Life insurers increase in group insurance sales

Life insurance companies have seen an increase in group insurance business, while they continue to report negative growth in individual insurance category in last eight months.

Group insurance consists of life insurance bought by companies for their employees. So, while individuals are deferring buying insurance, companies have not reduced investment in insurance for their employees.

During April-November 2011, premium collected from group insurance grew by 16 per cent to Rs 29,466.01 crore, from Rs 25386.66 crore in the same period a year ago.

Both, Life Insurance Corporation (LIC) and private insurance companies, reported growth in group insurance sales. During April-November 2011, LIC premium collected from group insurance increased by 11.9 per cent to Rs 24,567 crore, from Rs 21, 631 crore in the previous year. Whereas, new business premium for private insurers from group insurance sales jumped by over 30 per cent to Rs 4,898 crore, from Rs 3,754 crore in the previous year.

“Normally, group single premium policies consist of group gratuity and super annuity (pension) plans. This year, there was an overall trend of positive appraisals and salary hikes that pushed the employer contribution to such policies. Considering the same trend to follow next year, we expect this segment to grow consistently,” said GV Nageswara Rao, chief executive officer, IDBI Federal Life Insurance Company.

Business from sale of insurance to individuals saw declined by over 36 per cent to Rs 32,962 crore, from Rs 51,603 crore during same period in the previous year.

However, despite growth potential, some of the companies like Aegon Religare Life Insurance, Bharti Axa Life Insurance, DLF Pramerica Life Insurance and Edelweiss Tokio Life Insurance, have stayed away from group insurance business or have very low portfolio. These companies are also non-bank funded insurance joint venture companies.

P Nandagopal, chief executive officer, IndiaFirst Life Insurance Company said, “Bancassurance channel (banks selling insurance products) helps insurance companies to cater to a vast number of corporate clients who are in need of group regular premium policies such as term insurance policies. Group insurance business has a high potential of growth if the insurer provides good and efficient service to their customers.”

Companies that have reported significant growth in their group insurance portfolio include ICICI Prudential Life Insurance, Reliance Life Insurance, Canara HSBC OBC Life Insurance and IndiaFirst Life Insurance.

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

Settling life insurance claims issues

Close to 31.6 lakh policies are sold monthly by life insurance companies and we come across many complaints about the agony faced by the customers in claiming money from insurers.

According to IRDA's annual report for 2009-10, insurers repudiated 14,693 policies worth Rs 245 crore that year with 2,180 claims pending for more than a year.

Such claims remain pending despite Regulation (8) of the IRDA (Protection of Policyholders' Interests) Regulations 2002, which says: “An insurance company shall initiate and complete such investigations (relating to claims) at the earliest, not later than six months from the date of lodging a claim.

“The claim shall also be paid or disputed, giving all the relevant reasons, within 30 days from the date of receipt of all relevant papers and clarifications.”

It is in this backdrop that the IRDA has imposed a penalty of Rs 5 lakh on HDFC Life Insurance, that is, for a ‘delay in taking decisions on the settlement of death claim.'

The IRDA further said that during investigations it found few more cases where more than six months had elapsed without deciding the admissibility of the death claims.

HDFC Life, in its communication, has said that company has the philosophy of paying all claims unless and until there is a non-disclosure of material fact or a fraud against the company.

KEY ISSUES

Two points which merit attention from this case are. One, the IRDA has the authority to impose a penalty of Rs 5 lakh for each such violation on claims. Yet it preferred to “apply logic” to levy a penalty of only Rs 5 lakh, though it could have charged more based on its contention that there were a few more cases pending with HDFC Life. If IRDA is serious it should levy such a penalty on all outstanding cases (put at 2180 last year) across insurers.

The other point is, just to avoid penalty insurers may inform the claimant of their inability to admit the claim.

The IRDA has not ruled on whether the rejection of claim by the insurer is correct, the key bone of contention in this case.

What customers of life insurance require is money by way of sum assured from the life insurer and not just a token penalty. Any order passed by the regulator should be clear and not lead to further arbitration.

Insurers weigh options to save NAV products

Trying to persuade Irda to tread a middle path and drop the idea of scrapping the net asset value products entirely.

In a last-ditch effort to save the controversial “highest NAV guaranteed products”, the Life Insurance Council, which represents life insurance companies, is set to take up the matter with the Insurance Regulatory and Development Authority (Irda).

According to sources, the insurers are trying to persuade the regulator to tread a middle path and drop the idea of scrapping the NAV products entirely.

Irda, on the other hand, might consider their plea, however, it will attach some stringent riders.

