cent in 2012 and 8.5 per cent in 2013, while in the life segment is expected to rise by 7.5 per cent in 2012 and by 11 per cent in 2013. The main drivers for this growth will be health, micro-insurance and innovative product offerings," Swiss Re Vice-President Amit Kalra told reporters here after launching Asia economic and insurance market outlook.

However, this growth trend in non-life is lower than that of 2010, as the motor and trade-related lines are likely to see a slight slowdown, he said.

This segment will mainly be driven by premia from the health sector, he said, adding there are huge untapped opportunities in retail personal lines, liability, micro- insurance and agriculture.

Foreign direct investment in retail could have boosted premium for the non-life industry as international companies take insurance for their establishments, Kalra said.

Globally, in the life segment, premia growth will recover, led by India and China, he said. "We expect strong demand for life insurance, protection and group insurance."

Growth will be supported by recovery in unit-linked products, he said, adding there is also down side risks if the capital markets continue to be suppressed.

Meanwhile, global outlook, he said, remains uncertain due to the world economic crisis, but it would still perform better than banks, he said.

Forum to insurance firm: Pay woman 2.5 lakh

The district consumer disputes redressal forum ordered an insurance company to pay a complainant Rs 2.5 lakh for her treatment of a cardiac ailment.

The insurance company was rejecting her claim saying that the illness for which she was treated was not covered under the policy.

The woman had purchased a 'health first' insurance policy from Tata AIG Life Insurance Company Limited, valid for a period of 13 years, from January 9, 2004, to January 9, 2017.

As per the policy, the insurance company had to pay the complainant's hospital and medicine expenses, in case of a serious ailment. The policy amount was Rs 5 lakh. In July 2005, the woman felt pain in cardiac region and consulted several doctors for treatment, even in Mumbai. In October 2005, the woman was given a permanent pace maker by doctors. She was admitted in a hospital in Mumbai for treatment. The treatment cost her Rs 4.5 lakh and she filed a mediclaim with the insurance company.

The insurance company paid her Rs 1,500 only, for being admitted in the hospital for three days, at Rs 500 per day, as was defined in the policy. The company denied paying other expenses saying her illness was not a 'critical illness'.

After being taken for a ride by the insurance company, the aggrieved woman filed her complaint with the consumer forum.

The company confessed that it had rejected her claim because the illness for which she was treated was not covered under the said policy. The illness necessitating a permanent pace maker was also not specified in the policy taken by the woman.

The critical illness cover promised the woman 'a lump sum payment of up to Rs 5 lakh' in case she was diagnosed with a critical illness.

The policy further said that it will ensure that woman has access to the most technologically advanced treatment, and can pay for medicine related costs and other recuperation costs.

Pvt Life insurers’ policy issuance dips 35% since April

Life insurance premium collection down 20%.

The pension saga continues to take toll on the life insurance industry, particularly for the private players, as the number of policies issued by them is down by nearly 35 per cent, in the current financial year.

During April-October period, the number of policies issued by the largest life insurer, Life Insurance Corporation (LIC) of India, too, declined by eight per cent in the same period. As a result the first year premium collection of the life insurance industry, was down by 20.04 per cent to Rs 55,737.84 crore as against Rs 69,707.92 crore in the corresponding period last year.

According to the data collected by the Insurance Regulatory Development Authority (Irda), during 2011-12, life insurance industry sold close to 19.6 million policies, 15.31 per cent lower, compared to 23.14 million policies sold in the same period last year. In the same period, number of policies issued by the private players came down to 4.15 million from 6.34 million.

“Pension plans, which consisted of about 30 per cent of the sales, especially for the private players till the new regulations came into force in September 2010, now account for only 1.7 per cent of sales. Hence, the sales are down,” said S B Mathur, secretary of the Life Insurance Council.

The Council says premiums collected from pension plans dwindled to Rs 600 crore in the first six months of the 2011-12, compared to Rs 18,000 crore during 2010-11. "With the commissions on unit-linked plans (Ulips) coming down, many agents have left the industry, which has impacted the sales of private life insurance companies,” said, K Sahay, CEO of Star Union Dai-ichi Life.

During April-October, the premium collection of LIC fell 18.5 per cent; for its private peers, the collection was down 24.2 per cent. While LIC collected Rs 41,259 crore by writing new policies, the private insurers collected Rs 14,479 crore.

Considering the choppy equity market and the high inflation scenario, Ulip sales are unlikely to pick up this financial year and experts fear growth of the life insurance industry is likely to remain subdued over the next six to 12 months. In a recent report on the sector, McKinsey predicted the current slowing in premium collection might continue for 12-18 months, as insurers would be looking to adapt their business model to the regulatory changes.

As for the general insurance industry, the gross written premium grew 23.8 per cent during 2011-12, compared to the year before. According to data collated by insurers, the industry collected premiums worth Rs 33,047 crore by writing new policies during April-October, as against Rs 26,700.5 crore last year.

