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.

Aviva Life targets 20% growth in new sales

Aviva Life Insurance is bracing up for 15-20 per cent growth in new business sales in the second half of this financial year as insurance companies have begun to register growth after reporting decline in sales during April–September 2011.

“We registered 25 per cent year-on-year growth in September 2011. Growth is back as the industry is stabilising now. It is also because of the low base effect,” said T R Ramachandran, chief executive officer, Aviva Life Insurance.

The life insurance industry has been hit badly since September 1, 2010, when the new unit-linked insurance plan (Ulip) norms came into effect. With new norms in place, insurance schemes in the market became redundant and insurers had to re-launch Ulips. Agent commission also fell by half and many agents stopped selling Ulips.

Ulip sales were impacted. For Aviva Life, prior to September 1, 2010, Ulips accounted for 80 per cent of overall sales that has now fallen to 55 per cent. The insurer expects it fall further to 50 per cent.

To increase its distribution channel and raise addition capital, Aviva Life Insurance is in talks with Syndicate Bank to divest equity stakes.

Confirming the move Ramachandran said, “Discussions are in preliminary stage right now. We have made a presentation to Syndicate Bank. Talks are on.” He did not divulge the percentage of equity Aviva is willing to divest.

Aviva Life insurance is a joint venture between Dabur and UK’s Aviva, holding 74 per cent and 26 per cent stake, respectively.

Many life insurance companies are trying sell a part of their equity in their of long-term distribution partnership. Recently, MetLife sold 30 per cent equity to Punjab National Bank and Max New York Life Insurance sold 4 per cent stake to Axis Bank. More companies, such as Reliance Life Insurance and DLF Pramerica, are trying to divest stakes for bancassurance partnerships.

Aviva Life is also looking forward to open architecture, where banks will be allowed to sell products of more than one insurance company.

The Insurance Regulatory and Development Authority (Irda) had set up a committee to look into open architecture. The committee recommended banks should be allowed to tie up with two insurance companies. At present, regulator is studying recommendations but is yet to take a final call. “Open architecture is good for both the insurance industry and the customer. If open architecture is allowed, then, customers will have more choices,” said Ramachandran.

Bancassurance channel accounts for about 25-30 per cent of new business sales for the insurance industry.

Aviva Life Insurance may sell 30% stake to Syndicate Bank

Aviva Life Insurance, the local unit of the UK insurer, may sell as much as 30% stake to state-run lender Syndicate Bank to raise its fortunes in a competitive market.

Consumer goods maker Dabur India owns 74% stake in the insurer while Aviva Group owns the rest.

Mohit Burman, director of FMCG major Dabur Group, confirmed that talks are on. "The deal is in process," he said. A board meeting will take place on Wednesday where a decision will be taken on the stake sale, he added.

"Aviva is likely to offer a discount on the face value to Syndicate Bank," said a person familiar with the negotiations.

The insurer, which started operations in May 2002, is following the established route of bancassurance - partnering with banks to sell insurance - for a wider reach.

Aviva Life Insurance has a paid-up capital of 2,004 crore. It is not clear whether the company will issue fresh shares or if the promoters will divest their stake.

Globally, Aviva is a leader in bancassurance and operates through the bank distribution channel. In India, the company sells insurance through Punjab & Sind Bank, IndusInd Bank and DBS. The insurer will certainly benefit from an association with Syndicate Bank, which has over 1,500 branches.

The company made a profit of 29 crore in 2010-11. It had collected 2,345 crore of premium in the last financial year. Total assets under management stood at 7,654 crore. With market share of a little over 1%, Aviva is looking at a bank partner to boost income.

Syndicate Bank had short-listed a dozen insurers for its brownfield foray into life insurance. Ernst & Young is helping Syndicate in the deal.

According to a report by the Insurance Regulatory and Development Authority (Irda), premium collected through bancassurance amounted to 21,947 crore in 2009-10, which is 7.31% of the total premium income of life and non-life insurance sectors.

The Irda report said the discount in valuations offered by insurers to banks has to be treated as commission over a period time. This is expected to affect the deals under way.

There are 17 banks with shareholding in insurance companies. Although banks have entered into pacts to sell policies of insurance companies, insurers have not been able to fully utilise the potential of banks. Of the 80,000 bank branches in the country, just 7,000 are selling insurance.

Many insurers are willing to sell equity to banks which would give them wider reach. Recently, MetLife sold 30% to Punjab National Bank. Earlier, Max New York Life had sold 4% stake to Axis Bank.

3 new products launched by Aviva Life Insurance

Three new products are launched by the private insurer Aviva Life Insurance which includes two unit-linked insurance plans (or as we all call them, ULIPs).

The company says -
"... The two ULIP plans -- Aviva Freedom Life Advantage, Aviva Life Saver Advantage -- offer enhanced value to the customers and meet the new ULIP guidelines".

The third product - Aviva Life Shield Advantage - promises a return on the premium, with optional protection against disease and disability as well.

These products are in accordance with the new IRDA guidelines, as the commission paid to distributors and expenses charged by insurers will not be front-loaded and will be distributed over the lock-in period of the schemes, which has been raised to five years from three years (earlier).

A little about the Company –
Aviva Life Insurance is a joint venture between Dabur Group (74 %) and UK-based Aviva Group (26%).