INSURANCE FIRMS’ AGENDA

* Five-Six life insurance co CEOs meeting Irda by end of this week

* Insurers might have to go for higher provisioning

* They will have to provide greater disclosures

* Irda might allow only one fund annually under highest guaranteed NAV

Highest NAV (net asset value)-guaranteed products became largest-selling unit-linked insurance policies (Ulips) since the new guidelines on Ulips came in September 2010. Under such products, customers are guaranteed returns based on the highest NAV which the policy has achieved during the entire term of the insurance plan. Currently, it accounts for nearly 20 per cent of the Ulip sales in the industry. Leading insurance players typically raises money through three or four issuances throughout the year.

The controversy surfaced last month, when Irda informally sounded out its discomfort about the highest NAV-guarantied products on the grounds of perceived “systemic risk” associated with way the funds are managed, since such products give more emphasis on debt instruments and run the risk of heavy sell-off in equities in case of a stock market fall.

Following Irda’s discomfort, which also did not renew any such policy, leading private insurers like ICICI Prudential Life, HDFC Life, Bajaj Allianz Life and Birla Sun Life, who have at least one such product still in the market, have either withdrawn or set to withdraw the ongoing trance shortly. It is very unlikely that any new products will come out in the market as the regulator is not approving any new such products.

If sources are to be believed, the insurance regulator might allow only one such fund annually per insurance companies. This apart, insurers might have to go for higher provisioning for this category. Second, Irda might ask the insurers to attach an additional disclaimer or declaration with such products, explaining the nature, allocation and return from these products.

Last week, the insurance regulator has expressed some key concerns about the way funds are being managed by the insurance companies when the equity market is acting volatile. Later this week, key officials of five-six life insurance companies, representing the industry, are likely to meet the regulator and discuss the matter further.

“Not only about equities, Irda has also sought clarification on how the funds are being managed in debts, for instance, what could be the possible risk of a lock-in, when bond yields are high,” said a chief investment officer at another life insurance company.

Besides, the insurance regulator is not comfortable with the way these products are being pitched to the customers. Since these are debt-heavy products, fundamentally these products not expected to do as well as the simple equity-oriented schemes.

“We are willing to offer additional disclosures to the customers, mentioning that these products are primarily debt-oriented and returns would be average, that is more than debt but lower than normal equity schemes,” said an official at a Delhi-based insurance companies.

Life insurers' new business premium income dips

New business premium income for life insurance companies fell 23% during the April-August 2011 compared with the same period last year mainly due to the base effect

The fall in collection is on account of the base effect after insurers last year tried to meet annual targets ahead of change in norms since the new guidelines came into effect from September 2010. Pension, which contributed to almost 36% of the income, has come down to 17%.

Also, products such as universal life policies were redesigned as variable insurance policies. From September, the insurance regulator had imposed norms such as cap on various charges like premium allocation, policy administration and fund management on unit-linked insurance products.

Also, it mandated a 4.5% return on pension plans. This has affected the sales of the insurance products in the sector.

Surprisingly, group insurance has done better during the period and has gone up 23% while individual business dropped 45% during the period.

According to Irda data, the industry collected a premium of 40,653 crore by selling new policies.

Curtains on highest NAV guarantee cover plans

In a move that may further dent sales of unit-linked life insurance plans (Ulips), the Insurance Regulatory and Development Authority (Irda) is set to scrap the highest Net Asset Value (NAV) guarantee products.

Highest NAV guarantee products accounted for a fifth of Ulip sales after pension plan sales dried up following the stringent norms on Ulips from September 2010. Under the highest NAV guarantee products, customers are guaranteed returns based on the highest NAV a policy has achieved during the entire term of the insurance plan.

According to insurance industry sources, the insurance regulator is wary of a “systemic risk” associated with the way the funds are managed. Such products lay more emphasis on debt instruments and run the risk of a heavy sell-off in equities in case of a stock market fall.

CHANGE OF COURSE

* Notification by month-end

* Irda not renewing any such products

* Irda won’t approve new schemes based on highest NAV guarantee

* Highest NAV products comprise 20% Ulip sales

* MF players not allowed to have such schemes

“For instance, in the case of highest NAV products, insurers protect the guarantee by appropriately apportioning money in debts. When the market falls, the exposure in debt instruments increases and insurers try to sell equities at marginal profits. If there is too much concentration of such products in the market, a large number of insurers might sell equities at the same time to protect the guarantee, leading to a further market fall,” an Irda official explained.

Leading private insurers like ICICI Prudential Life, HDFC Life, Bajaj Allianz Life and Birla Sun Life all have at least one such product still in the market, but it is very unlikely that any new ones would be launched. The insurance regulator is neither renewing any existing products nor approving any new products. The markets regulator, Securities and Exchange Board of India, does not allow mutual fund houses to sell such products. Life Insurance Corporation of India (LIC) had launched two products — Wealth Plus and Samridhi Plus — which ensured returns based on the highest NAV. However, both have been withdrawn.

“Once the earlier products expired, Irda did not approve any new product based on the highest NAV,” said an insurance company official. “The regulator has informally told us it is not comfortable with such products,” he said. The insurance regulator is not comfortable with the way these products are being pitched to customers. According to industry experts, these products are not expected to do as well as simple equity oriented schemes, since insurers tend to invest substantial amounts in debt.