While, private insurers registered 24.9 per cent growth to Rs 13,690.7 crore, the four state-owned general insurance companies' collection was higher by nearly 23 per cent, to Rs 19,356.6 crore.

IRDA plans to limit insurers' bank tie-ups

In what would affect the businesses of bank-led insurance companies like ICICI Prudential and SBI Life, the insurance regulator is proposing to limit the insurers' bank tie-ups in big cities. The IRDA has suggested state-wise regulatory changes, dividing the country into three zones.

The draft norms have proposed to limit insurers to tie up with not more than nine states or union territories in Zone A and six states or union territories in Zone B. Zone A has 13 states and cities, including Maharashtra, Gujarat, Kerala, Andhra Pradesh, Mumbai, Delhi, Chennai and Hyderabad. IRDA has asked for comments by December 12, 2011. This means that companies with pan-India presence will have to shut down their businesses in four out of 13 places.

The idea behind opening up state-wise channel is to ensure better use of bank's infrastructure. This is expected to increase insurance outreach in the number of bank branches. As per an IRDA study, 7,000 bank branches out of 80,000 sell any kind of insurance product.

According to the exposure draft, IRDA said that one bancassurance agent should not tie up with more than one life, one non-life and one standalone health insurance Company in any of the states, in addition to one each specialised insurance company.

Also IRDA has proposed a limit on insurers to tie up with any bancassurance agent to only nine states or union territories in Zone A and six states or union territories in Zone B.

If the general insurer does not have any health product to distribute, the bancassurance agent may tie up with one more general insurance company, carrying on exclusively business of health insurance. Any licence would be in force for three years and thereafter renewed.

"Due to recent changes in charge structure in unit-linked products, a number of insurers have exited semi-urban and rural areas as direct agency channels have become increasingly unviable. Allowing banks to enter in to multiple tie-ups will facilitate insurance companies to reduce the cost of distribution," said Aviva Life MD and CEO T R Ramachandran.

Life Insurance sector may grow at 13-14% over four years

Indian life insurance industry is likely to grow at 13-14% over the next four years and contribute 10% to total global premium income growth, according to a report by McKinsey.

Indian life insurers' total premium income is expected to reach 5, 50,000 crore by 2015. The insurance industry in Asia's third-largest economy will be one of the few major markets globally to grow at double digits during the period, the report said.

In the half-year ended September, total premium income of Indian insurers grew at 2% from a year ago. Appropriate strategic choices to adapt business models to regulatory changes can improve economic performance of top insurance players by 25-30%, the report said.

"The players who emerge as clear winners will be those who can adapt swiftly to the new paradigm by redefining their business models with careful consideration to strategic issues around agency, bancassurance, innovation, geographic footprint, and value of existing customer franchises," the report said.

Insurance firms here are currently in the process of modifying their business models, following regulatory changes that were introduced in life insurance industry in September 2010. The level of insurance protection in India, measured by sum assured to GDP ratio, is around 55% of GDP, against the developed market benchmarks of 150-250%.

Life insurance premium collection down 2%

The life insurance industry reported 2 per cent dip in premium collections to Rs 1,22,661 crore in the first half of this fiscal because of fall in new business.

Total premium collected by the life insurance industry stood at Rs 1,25,179 crore during April-September 2010-11, according to the Life Insurance Council.

"The fall in total premium is due to the drop in new business premium collection," it said.

The total new business premium for the industry has decreased 21 per cent year-on-year to Rs 49,046 crore from Rs 62,362 crore.

The decline was on account of low sales of unit-linked products, especially individual pension segment, which has fallen drastically this year to 1.2 per cent from an average of 26 per cent for the earlier two years for the same period.

"It is evident from the data that voluntary contribution from retail investors under individual pension segment has dried up," said S B Mathur, Secretary General, Life Insurance Council.

According to the council, the life insurance industry, however, has added more than 5,400 direct employees and 26,000 new agents as compared to last quarter.

Click to apply Best Pension Plan

Overall, the outlook for the remaining six months this fiscal appears to be better in view of lack luster performance of the industry in the first half.

However, companies need to introduce new products at regular intervals to sustain the interest of the consumers, the council said.

IRDA suggests banking model for insurance

Insurance companies should also explore a banking like correspondent model to boost penetration of insurance products in the country, said J Hari Narayan, chairman, Insurance Regulatory and Development Authority (IRDA). “It is feasible to have a well-mentored agency model including business correspondents and the tied agents for distribution of insurance products,” said Narayan, while addressing the Confederation of Indian Industry’s (CII) 14th Insurance Summit.

In order to increase the penetration of banking services in the rural areas, Indian banks have adopted low cost business correspondent model in which a person, with a help of handheld device, provides the basic banking services in the villages.

He also suggested that the industry could adopt the concept of “Lead Insurance” on lines of the RBI’s Lead Bank Scheme to ensure continuous engagement of crucial products like those of health insurance.

