To go for a rider or a cover

While riders come cheap, stand-alone policies provide comprehensive insurance

When Ashish Patkar wanted to buy an accidental death-benefit policy, he had the option to do so from a life insurer or a general one.

While the former offered it as a rider or extra benefit along with the base policy, the latter was selling it as a separate policy. As Patkar found, there are differences in the coverage and premium offered by the two. However, critical illness is a benefit common to both.

SOME DECIDING FACTORS

Riders cheaper than stand-alone policies Premiums for critical illness based on age and medical history Riders offer limited benefits compared to stand-alone policies Riders get discontinued when polices lapse or are surrendered

Riders cost less than standalone policies. It would cost Patkar just Rs 450 annually for buying an accidental death rider, offering a sum assured of Rs 5 lakh for 10 years. However, the same from a general insurer would cost him an annual Rs 3,000 for 5 years.

“Riders from life insurers do not have any expense loading on the rider premium as the same has already been claimed for the base policy. However, expense loading is charged separately in a standalone policy, making it expensive,” says, Rajeev Kumar, vice-president (products & pricing), Bharti Axa Life Insurance.

In case of critical illness riders and policies, age is a deciding factor for the premium you end up paying. “Those in the lower age group, or, with a clean medical history can buy it cheaper. However, even here, a rider will cost you less than a standalone policy,” says, Abhishek Bondia, business head, Secure Now Insurance Broker.

So, for a 25-year-old, when bought from a non-life insurer, a critical illness cover for five years will cost Rs 2,534 for coverage of Rs 5 lakh. In contrast, the same bought as a rider will cost Rs 1,355 for a period of 10 years.

Also, premiums for riders remain constant for the full term of the policy, unless specifically mentioned in the contract. Most non-life insurers offer polices on an annual, three-year, or, a maximum five-year period. So, the premium on your general insurance policy changing is likely to change more often.

According to insurance regulations, the sum assured for riders isn’t allowed to exceed that of the base plan. Also, rider premiums cannot exceed 30 per cent of the base premium.

Yet, within that, one could actually increase his/her sum assured using a rider. So, if a 35-year-old buys a policy offering a sum assured of Rs 25 lakh and also opts for an accidental death or disability rider of Rs 25 lakh, he will get Rs 50 lakh in the event of death due to an accident. This would come at an additional premium cost of about Rs 2,000 over the approximate Rs 12,000 he would pay for his base policy.

Other than cost, one also neds to look at the cover offered by a rider, as against a standalone policy. For instance, opting for an accidental death benefit comes into force only if the death has occurred due to an accident. But, the same policy from a general insurer might be more useful as it covers both partial and full disability in the event of an accident. Some life insurers have introduced a separate death and disability rider to meet the competition head on. However, even these cover just permanent partial and total disability.

In case of critical illness, both life and general insurers cover around 10 ailments. Again, product innovation has seen some life insurers introducing critical illness products covering almost 30-plus ailments. These are sold as standalone products and are rather expensive.

Both life and general insurers have mandatory medical tests only for first-time buyers of critical illness plans or riders.

But, one of the biggest disadvantages of buying a rider vis-à-vis a stand-alone policy is that riders automatically get discontinued when base policies are surrendered or lapse.

Bharti sells entire stake in insurance JVs with AXA to RIL

After nearly five years of its association, the Bharti group on Friday exited from its financial services joint ventures with French firm AXA and sold its entire 74 per cent stake in general and life insurance businesses to Mukesh Ambani-led RIL for an undisclosed amount.

“The decision is in line with the Bharti's strategy of focussing its energies and financial resources in businesses where it is making a deeper impact in India and overseas. At present, the financial services ventures do not fit into Bharti's long-term growth plans,” the company said in a statement.

The company had entered into these joint ventures with the AXA group in 2006 and held 74 per cent stake in these ventures — Bharti AXA Life Insurance and Bharti AXA General Insurance.

“It (Bharti) intends to use the proceeds from selling its interests in these joint ventures towards other group businesses in India and abroad,” it said.

Bharti, a leading telecom player, has operations in 19 countries including 16 nations in Africa where it acquired Zain Telecom's assets last year for over $10.7 billion. It has accumulated mobile subscriber base of over 190 million.

In a separate statement RIL also said the company had reached an understanding with Bharti on acquiring its entire stake in the joint venture with AXA.

“This sale is subject to necessary approvals from the Insurance Regulatory and Development Authority, the Competition Commission of India and any other relevant/applicable authorities,” Bharti said.

Bharti also said that it was in the process of offloading its stake in its joint venture with AXA for asset management.

According to the Reliance statement, RIL and its subsidiary Reliance Industrial Infrastructure (RIIL) would effectively own 57 per cent and 17 per cent, respectively, in both the insurance companies and would become AXA's joint venture partners in India.

AXA would retain its current 26 per cent shareholding and would continue to manage the day-to-day operations of both joint ventures.

According to the existing regulations, the foreign partner in the insurance sector is allowed to have a maximum stake up to 26 per cent in the joint venture.

Reliance said the proposed agreement contemplates an option by which AXA would acquire from RIL and RIIL up to 24 per cent shareholding in both the insurance companies in accordance with the applicable regulations as and when the FDI regulations permit such a holding by AXA. “Upon exercise of such an option, RIL will effectively own 45 per cent, RIIL will effectively own 5 per cent and AXA the balance 50 per cent in both the insurance companies,” the Reliance statement said. None of the three parties —Bharti, RIL and AXA — was to speak about the valuation of the 74 per cent stake held by Bharti. Sources in the industry have pegged the valuation between Rs.3,000 crore and Rs.5,000 crore. This, however, could not be confirmed. The AXA group is a worldwide leader in insurance and asset management, with 214,000 employees serving 95 million clients.

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.