In addition to these, insurers are also charging an additional “guarantee charge” in these products, which ranges between 0.10-0.50 per cent of the fund value.

Over the last one year, all major life insurance companies launched highest NAV guarantee products and some of the companies also came up with more than one version.

The Life Insurance Council is also examining the issue with insurance companies and is likely to take up the matter with the regulator.

“We are in the process of finding out the details as more or less all insurance companies have at least one such product in their stable. We have asked them to provide details regarding the likely impact if such products are discontinued,” said a council member.

Mass exodus of agents hits life insurance business hard

The slashing of agents’ commission in selling unit-linked insurance policies (Ulips) is costing the life insurance companies dear, with agents leaving the business in droves, resulting in a fall in business.

According to information available with the Insurance Regulatory and Development Authority (Irda), at least 10.45 lakh agents left the business in the financial year 2010-11, against 7 lakh who joined, resulting in a 35 per cent fall, compared with the beginning of the financial year.

“Many insurance consultants, across the industry, are leaving the business, because it is not seen as a lucrative business any more. For a large insurer like us without a banking promoter, the agency channel is a significant contributor to business growth. This is an issue of concern to us,” says Rituraj Bhattacharjee, head of market management, Bajaj Allianz Life Insurance.

The commission for insurance agents for selling Ulips has been slashed from 15 per cent earlier to just about 5-6 per cent now. Ulips account for the biggest chunk of business for life insurance companies and a fall in the business adversely impacts growth of the companies.

In fact, the first year premium for the life insurance industry almost halved to Rs 15,406 crore during the April-July, 2011 period, compared with Rs 24,914 crore in the corresponding period in the previous year.

According to a life insurance agent, who did not wish to be identified, the Secunderabad branch of a leading private insurer was the top branch in the country with each of the 10 agents clocking over Rs 3.5 crore per month in business. Over the past six-eight months, they have not been able to cross even Rs 1.5 crore.

“Churning and attrition among agents is a regular feature. The churn is higher among private companies. However, with commissions being slashed, we have been finding it difficult to recruit new agents,” says the spokesperson of Life Insurance Corporation of India (LIC), the market leader in the business.

It is not just the fall in commission and lower revenues that have prompted agents to leave, but also the lacklustre performance of Ulips that they have sold to customers.

“Both insurance companies and agents have been misselling Ulips to customers by asking them to pay premium for three years and then see their money double in the fourth year. Now, when stock markets have fallen and customers see their investments dwindle, agents are not in a position to face their customers and just want to leave the business,” says an agent with a leading life insurer on conditions of anonymity.

SBI Life launched variable insurance plan

Private sector SBI Life on Monday launched a variable plan, which aims to provide stable returns to investors.

The variable non-participating insurance plan — Flexi Smart Insurance — would provide safety for customer’s investment and stable returns to risk-averse customers having preference for non-market linked plans, SBI Life said in a statement.

A customer would have to pay a minimum premium amount of Rs 1,500 per month to subscribe to the plan, with an option to pay premiums at yearly, half-yearly, quarterly or monthly.

The product would give investors an option to change the sum assured and flexibility of premium payment and interim and additional interest rates.

“We will continue to strengthen our simple and smart series so as to cater to the protection and savings needs of multiple customer segments with varied risk— appetite,” SBI Life MD & CEO M.N. Rao said.

The premiums paid by the policyholder will earn an interim interest rate of 7 per cent during the financial year 2011-12 and the additional interest rate would be declared at the end of the financial year.

In November last year, the IRDA had barred life insurance companies from selling Variable Insurance Products (VIPs), which have greater flexibility over traditional plans, as unit-linked products (ULIPs), which invest major portion of money in capital markets.

VIPs, earlier known as Universal Life Products (ULPs), have greater flexibility over traditional plans and insurance companies used to mix the traits of ULIPs into VIPs.

SBI Life is the first private life insurer to launch a VIP and it becomes the second VIP to be available in the market after LIC Bima Account 2.

During the last financial year 2010-11, SBI Life Insurance posted a 33 per cent increase in net profit at Rs 366 crore, up by 33 per cent. Its total premium collection grew 28 per cent to Rs 12,912 crore.

As of May 2011, SBI Life is the largest private sector players with a market share of 19.84 per cent. In the life insurance market it has a total share of 4.83 per cent.

SBI Life Insurance is a joint venture between State Bank of India and BNP Paribas, wherein SBI owns 74 per cent and BNP Paribas the remaining 26 per cent.

Riders get rewarding for life insurers

Life insurance companies and agents are looking at life beyond strict regulatory guidelines. Lending a helping hand are ‘riders’, that is, the add-ons with the base policy.