He further added: “The industry should focus on the appropriate ticket size that promotes economy of scale and reliability of operations.”

He also highlighted the importance of increasing the penetration of micro insurance products through continuous engagement with customers. He added that there is a lack of efficient delivery of the products by the industry and hence, rural and social sector obligations may suffer.

Ashvin Parekh, partner and national leader, global financial services, Ernst &Young, stated that in the past a lot of attention has been devoted to the investors but equally important are the areas of product designing and distribution. He expressed that it is time that once again the industry works in close association with the regulator and helps it with the tasks of insurance penetration.

SB Mathur, secretary general, Life Insurance Council said that Direct Tax Code (DTC) needs a review given that it is based in the older tax regime where insurance and mutual fund products overlapped.

New Insurance Product Launched by Future Generali

Future Generali India Life Insurance launched its new product — Secure Income Plan — a mix of traditional endowment with once a year income benefits here.

The Future Generali Secure Income plan was available for customers in the age group of 0 to 60 years and for terms ranging from 15 to 65 years. On completion of the premium payment period, accrued compounded reversionary bonuses are paid.

After the chosen premium payment period, every year 5.5(%) per cent of sum assured was paid as guaranteed annual cash back in addition to cash bonus till the end of the policy term. On maturity, the policyholder would receive the sum assured plus the terminal bonus. The plan could be purchased from a low ticket size of Rs.10, 000 onwards.

The company, which collected premium amount of Rs.168 crore on various products, expects to touch the Rs.600-crore mark by the end of fiscal year. The last quarter would be crucial to give maximum business. About 9 per cent of the business was from rural market, he said.

Speaking to media persons here, Deepak Sood, Managing Director and CEO of the insurance company, said another five new products were planned this year and they were awaiting clearance from the regulatory authorities.

United India Insurance targets Rs.8, 000 crore premium

Logging an average business growth of 27 percent this fiscal, public sector non-life insurer United India Insurance Company Ltd Thursday said it is targeting a gross premium of Rs.8,000 crore and large reduction in underwriting losses.

"We are targeting a premium income of Rs.8, 000 crore this year at 25 percent growth rate in business," United India Insurance Company Ltd chairman and managing director G. Srinivasan told reporters here.

"We plan to bring down our underwriting losses - premium less claims outgo - to Rs.900 crore from last year's figure of Rs.1,760 crore," he added.

Last fiscal, the company had earned a premium of around Rs.6, 376 crore.

Srinivasan said the company would focus the retail, and small and medium enterprises (SME) segments for growth.

"We have around 48,000 agents and we are in the process of adding further. We will also open around 100 one-man offices across the country. Currently, we have around 400 such micro-offices bringing in around Rs.275 crore premium," he said.

Meanwhile, a steep reduction in management expenses, claims outgo and an increase in premium income across segments has enabled the company to post 57 percent growth in net profit for the first half of the current fiscal.

"We closed first half of the current year with a total premium income of Rs.4, 033 crore and an after tax profit of Rs.341.07 crore," company general manager and financial advisor B.M. Thakkar said.

"The management expenses came down to 25 percent from 37 percent while the underwriting loss came down to Rs.406 crore from Rs.605 crore as compared to previous year's first half figures," he added.

The company closed the first half of last fiscal with a premium income of Rs.3, 178 crore and a net profit of Rs.218 crore.

"The loss ratio in health and motor third party portfolio's came down to 96 percent and 119 percent respectively from 115 percent and 168 percent," Srinivasan said.

According to him, better underwriting, proper pricing of group policies, tightening of claims procedures in respect of health insurance and audit of claims settling agents resulted in reduction in health claims outgo.

United India earned Rs.803 crore from its investments during the first six months of the current year.

The market value of the company's investments at the end of second quarter stood at Rs.15, 803 crore and net worth Rs.4, 587 crore.

Tests get tougher for insurance agents

Things were much easier for life insurance agents before. But it all changed after October 1, 2011, when the new syllabus took effect.

A simple comparison will help. The older syllabus would see at least 7 out of 10 clear the test. However, under the new framework - which is considered much tougher - only 4 out of 10 applicants are expected to get past the hurdle.

“After the new syllabus, the examination has got stricter. But this will only help us in producing quality and professional agents.

Earlier, the passing percentage was as high as 70% against the current 38% for the industry,” said Rajesh Sud, managing director and CEO at Max New York Life Insurance.

“Agents contribute 90-95% to our premiums received. Candidates will take time to get hold of this new examination. Passing percentage and rapid recruitment both have definitely taken a hit,” says RR Dash, zonal manger, Life Insurance Corporation.

Experts say this switch in the syllabus has a bigger purpose: to help agents grasp the nuances of the market and understand the needs of the customer better. Also, a revamped pattern, they add, will be useful in enhancing their product selling skills to meet the customer’s requirements.