Non-bank promoted life insurers frights go down in biz

The business of non-bank promoted life insurance companies is probable to be most hit by the new IRDA regulations mandating insurers to consistently distribute unit-linked insurance policy (ULIP) charges over 5 years.
This is because insurance companies will have to option to cutting down distributor commissions, which could decrease the motivation of individual agents to sell ULIPs. While most of the big banks have their own insurance companies, these players do not have big banks as banc assurance partners to sell their policies.
“The new changes may quick part-time agents, who constitute almost 70(%) per cent of the industry's agency force, to stop selling ULIPs. Even corporate agents totally selling insurance may stop doing so. Banks will continue to sell the products because for them it is not a core action. With the new guidelines, around 40-50(%) per cent of the business is at risk,” said Mr V. Srinivasan, Chief Financial Officer, Bharti Axa Life Insurance.
While 20-25(%) per cent of the industry's business comes through the bancassurance route, 50(%) per cent comes from the agency channel, with the remaining coming via corporate agents, brokers and direct marketing.
“First year commissions are going to come downward by 20-40(%) per cent. It will not be as lucrative for agents to sell as before. They will have to look at volumes rather than commission,” said Mr T.R Ramachandran, Chief Executive Officer and Managing Director, Aviva Life Insurance.
The commission structure cannot maintain an agent's income and because of this the agency channel will suffer badly, said Mr Kamesh Goyal, Country Manager and CEO, Bajaj Allianz Life Insurance.
Non-bank promoted companies rely more on the agency channel and tie-ups with corporate agents, brokers and direct marketing channels for distribution. This is because with most of the big banks setting up their own insurance companies, life insurance companies had to look for other distribution channels. According to the Insurance Regulatory and Development Authority regulations, banks can sell policies of only one life and non-life insurer. IRDA had set up a group to explore the option of leasing banks sell policies of multiple insurers. The final report is still awaited.
Companies are hoping that the insurance regulator will soon allow banks to sell policies of multiple insurers. “There is a case for open architecture. Now that all the charges are capped and products have become transparent, it will become simpler for banks to sell products of different insurers,” said Mr Ramachandran.
Aviva Life, being one of the earlier entrants has a strong bancassurance channel with tie-ups with banks like IndusInd Bank, Punjab and Sind Bank and DBS. The bancassurance channel contributes around 50(%) per cent of the total business for the company.
“This is the appropriate time for the banking sector to be opened up. For second generation entrants, there are no banks left to tie up with. The existing players who have a bancassurance tie-up are in a beneficial position while putting late entrants like Bharti Axa at a disadvantageous position”, said Mr Srinivasan.

Life insurers deployed Rs 3,941 cr in FY10

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

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

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

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

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

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

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

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

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

BoR contract to provide a raise to insurance arms of ICICI

ICICI Bank’s proposed acquisition of Bank of Rajasthan will expand the distribution reach of ICICI Prudential Life Insurance and ICICI Lombard General Insurance — subsidiary of ICICI Bank.

Shares of ICICI Bank fell by 7% per cent on Wednesday, as investors nervous that the bank had overpaid for acquiring Bank of Rajasthan. On Monday, the bank had indicated an exchange ratio which reflected an 89% premium on Bank of Rajasthan’s market price. Bank of Rajasthan’s price rose 20% to Rs 119.

Bank of Rajasthan presently distributes insurance products for Aviva Life Insurance and United India Insurance. Existing guidelines of the Insurance Regulatory and Development Authority (Irda) do not permit a bank to distribute products of more than one life insurance and one general insurance company.

According to industry sources, the loss of Bank of Rajasthan as a sharing partner will not make a significant dent on the sales of Aviva. Unlike the new generation private banks which have a big wealth management team that is active in selling thirdparty products, BoR sales were more in the form of referrals.

This is the second time that Aviva is losing a bancassurance partner, following an M&A activity. Earlier the insurance firm, which had partnered Centurion Bank of Punjab, lost a big chunk of business after the HDFC Bank-CBoP merger. “Bank of Rajasthan’s distribution capabilities are no where close to that of the erstwhile CBoP and it is unlikely that Aviva will be affected,” said an industry official.

For ICICI Bank, however, BoR provides a significant distribution opportunity. The old generation private bank has close to 500 branches and a large number of savings accounts. “Going by what happened in Bank of Madura (another old generation private banks acquired by ICICI Bank), I expect that BoR will be completely included into ICICI Bank’s IT network soon,” said a banker on condition of anonymity.

There is a proposal with Irda to allow banks to distribute products of multiple companies. However, insurance companies say even if there is a relaxation, banks may be allowed to sell policies of 2-3 life companies.

“It is unlikely that banks will be allowed become a virtual broking firm, offering products of all companies as it would be very difficult for employees to understand the features of so many products,” said a banker.

Bajaj Allianz ties up with Dena Bank for product sharing

Private sector insurer Bajaj Allianz Life Insurance these days signed an agreement with public sector lender Dena Bank for the sharing of an insurance product.

A joint statement said. As per the agreement Dena Bank will allocate Bajaj Allianz Life Insurance's group life insurance product 'Sarva Shakti Suraksha' through the branches.

Dena Bank General Manager M K Sharma said this tie up will allow the bank to offer a low cost financial product, suitable to a large segment of the population which can't afford insurance.

He said. It is a part of the measures being taken by the bank towards the process of financial inclusion.

Aviva introduces premium payment alternative through phone

Private sector insurer Aviva Life Insurance on Tuesday launched a facility which would allow customers to pay premium through phone.
Aviva has included its system wherein a customer can make premium payment by using the credit card and feeding in the important details of their Insurance Policy, the insurer said in a statement.
It said. The payment process confirms the transaction in words and sends a SMS confirmation to the customer’s mobile number.
It said. The increasing telephone and credit card penetration allows the company to provide increased convenience to customers.