Since last September, when the Insurance Regulatory and Development Authority (Irda) capped distribution costs of unit-linked insurance plans (Ulips), the number of policies with riders being sold had risen from 5 per cent of the total to 20 per cent, said insurers.

Mayank Bathwal, chief financial officer & head (institutional sales), Birla Sun Life Insurance, said the company saw close to 36 per cent increase in demand for policies with riders in the September-March period as compared to the previous year. The number continues to rise. He said customisation and flexibility had become the focus.

Riders are an alternative source of income. So both insurers and agents are happy pushing these. After Irda capped the commission to agents for selling Ulips, most of them get 5-10 per cent of the first year’s premium instead of the earlier 25-30 per cent. By adding riders, they can raise their income significantly. They earn 22-25 per cent on riders, say industry players.

A number of riders can be purchased. These include surgical care, hospital care, and waiver of premium care, critical illness, accident benefit, permanent disability benefit and guardian benefit. The cost of riders can range from 2-20 per cent of the policy premium. Irda has said the total premium for riders cannot be more than 30 per cent of the base policy premium.

“While riders were always there, they were not being sold aggressively by agents before the Irda guidelines on Ulips came into force,” said Rajeev Kumar, vice-president, product & pricing, Bharti Axa Life Insurance.

Kumar says customer profiling shows that policyholders are more likely to continue a policy that has riders.

For some life insurance companies, the sale of riders has increased significantly. For instance, Kotak Life sold 70,000 riders in 2010-11 vis a vis 21,000 in 2009-10.

Riders offer customers extra benefits with the base plan. Taking a rider can increase benefits at a low cost. A 30-year male buying an endowment plan for 30 years, for a sum assured of Rs 5 lakh, can buy a term benefit or a life guardian benefit rider for 18 per cent and 6 per cent policy premium, respectively.

This gives an additional Rs 5 lakh cover in case of disability due to accident. In case of death, the premium will be waived.

Last September, Irda capped commissions and increased the lock-in period of Ulips from three to five years. It capped the sum assured at 10 times the premium for pension products. This resulted in a sharp drop in sales of Ulips, which accounted for more than 80 per cent sales of life insurance companies.

IRDA issues insurance demat norms

Insurance buyers will soon be able to open demat or 'e-insurance' accounts for their contracts which will allow them to hold policies in electronic form. Having an -insurance account will reduce hassles for buyers as it does away with the need to provide age and address proof every time a policy is bought. It will also save insurers crores in printing and dispatching policies.

The move will bring in benefits similar to the efficiency gains in the capital markets after Sebi introduced dematerialization of equities. Dematerialization in capital markets speeded up transactions, dramatically reduced transaction costs and completely eliminated fraudulent transactions.

Taking a leaf out of the securities market, the Insurance Regulatory and Development Authority wants to create insurance repositories on the lines of securities depositories like the National Securities Depository or the Central Securities Depository. These repositories will be licenced by the regulator and connected to all insurance companies.

"This is one of the most positive steps which will impart efficiency and better customer service," said Sandeep Bakhshi, MD, ICICI Prudential Life Insurance. He said the benefits in terms of convenience to policyholders will be enormous while insurers will save in costs. Since the repository will consolidate all policies under a single account, the family will immediately come to know of the policies purchased by an individual in an emergency.

IRDA on Thursday issued guidelines for creating the insurance repositories and electronic issuance of policies. In the guidelines, the regulator said that it will grant licences to and regulate 'insurance repositories', which will act as service providers to life insurance companies.

The repository will give a unique number to every individual and all his policies will come under that account. It will hold all types of policies, including life, health, motor and group covers. The data maintained by the repository will include history of the claims data of the individual. It will also have the names of the beneficiary, assignees and nominees.

Dematerialized policies will be more liquid than paper policies as these contracts can be easily assigned. IRDA has said that whenever the policies are assigned, the assignee shall have the same rights as the policyholder. According to the IRDA guidelines, any insurance policyholder or a prospective policyholder can open an e-insurance account. Opening an account will require identity proof and address proof.

But not all companies are in favour of full-fledged dematerialization. Some of the players were not very keen to have a depository right now and they wanted only partial demat. Even the Life Insurance Corporation is not keen on giving that option to all policyholders immediately as it has a very large database and has concerns of data security.

Mishap claims hit insurers firm

CEOs of non-life insurance companies met with the Insurance Regulatory and Development Authority on the first day of the new fiscal seeking the regulator's intervention to plug losses arising out of compensation claims from accident victims. In the meeting, non-life insurers told the regulator that the government should share losses out of its consolidated fund if the business were to run as a social obligation.

A fortnight before insurance companies closed their books for the financial year; the insurance regulator asked all non-life insurance companies to set aside funds to meet claims from victims of road accidents under the third-party cover. The industry comprising 24 companies was asked to set aside Rs 153 for every Rs 100 that it had collected as premium. This would result in all companies together providing around Rs 3,500 crore. The hit would be taken by each company in proportion to its overall market share which would result in state-owned companies bearing the brunt.