“Recruiting life agents has always been challenging for the industry. Some 30% of our business comes from the our agency force, and now with the falling success ratio, recruiting may get affected too,” says Aneesh Khanna, senior vice president head- marketing & product management, IDBI Federal Life Insurance.

There is a contrarian view though. Some say the change in the syllabus is beneficial up to the extent of only producing quality agents as the cost incurred by the players does not measure up to the outcome. “Cost for training of agents has gone up at least 6-7 times as against the cost incurred when the older syllabus was in place. Also, the new syllabus is not very different and advantageous from the older one,” says GN Agarwal, chief actuary at Future Generali Life Insurance.

“The cost of training has definitely shot up, but compared to private players, we have not been much affected as we have our in-house training department,” added Dash of LIC.

In addition, this has not only affected the performance of urban candidates, but also the participation of candidates from rural areas which has slipped significantly. If the passing percentage continues to remain low, this may also impact the business of those insurers whose major chunk of business comes from their agency force.

Max New York Life posts net profit of Rs 375 crore

Max New York Life Insurance (MNYL) would be launching three traditional plans over the next few months but the insurer did not specify what kind of plans they could be. Releasing the insurer’s earnings report, its chief executive officer and managing director Rajesh Sud said Max New York has an accumulated loss of Rs 500 crore as on dates that it expects to wipe off in the next financial year.

MNYL recorded an 8 per cent increase in gross revenue to Rs 2,873 crore for the first six months of 2011-12, compared with a gross revenue of Rs 2,665 crore in the first half a year ago. Net profit stood at Rs 375 crore for the first half of this year, against a loss of Rs 50 crore in the year-ago period. The company broke even in FY2010 with a net profit of Rs 24 crore, which was Rs 283 crore in FY11.

MYNL’s AUM stood over Rs 14,708 crore, a growth of 20 per cent over H1FY10, while solvency margin increased to 456 per cent. The company’s paid up capital (including share premium) as on September 30, 2011, was Rs 1,976 crore.

“The impressive rise in net profit was a result of continued revenue growth coupled with better productivity and cost efficiency. The company does not require additional capital with solvency margin at 456 per cent,” Sud said.

The life insurer’s cost ratio improved 11 percentage points, compared with September 2010 to 31 per cent in September 2011.

10% selloff in insurers may fetch 3k cr

The government could realize close to Rs 3,000 crore by divesting a mere 10% stake in non-life insurance companies because the value of real estate they hold is worth almost the total value of their business.

The government has conducted a valuation of the four companies. And, although their financials are not in the best of shape thanks to motor insurance losses, they have a market value of over Rs 30,000 crore because of investments in financial securities and real estate, both of which are currently at historic peaks.

TOI reported on November 7 that the government is considering a disinvestment in the four state-owned non-life companies -New India Assurance, National Insurance, Oriental Insurance and United India. The process is expected to kick off with the divestment of New India.

The non-life business in the country is going through a rough patch as all insurance companies have to make huge provisions for losses arising out of motor-third party claims (claims from accident victims) after an audit by the regulator showed the earlier provisions were grossly inadequate. But despite the poor state of business the companies hold value because of real estate assets.

New India Assurance, for instance, owns several properties in Mumbai which would be currently valued at several thousand crore. The properties include its head office in Fort, another New India Centre building housing its regional office besides blocks of residential apartments at Malabar Hill and Andheri. Similarly, the three other companies-National Insurance, United India and Oriental Insurance-have substantial properties in Kolkata, Chennai and Delhi, respectively, where they are headquartered.

According to consultants, a listing would bring in a host of benefits to the four companies. "It will bring a new order of governance into the companies. They will have a broad-based board and be accountable to a larger shareholder group," said Ernst & Young's national leader (global financial services) Ashvin Parekh.

According to Monish Shah, director at Deloitte Consulting, while pricing will be determined by timing of the offering, price is only one of the factors for an IPO as divestment is a business positive in the long term and will add to their valuation. "Listing will bring to the company more efficiency in terms of better market practices and better cost management."

Insiders say that the non-life industry today is like what the banking business was in the '80s, when there was very little product innovation with focus more on top line. The underwriting margins of the companies have continued to be under pressure and have not yet stabilized as senior management attempts to prove themselves by achieving topline growth at the cost of profits.

LIC Housing sanctions 100 plus crore loans in 3 days

LIC Housing Finance sanctioned over Rs 100 crore toward home loans during a three-day property exhibition that concluded in the city today, a senior company official said.

The company organised the 'Home for All Expo '11', starting November 4, at Pragati Maidan to attract home loan seekers.

"We have sanctioned more than Rs 100 crore to home seekers in this three-day property show. The majority of the people are looking for better housing projects at affordable prices in the Delhi-NCR region," LIC housing finance regional manager Ajay Grover said in a statement.

He added that the idea behind having such expo was to give people better deals to buy their dream houses.

Grover said that people from different walks of life were seeking more affordable housing and nearly 5,000 families from various parts of the Delhi-NCR and neighbouring cities visited the expo.

