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.

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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