"The first day of the new year is the most important for general insurers since most policies are renewed on this day. But given the overwhelming concern over third-party losses we chose to meet the regulator," said the MD of a non-life company. Several private insurance companies said that they have already informed their shareholders of the need for additional capital either to meet solvency margin requirements or to make good the losses arising out of additional provisions.

The third-party insurance portfolio of insurance companies had been bleeding for over two decades after limits on compensation were removed. Although third-party premium rates have been revised, the increases did not keep pace with the increase in level of compensation. Some years back the IRDA bought time to address the issue by asking insurers to pool all the third-party business into a common fund and share the losses. Insurers were also promised that they premium rates would be increased. Over the years compensation awards rose but premium remained static. This has resulted in a gap in what the motor-third party pool has and the amount that it will have to pay out.

IRDA has told insurers that it will increase rates on third-party insurance with premium for this cover going up by 80% for commercial vehicles. While the new rate card was expected to be implemented from the first day of the fiscal when most renewals take place, The IRDA has not yet announced the tariff.

The government meanwhile has plans to introduce a legislation which will cap the liability of insurance companies. A committee headed by has recommended that compensation for accident victims be capped and the time limit for lodging compensation claims. The legislation, if it is passed in the present form, will prevent future losses.

Student’s insurance plan to be rework

The state government will rework the scheme for provided that accident insurance meant for school students. School education minister Rajendra Darda expressed dissatisfaction over the existing framework in the state lawmaking assembly on Friday.

Darda was replying to a query raised by Shiv Sena member Dadaji Bhuse during the question hour. Darda said that insurance was given in only 21,488 cases since 2003.

The minister said that the settlement ratio was less considering that the state had paid over Rs 17.96 crore in premium to various insurance companies appointed for the task. The government had tie-ups with Oriental Insurance, National Insurance and United India Assurance for the policy. Darda said that Rs 5.55 crore was paid as premium to Oriental Insurance from 2003 to 2005, another Rs 4.46 crore was paid to Oriental Insurance and National Insurance in the next three years (2005-2008).

An amount of Rs 1.69 crore was also paid to United India Assurance for 2009-10. The state government has been paying a premium towards insurance of school students against accidents under the Rajiv Gandhi Security Insurance policy. Darda announced that the state would bring out a policy where it would provide monetary assistance to students in need. Assembly speaker Dilip Walse-Patil later announced a meeting on the issue.

Policy for senior citizens on the cards: The state government will form a policy for senior citizens, social justice minister Shivajirao Moghe said in the legislative council on Friday. The minister was replying to the non-official resolution moved by MLC Chandrakant Patil, BJP. NCP member Hemant Takle said that senior citizens should be given there was a need for special attention towards senior citizens in the state.

Moghe said, "The state government will make a comprehensive policy for senior citizens."

Mumbai: Stating that bureaucrats were insensitive to housing problems, deputy speaker Vasant Dawkhare called for a holistic view of the problems of police housing in Mumbai

Consolidation seen in life insurance

A report by an international actuarial and consulting firm has warned that there is a sharp fall in investments by promoters of Indian life insurance companies, some of whom may either sell or close their companies to new business given capital constraints.

Investment by promoters of Indian life insurance companies has been over and over again dropping since the global financial crisis in 2008 although most companies are still to achieve break-even and are still in need of capital. Investments have halved from Rs 8170 crore in '08-09 to Rs 4152 crore in '09-10.

In the current fiscal (April 2010 till date), investment has again been half of the previous financial at Rs 2156 crore.

This reduction off reflects reluctance of promoters to pump in more funds although the industry still requires capital. According to a study by Milliman, an international actuarial firm, the main reasons for this are a general paucity of capital after the global economic downturn along with the careful approach taken by Indian insurers in light of a slowdown in new business volumes, high expense levels, and delayed break-even targets.

"Despite the recent slowdown in growth and capital infusions, we believe that the industry will still need to inject important volumes of capital in order to achieve the full potential that the sector has to offer. When the largest companies are in 1,500 to 2,000 locations, companies with a current footprint of only 200 to 300 branches and a desire to be national players are still looking at a lot of investment requirements," said Sanket Kawatkar, Practice Leader, Life Insurance, India, and Richard Holloway MD, South East Asia and India, in a white paper released on Wednesday.

According to the report, the recent IRDA guidelines capping charges on unit-linked products that were introduced on September 2010 may also have had a significant impact on promoters' desire to invest significant capital into the business in the near future. This is likely to impact the level of capital infusion in the near future until promoters gain greater confidence around the regulatory environment and revise their strategies accordingly.

"Promoters are questioning the merits of diverting available capital away from their core businesses to their life insurance businesses, where the break-even targets may now be further delayed following the recent regulatory developments," the report said.