The expo showcased projects of developers like Amrapali, Vipul, Assotech, Supertech, Sidhartha, Gaursons, Omaxe and Earth, among many others.

Aviva Life Insurance Looks Out For a Bank Partner

Aviva Life Insurance is looking for a bank partner for expanding its insurance network and the deal is likely to be finalized by December-end. “We are in talks with different banks for a tie-up. The negotiations are at initial stages. We expect to close the deal in 2-3 months,” Dabur Group Director Mohit Burman said.

Burman, who is a member of the promoter family of the Dabur Group, holds a majority stake in Aviva Life Insurance, while the UK-based Aviva Group has 26 per cent stake in it. He added that the company is scouting for a bank partner for tie-up. They are yet to decide on whether there will be a stake sale or fresh equity.

He said Aviva Life has participated in the RFP (Request for Proposal) floated by PSU lender Syndicate Bank and is also in talks with other lenders. Aviva Life Insurance is a joint venture between the Dabur Group and UK-based Aviva Group with a paid up capital of over Rs. 2,000 crores.

At present, Aviva Life Insurance sells products through partner banks - Punjab & Sind Bank, IndusInd Bank and RBS. A bank partner would help Aviva Life, which started operations in May 2002, to expand its reach using the bank's branch network. For the full fiscal 2010-11, Aviva Life reported a net profit of Rs 29 crore and total premium collection of Rs 2,345 crore.

Now-a-days, insurance companies are showing interest to sell stakes to banks to have access to their wide branch network.

Hero Cycles to Tie Up With Insurance Firms

The world’s largest bicycle maker Hero Cycles said it is in talks with insurance firms to provide health cover to its rural customers as part of its initiative to uplift the poor.

The company, which has tied up with Allahabad-based Sonata Finance for financing bicycle by providing loans of Rs 100 per week in rural areas, is considering paying health insurance premium for the poor customers on purchase of the company's bicycles.

“About 500 million people in India cannot afford to buy a bicycle. We want to give them mobility and for that we have tied up with a micro finance firm to offer loans. Now, we want to secure their lives,” Hero Cycles Managing Director Pankaj Munjal said.

He said the company is currently talking to one public sector and one private sector health insurance provider to tie up for this purpose. The company will introduce the health insurance services soon, he added.

“Hero Cycles want to contribute with its limited strength by giving them a sense of security. These people will be given health

Berkshire to enter life insurance biz in India

Seven months after debuting in India, Warren Buffett's Berkshire Insurance is now spreading its wings in the country. The company plans to enter the life insurance space in India, by launching an online term cover.

Berkshire India, a joint venture between Nebraska-based Berkshire Hathaway and Allianz, would start life insurance operations as a corporate agent of Bajaj Allianz Life Insurance Co.

“We have a corporate agency licence with Bajaj Allianz Life, and in the coming six months, we would launch an online term insurance product,” Berkshire India chief executive officer, Arun Balakrishnan, told Business Standard.

Though the product would be launched under the Bajaj Allianz brand name, its underwriting would have some imprint on the insurance behemoth.

“We would give some inputs to the underwriting team, and these might be incorporated. Whether it would sill be an exclusive product to be sold by Berkshire remains to be seen,” Balakrishnan said.

Berkshire India started its operations in India in March, as a corporate agent of Bajaj Allianz General Insurance. The company's entry into the general insurance space coincided with Buffett’s maiden visit to India.

The company is expected to increase its product suit in the general insurance space by launching a health insurance product. It already enjoys presence in the motor and travel insurance space.

The sale of online term plans is fast gathering pace in India, since an online product does not involve agents. Hence, companies are able to save on various costs to customers.

Various private life insurance companies have already launched online term plans, and these policies are more than 30 per cent cheaper than offline products (products not available online). The country's largest life insurer, Life Insurance Corporation (LIC) of India, also has plans to launch such products.

In the first month of its operations, Berkshire, through a carefully-planned marketing strategy, managed to sell 300 motor insurance policies online, in return for the chance to spend an evening with Warren Buffett, also known as the Sage of Omaha. Customers who bought motor insurance policies for $48 could secure an invite to meet him in New Delhi.

“Invites, which aren't transferable, are restricted to one per policyholder, and available on a first-come, first-served basis,” Berkshire Hathaway Inc had said in an emailed statement on the eve of its India launch. The other novelty, as the company website put it, was the fact that Berkshire had “opened an office in India by not opening an office”.

However, as the initial euphoria died down, sales dived to less than 30 a month—a tenth of the initial figure. In August, Berkshire came up with a revamped version of its website. The company claims this has improved results.

“The real launch happened only from August. Marketing activity started from August, only after we launched the revamped website. Since then, monthly sales numbers have crossed the peak of 300 policies,” Balakrishnan said.

“Customer feedback on the new version has been very good. The enquiries are increasing and sales numbers, on a monthly basis, are also rising. Internet selling requires a continuous approach. We keep on upgrading the model, based on customer feedback. Based on the data, we are trying to develop different segments in the market, and would launch products accordingly,” he said.

LIC for deeper penetration of low-cost insurance schemes in UP

Public sector insurer Life Insurance Corporation (LIC) aims at deeper penetration of its low cost insurance schemes in Uttar Pradesh.

LIC is concerned over rather low level of awareness among the masses towards such low premium and social security schemes, wherein the government provides 50 per cent premium subsidy from its corpus of about Rs 100 crore. Under the Aam Admi Bima Yojana, which is a low cost insurance scheme for people living below poverty line, LIC has so far settled 1,573 death claims cases amounting to over Rs 5.30 crore in UP.

LIC partners with non-government organisations (NGOs) for these social security schemes at the local level.

“Since UP is such a vast state, these schemes should have more penetration, but the level of awareness is rather missing for bringing a major chunk of beneficiaries under its net,” LIC senior divisional manager Mohd Azeezuddin told Business Standard here.

In the Lucknow and Faizabad regions, LIC has partnered with about 20 NGOs for these social security schemes.

Under the Aam Admi Bima Yojana, about 2.38 million people in 75 UP districts are covered and LIC aims at increasing the base to 3 million this year.

The company provides Janshree Bima Yojana coverage to self help groups (SHG), primitive tribal groups, anganbari workers, handicrafts’ artisans, Mahatma Gandhi Bima Bunkar Yojana, Khadi and Village Industries Commission and various other 45 groups.

Earlier, LIC has also already been engaged by the UP government for executing the annuity scheme under the new land acquisition policy of the state. Since annuity under the land acquisition policy is valid for 33 years, the government felt it would be difficult for the respective district magistrate office to ensure timely and regular payment of annuity to the farmers.

Life insurance premium mop-up declines 21%

Indian life insurers recorded a 21.35 per cent drop in premium collection during the first six months of the current financial year. During the April-September period, 23 life insurance companies collected premium worth Rs 49,046 crore by writing new policies, against Rs 62,361 crore in the corresponding period last year.

According to data collected by the Insurance Regulatory and Development Authority, in the same period, premium collection of Life Insurance Corporation (LIC) of India fell 19.6 per cent, while for its private peers, the collection declined 26.1 per cent. LIC collected Rs 36,721.39 crore, while private insurers collected Rs 12,325 crore.

However, compared to August, premium collection in September was down 39.4 per cent to Rs 8,393 crore. During August, the industry had collected premiums worth Rs 13,858 crore, up 62 per cent from Rs 8,511 crore in July.

“The base effect is still showing on the sales numbers. Growth would slowly start to show in the coming months, as the industry is still adjusting to the new regulations which came into effect last September,” said K Sahay, chief executive of Star Union Dai-ichi Life. The gross written premium of the general insurance industry rose 25.8 per cent so far this financial year, compared to the year before. According to data by insurers, the general insurance industry collected premiums worth Rs 28,605 crore by writing new policies during April-September

HDFC Ergo sees capital infusion of Rs 80 cr

Private sector general insurer HDFC Ergo is likely to see a capital infusion of around Rs 80 crore in the next one-and-a-half years to support business growth.

"We may need a capital infusion of around Rs 25-30 crore in the current fiscal, as around Rs 75 crore has already been infused into the insurance firm. Similarly, we will require around Rs 50 crore in the next fiscal," chief executive officer Ritesh Kumar said here.

Promoters of the general insurance firm, namely premier mortgage lender HDFC and Germany's Ergo International, have already pumped in around Rs 75 crore in the first half of this financial year. The firm has an equity capital base of Rs 500 crore as of now, he said.

Kumar said the company would not require huge capital from the promoters in future as it had turned profitable on entity level from the last quarter.

"We don't need large support from the promoters, as the growth can be funded from internal accruals," he added.

HDFC Ergo posted net profit at Rs 14 crore in the April-June quarter and is expecting to retain profit for the whole year. "We hope that profitability will be sustained in the rest half of the year," Kumar said.

On the premium front, the general insurance firm has set a target of 35-40 per cent premium growth for this year.

"We had a premium collection of Rs 1,300 crore in the last fiscal and we aim to have 35-40 per cent growth in premium in the current fiscal," Kumar said, adding the insurer witnessed 44 per cent growth in premium collection in H1 of FY12.

HDFC Ergo draws around a third of its revenue from accident and health insurance segments, a third from motor insurance and the rest from corporates. "Growth in all segments is good. However, there are issues relating to third party motor pool, which is a concern for all general life insurance companies," Kumar added.

Irda may allow agents to sell products of more than one insurance company

The Insurance Regulatory and Development Authority (Irda) plans to allow agents to sell products of more than one insurance company, allowing private insurers to access the vast army of agents selling products of the market leader - the Life Insurance Corporation (LIC).