The industry could get some relief in terms of capital if the foreign direct investment limits are raised or if companies are allowed to raise capital through an initial public offering. However, the regulation in respect of both these routes of capital recruitment has been delayed. The only option left for promoters is to raise capital through the private equity route at the holding company level. However, even in this way there are challenges because promoters value their companies much higher than private equity investors.

LIC collections build up for others slack

Premium collection in January was down by 14.5(%) per cent

On the back of a rush from the Life Insurance Corporation of India (LIC), the first-year premium collection by life insurance companies increased by 23.8(%) per cent to Rs 1,03,878 crore in the April-February period of the current financial year.

In this period, LIC collected Rs 73,122 crore by selling new policies, up 34.6(%) per cent compared to Rs 54,320 crore collected in the equivalent period last year.

During April-February 2009-10, the total first-year premium collected by the industry was Rs 83,891 crore.

According to data collected by the Insurance Regulatory and Development Authority (Irda), during the first 11 months of this financial year, private insurers posted a marginal 4(%) per cent rise in premium collection to Rs 30,756 crore, compared to Rs 29,571 crore in the corresponding period last year.

CONTRAST First year premium collection (Rs Crore)
Life insurance companies	April-February		Growth (%)
	2009-10	2010-11
Private	29,571	30,756	4.0
LIC	54,320	73,122	34.6
Total	83,891	1,03,878	23.8
Source: Irda

The industry recorded 7(%) per cent growth in premium collection on a month-on-month basis in February to Rs 8,344 crore, compared to Rs 8,301 crore collected in January 2011.

Industry sales took a hit after new norms were introduced in September and most of the growth in terms of premium income happened in the first six months of 2010-11.

The premium collection in January was down by 14.5 per cent, compared to Rs 9,709 crore in December. The new business income in November 2010 was Rs 7,282 crore.

In February, LIC’s new premium collection was up by 12.9(%) per cent on a year-on-year basis, whereas for its private peers the collection dipped by 5(%) per cent.

SBI Life, the largest private life insurer in terms of new business premium income, collected premiums worth Rs 5,845 crore during the first 11 months of 2010-11, up by 1.9(%) per cent compared to Rs 5,267 crore collected in the corresponding period a year earlier.

Know about LIC Samridhi Plus

Bharti Axa Life to launch two new plans

Private life insurer Bharti Axa Life Insurance will shortly launch two new products, one a traditional participating retirement plan and the other a child protection plan, to tap the prospective offered by these segments.

The company hopes to cash on the increased sales of life insurance policies that happen during March when people look at a choice of investment avenues to save their tax liability.

"We hope to earn 20-25(%) per cent of our total premium from the retirement product segment. We are in the process of launching our new product Wonder Years Retirement Plan," chief marketing and operations officer Mark Meehan told IANS on phone from Mumbai.

Further with its new retirement policy Bharti Axa Life plugs the opening that resulted in this product segment after the withdrawal of its unit linked retirement policy post new regulations brought in by the insurance regulator last year.

As per the new scheme, a policyholders can to choose the sum of money they would like to receive at their 60th year (the vesting age) or 10 years (the vesting term) and pay the premium till that period.

If the policyholder dies during the course of the policy then Bharti Axa Life would pay the premiums paid to the legal heir or nominee. "We will pay back the premium received plus 8(%) per cent interest on that," Meehan said.

Bonuses declared by the life insurer will be added to the corpus to be paid at maturity.

At the end of that period the policyholder has the option of withdrawing one-third of the total savings tax free and has to buy annuity from Bharti Axa Life or from any other life insurance company and enjoy a monthly pension.

Speaking about the future child protection product Bright Stars Power Plus, Meehan said it has evolved out of couple of other offerings.

He said the new child protection plan is unique as it builds savings for the child's key life stages and provides the family a triple benefit of sum assured, waiver of premium, and annual income support in case something ill-timed were to happen.

Life insurance IPO a distant vision

Domestic life insurance firms are in no hurry to hit the market with their initial public offerings (IPOs) even if the manager announces the guidelines now, according to a research report by HSBC.
According to the report, the hitches — such as limits on foreign direct venture, a 10-year track record and the absence of IPO guidelines — that have prevented floats by domestic life insurers will be removed this year.
However, it believes “only a brave Indian insurer” will come out with an IPO now, given the impact of the new regulations on unit-linked insurance plans (Ulips) and the pending direct tax code (DTC) bill.
New policy sales by private firms have fallen 20.78 per cent to 88,45,283 till the end of January this economic from 1,11,65,771 a year ago.
The refuse in the sale of individual regular premium policies was sharper at 22.7 per cent — from 1,05,67,140 to 81,68,782. “New business margins are also under pressure given the burden of fee and surrender penalty caps in Ulips,” the report said.
Following the new guidelines, the share of unit-linked business to total policy sales came down to 48 per cent from 52 per cent before September 2010.
Though the premium income (of private players) from new policy sales during April-January rose 5.84 per cent year-on-year, it came on the back of a steep increase in the premium rates of Ulips.
“Some insurers have started offering more guarantees on unit-linked products (such as NAV guarantee, capital protection) as they are not subject to Irda cap on charges and are hence high-margin business,” the report said.
“Insurers have also tried to tap conventional products that are also not subject to caps on charges and fees. However, it will be difficult for private insurers to compete on profitability because the Life Insurance Corporation of India is able to fund higher policyholder participation rate with free reserves accumulated over past generations.”
The DTC, if implemented unchanged in March 2012, could result in a collapse in sales and significantly lower earning for the life insurance sector.
The current DTC proposal will strip Ulips of all tax advantages and also does not provide relief to existing Ulips.
The latest published draft proposals for DTC provide for only Rs 50,000 tax deduction for life insurance premium, medical insurance premium and tuition fees taken together compared with Rs 1 lakh available for deduction now. Besides, the insurers’ corporate tax liability will also increase to 30 per cent from 14 per cent.
R. Krishnamurthy, former managing director of SBI Life Insurance Company and the present MD (distribution channel) of Towers Watson, had said, “Many domestic promoters of life insurers will be in a dilemma because these changes will put capital strain and promoters having non-financial sector as core business will find it difficult to pump in money in their insurance venture.”

Irda wants life insurers to face 10% stake sale restriction

Life insurance companies will not be allowed to dilute more than 10 per cent stake through initial public offers (IPOs).
The Insurance Regulatory & Development Authority (Irda) is set to cap the stake dilution by life insurers in the first three years of listing. The market regulator, the Securities & Exchange Board of India (Sebi), mandates that 25 per cent shares of a listed company should be detained by the public. Irda is in talks with Sebi to waive this rule.
Private life insurers such as Reliance Life, ICICI Prudential, HDFC Life and SBI Life have expressed interest in tapping the capital markets. The massive valuations of life insurance companies are said to be the main reason for the move, according to a source with direct knowledge of the matter.
“At present, the market value of all life insurance companies if they dilute 25 per cent stake is estimated around Rs 60,000 crore. It will be very hard for the market to absorb such a huge amount. So, there must be a cap on the extent of stake dilution,” said the source.
However, details regarding the extent of the dilution by joint project partners could be left to the companies. “There are a lot of issues involved with shareholding agreements in joint ventures. Ideally, regulators would like to stay away from them. It is still being debated, but will vary on a case-to-case basis,” an Irda official told Business Standard on condition of anonymity. He added the regulator would, however, prefer domestic companies to hold the majority stake.
At present, most of the 22 private life insurers have foreign partners. The Insurance Act caps foreign direct investment at 26 per cent.
Irda is likely to release the IPO guidelines within the next 30-45 days.
According to Irda data, during the first nine months of the financial year, the new business premium income of life insurance companies stood at Rs 86,699 crore. The private life insurers accounted for around 29 per cent of this.
Irda may also allow companies operational for seven years to tap the capital market. The present norms mandate at least 10 years of operations.
Irda may also allow companies which have not registered profit for the past three consecutive years to float a public issue. “According to the disclosure norms, it will be mandatory for insurance companies to declare the profitability of individual products in balance sheets. This apart, they have to disclose their balance sheets, premiums, commission expenses, operating expenses, on annual, half-yearly and quarterly basis. This will help investors take informed decisions,” said the Irda official.

Royal Sundaram, Reliance division to re-apply for merger

Move necessitated by Irda’s draft rule for non-life M&As.

In light of the proposed merger and acquisition (M&A) guidelines for non-life insurance firms, general insurers Royal Sundaram and Reliance General, which had applied for a merger in July 2010 and were awaiting the regulator’s permission, will have to file their application afresh.

Last week, the Insurance Regulatory and Development Authority (Irda) laid down the draft guidelines for M&As among non-life insurance companies. It has invited comments by February 22, after which it will come up with the final guidelines. When the two companies applied, there were no guidelines for general insurers. As a result, they had to follow the norms applicable to life insurance companies.
“There were no merger-exact norms in the non-life space when the two companies applied. Since they have not got an approval from the regulator, they will have to re-file the application,” said a senior Irda official.
Apart from issues of taxation and valuation and the projected revenue of the merged entity, the draft guidelines put up by the regulator look into reinsurance strategies, protection and maintenance of reinsurance assets and key contracts and policyholders’ interests.
Both companies submitted the proposal for merger in July last year.
Royal Sundaram Alliance Managing Director Ajay Bimbhet said the company’s policy did not allow him to comment on the matter. Reliance General could not be reached for comment.
Reliance General has been scaling down business for some time. Even as the industry posted 24(%) per cent growth, Reliance General registered a loss of 22(%) per cent in gross written premium income during the nine months ended December.
According to the proposal, the UK-based RSA group was expected to have a 26(%) per cent stake in Reliance General, the fourth-largest private general insurer. As of now, Reliance Capital owns 100(%) per cent stake in the company. South-based Sundaram group, which holds 74(%) per cent in Royal Sundaram General Insurance, was likely to exit through this merger.
As of now, the deal has hit a roadblock. Sources close to the development say the companies have not reached an agreement regarding the valuation.