Agents can sell products of only one insurer under existing norms, but Irda Chairman J Hari Narayan said the current global trend was to do way with tied agents, who can retail products of only one company. "The idea is to allow agents to sell products of more than one company. This model has been tried in Hong Kong. In England, tied agents have vanished," he said.

The capping of charges on unit-linked insurance plans (Ulips) in September 2010 had reduced the income of agents, resulting in many exiting the sector and forcing the regulator to consider opening up alternative avenues of income.

More than 3 lakh agents have exited the insurance business after the regulator introduced stringent norms.

The new norms led to more than 100 products becoming ineligible. The number of agents came down from 3 million in 2009-10 to 2.65 million in 2010-11, according to data compiled by the Life Insurance Council. LIC has 13.5 lakh agents distributing its products.

"The move will increase earnings of agents. Though consumers buy Ulips of private insurers, when it comes to life products they only go for LIC. This would help us bolster our sales," said Renu Dhavan, an agent with ICICI Prudential.

Private insurers have largely followed the bancassurance model, in which banks distribute insurance products. However, access to LIC agents, particularly the bigger ones, will increase the reach of private insurance companies.

LIC had a market share of around 76% in terms of new business premium for the financial year up to August 2011 while the remaining was divided among 23 private insurance companies. The state-owned insurer has been increasing its market share mainly because of its strong base of traditional products, which were unaffected by the change in regulations, and its group retirement plans.

New Norms

The new regulations introduced a year ago increased the lock-in period and quantum of life insurance cover while capping charges that could be paid out as commission to agents.

Before September 2010, bulk of the premium paid in the first year was passed on by the insurer as commission to the agent responsible for bringing in the client. This created an incentive to sell new policies while existing ones were often surrendered after the initial years.

The intent of the new rules was to encourage consumers to buy more protection against accident or death. The Indian insurance market is dominated by Ulips -investment products with a nominal life cover that compete with mutual funds.

Irda had also made it mandatory for agents to retain 50% of their business in the second year.

This regulation, known as persistency norms, refers to the percentage of business retained without lapsing or being surrendered.

Many agents have found it difficult to meet these norms and operate in a scenario where the commission payable has come down.

The difficulties being experienced by agents were one reason for the insurance regulator to consider allowing them to diversify their portfolio.

IRDA plans end to deceptive policies, upfront commission

The Insurance Regulatory and Development Authority (IRDA) plans to ban misleading products and staggered commission for agents to ensure that policy buyers are not shortchanged.

The insurance industry, which is still evolving a decade after privatisation, needs new rules to ensure that consumers get the best and don't get carried away by products that only promise high returns on paper, the regulator has said.

"One important problem is that what you mean by highest NAV,'' J Hari Narayan, chairman, IRDA, told ET in an interview, referring to many insurers promising highest net asset value of the policy period to holders. "In certain markets, certain products are prohibited. That may be the best way to go.''

Insurance companies, bitten by the slump in sales after new rules curbing the Unit Linked Insurance Policies, are peddling many policies that on close scrutiny could be termed deceptive. One such is the promise of highest net asset value. But what they do not publicise is the calculation behind the NAV. These policies also charge 25 to 75 basis points as additional fees. A basis point is 0.01 percentage point.

"Suppose a company had Tata in its portfolio, over time it may change,'' said Narayan. "At the time of maturity, which highest NAV are you talking about - the portfolio, or Tata. One of the major problems with the product is that how do you communicate to the policyholder. He may be thinking of the highest NAV of the Sensex. So, this is the whole issue.''

Prudential ICICI, Birla Sun Life, Bajaj Allianz, SBI Life, Reliance and Aegon Religare are some of the insurance companies that sell policies promising the highest NAV. These policies have tenure of 10 years with limited premium paying term of 5-7 years.


Though the highest NAV guarantee gives the impression that such products are pure equity products and pay the highest return during the course of the tenure, that is not always the case. When a 100 investment gains by 10-15%, a portion of the corpus is shifted to debt. At regular intervals, when there are gains, some funds are shifted to fixed income securities.

In a way, this could be a strategy where investors don't get the highest NAV they would have received if they had remained invested in equties. The portfolio manager, to avoid liabilities for the company, could actually depress returns for investors.

Another area where investors lose out, commission to agents, could also be plugged.

As high as 40% of the policy premium in the first year on traditional products while 7-12% in Ulips, are paid to agents as commisssion. But once the policy gets running, the agent loses interest in serving the policy holder. So, to ensure that customers are serviced, the commissions could be rear-ended and paid at the later stages of the policy, than in early years.

"Korea has found that front-ending commissions has led to unhealthy practices. So, the question is should we rear end it. A lot depends on the sales history and culture of the country,'' Narayan added.

Rs 9 crore insurance cover for Sunday's ODI

Unseasonal showers and the July 13 serial blasts in Mumbai have forced the Mumbai Cricket Association (MCA) to buy an insurance cover of Rs 9 crore for the India-England one-day international at Wankhede stadium on Sunday.