Plan a wonderful cover for your wedding day

Its plain unpromising. The mere thought is irreverent. Most people do not expect anything even remotely unpleasant to occur on the big day of their lives. After all, nothing can possibly go wrong when it comes to your very own band, baaja and baarat!

But we all know that disaster strikes without warning and that is the reason why you need to be sure that in case of any unexpected situation, at least the investments made in weddings are secure. According to estimates, the size of the wedding industry is approximately between Rs 1, 90,000 crore and Rs 2, 25,000 crore. Says Anita Singh, a wedding planner, “Nowadays, weddings can cost anywhere between `10 lakh to right up to even a crore.” And, if you are spending a major part of your life savings on this one event, you would definitely welcome security. And, wedding insurance is one such product that can help you insulate the losses, if the need arises.

WHAT DOES IT OFFER?

Most of the companies sell wedding insurance as a part of event insurance. The policy broadly covers personal accident, postponement or cancellation of the wedding and the damage of the property at the wedding venue. However, these policies can be customised according to your needs. So, if you are little wary of the kind of food that you have been eating before the wedding and you see it as a risk, then you can add food poison in the cover.

Also, if any of the close relatives of the bride or the bridegroom are unwell and there is a possibility that the event could get cancelled or postponed because of their accidental death, then you can buy a cover for that as well. You can also ask for a cover against burglary of jewellery, or the event getting cancelled as either the bride or the bridegroom is unable to reach the venue on time. If the wedding gets postponed/cancelled due to damage to marriage halls, then fret not, as that can also be insured. Even a terror attack is another risk that is now covered.

WHAT’S NOT COVERED

Any wedding that is cancelled due to a dispute between the marriage parties will not be covered. However, some policies do cover cancellations if the groom does not turn up due to unpaid dowry. Also, if you have any last-minute doubts and get cold feet on your big day, then don’t expect the insurer to pick up the bill. Insurance companies also do not cover willful negligence and criminal misconduct. Most importantly, you need to read the fine print very carefully as the terms and conditions vary depending on the insurance provider.

THE MONEY TANGLE

Bajaj Allianz offers four fixed options for the sum insured — Rs 20 lakh, Rs 35 lakh, Rs 58 lakh and Rs 73 lakh. The premiums for these are Rs 2,252, Rs 4,004, Rs 6,232 and Rs 8,273 (including service tax), respectively. However, the other companies generally provide a customised cover, so “premium rates broadly vary from 0.75% -1.5% of the total sum insured, depending upon various risk parameters like safety and security arrangements at the venue, geographical area, risk management or contingency plan etc.

Ulips | Regulatory changes

In India, minority are insured; out of which about 50% people buy insurance for the income-tax remission on insurance premiums in the annual tax statement and the exemption of maturity value of insurance policies from tax
Unit-linked insurance plans (Ulips) have gained enormous popularity in life insurance segment in the current decade. According to statistics, the total new business premium generated from Ulip sales for the year ended March 2009 was Rs447 billion, or 55% of total new business, as per reports of the Insurance Regulatory and Development Authority (Irda). This has grown to about Rs60, 000 crore in the latest year. Private life companies generate over 90% of their business from single and regular premium Ulips.
Irda has brought vast changes concerning Ulips since June’10 forcing life insurance companies to completely rework their Ulip strategies. Since September’10, Insurance companies have been required to re-launch their Ulips.
Reasons for regulatory changes
Three main reasons for application of several restrictions on Ulips:
1. Due to the tax benefits discussed above customers have bought Ulips as short-term investment without serious intention to continue the policy until the final maturity date.
According to Irda, the lapse rate on Ulips was 26% in FY06 (which continued to increase), and the 13-month persistency level of Ulips has significantly trailed the traditional plans. The low level of life cover embedded in Ulips and the ease of exit had contributed to an unhealthy growth in lapsation.
2. The regulator considered that the low persistency has been encouraged by the insurers because they gained from surrender charges, which have been as high as 70-90%. Thus the “profits” earned by shareholders from the surrender charges have fuelled aggressive distribution of Ulips, forming a vicious circle.
3. Ulip distributors have not made honest effort to develop a long-term relationship with customers or make a needs-based analysis of their insurance needs. This has not made customers recognize that insurance policy is an instrument of long-term protection and growth.
In August’09, the securities market regulator issued a directive requiring asset management companies not to deduct any distribution and other charges from the investment amount of customers on mutual fund schemes with a view to encouraging retail participation. This “no entry load structure” has led to a drastic reduction in the commission earning of mutual fund distributors, thus these agents promoted sale of Ulips which fetched attractive commission.