Sources said MCA will shell out a premium of Rs 5 lakh for a special contingency policy for event cancellation from Oriental Insurance Company (OIC). The policy will protect MCA against financial losses owing to cancellation of matches due to bad weather, natural disasters, terrorism-related incidents or abandonment due to death of a prime minister or president. The cricket association cannot claim compensation if a ball is bowled before the match is called off.

"The cover for the India-England ODI is higher by Rs 1 crore compared to the policy for the India-Australia bilateral series match at D Y Patil Stadium on November 11, 2009," he added.

The India-Australia match was abandoned without a ball being bowled due to incessant rain. A source said, "There has been an increase in premium of the reinsurance market by at least 40% in the past six months. The local insurance company that offers the cover for such events has to peg the premium rates with those prevailing in the reinsurance market."

India is bracketed under the 'extreme risk category' in the terror index of the reinsurance market. The country's record in the terror index got further sullied following the July blasts in Mumbai in July and the bomb blast outside the Delhi high court last month.

Last week, the Anti-Terrorism Squad received an alert of plans to target the Chhatrapati Shivaji international airport on the eve of Diwali. Leander Dias, OIC administrative officer, said, "We cannot disclose financial figures to the media as these are confidential matters."

Apart from terror, rain is a major concern for cricket administrators. The earliest the monsoon withdrew from Mumbai in the last few years was October 7 in 2005. It withdrew as late as October 24 last year.

An insurance official said, "MCA is wary about the weather as the rain refuses to go away. They don't want to take chances as the India-Australia match had met a similar fate."

Bajaj FinServ's Q2 net more than doubles to Rs 158 cr

The life insurance industry, which has witnessed a slowdown this year, will see a revival in top-line growth in the third quarter of this year, said Mr Sanjiv Bajaj, Managing Director, Bajaj FinServ.

Bajaj Finserv is the holding company and the financial services and insurance business arm of the Bajaj Group.

“We are looking to revitalise the agency and the bancassurance channels for the insurance business. Since April, we have added over 10,000 new active agents. We see them bringing in additional business now in the third quarter this year,” added Mr Bajaj.

Bajaj Finserv, which reported its second quarter results on Wednesday, has more than doubled its profits to Rs 158 crore from Rs 69 crore in the corresponding previous-year period.

GROWTH IN SUBSIDIARIES

The strong results in the second quarter of this year are attributed to the robust numbers reported by its subsidiary companies.

The profit from Bajaj Allianz Life Insurance surged by 48 per cent to Rs 295 crore from Rs 199 crore, while Bajaj General Insurance's profit surged by 83 per cent to Rs. 64 crore from Rs 35 crore.

BAJAJ FINANCE

Bajaj Finance Ltd, the lending arm of Bajaj Finserv, has also reported a jump in profit by 64 per cent to Rs 87 crore from Rs 53 crore. Bajaj Finance's Assets Under Management (AUM) has crossed the Rs 10,000-crore mark and stood at Rs 10,071 crore as on September 30, 2011, as against Rs 7,571 crore as on September 30, 2010.

Shares of the company gained Rs 15.3, or 2.9 per cent, to settle at Rs 543.55. The total volume of shares traded on the BSE was 101,571.

Life insurers may get nod to raise non-AAA exposure

The Insurance Regulatory and Development Authority (Irda) plans to allow life insurers to buy a greater amount of non-AAA corporate debt, which could lead to higher returns for insurance policyholders.

A member of an Irda-instituted committee, looking into the investment guidelines of insurers, said it had decided to include government bonds as part of the AAA-rated investment requirement, enabling insurance firms to take additional exposure to non-AAA-rated securities, including A+ and A papers, by taking board approval.

The panel's move is a part of an exercise to amend the Insurance Act.

The move by the regulator could generate more returns for policy holders as lower the rating on a paper, the higher will be the yield that an investor earns.

It will also widen the investment horizon for insurers and make more funds available to companies that don't have the highest rating, but are credit-worthy.

"We want more money to flow into corporate bond market. The draft guidelines are sent to companies, consultants and other stakeholders for their feedback. It will become a law after the (Insurance) Act is amended," said a senior Irda official.

Insurance companies are now allowed to invest up to 50% in government securities, 15% in infrastructure bonds and 35% in other investment grade corporate bonds and equities. A minimum of 75% of debt instruments must carry triple A rating.

If investments in government bonds become part of the AAA calculations, the maximum permissible investment in non-AAA papers will rise to 25 per 100, assuming that the entire investment is in debt instrument, up from the current 17.50.

"It will give some additional exposure to debt papers," said the chief investment officer of a large life insurance company.

The rating assigned to a bond by credit rating agencies indicates its issuer's degree of creditworthiness and ability to meet financial commitments.

Bonds rated AAA, which is the highest possible rating, are perceived to have little risk of default and offer investors the lowest yields among bonds of comparable maturity.

Life insurance companies had 9,53, 052 crore investment in fixed income instruments as on March-end.