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Monthly Archives: December 2009

Health plus Life Combi Products

Posted on December 24, 2009 by
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The Insurance Regulatory and Development Authority (IRDA) released the guidelines for insurers to bring out Health plus Life Combi Products through a tie-up between a life insurer and non-life insurer.

Health plus Life Combi Product is a policy that would provide life cover along with health insurance to policyholder. Combi Products will be the combination Pure Term Life Insurance cover offered by life insurance companies and Health Insurance cover offered by non-life companies exclusively providing sickness benefits or medical, surgical or hospital expense benefits, whether in-patient or out-patient, on an indemnity or reimbursement basis.

So what this product is aiming at? Authority believes that this product class will enhances the penetration of personal lines of insurance business and give policyholders a wider choice of product. Also the proposed product innovation is expected to facilitate policyholders to choose an integrated product of their choice under a single roof without shopping around the market for two different insurance coverages from two different insurers. And the Combi Product is expected to come at lower price than the two separate products with same features and coverage from two different insurers. The product will come with the option to discontinue either portion of risk while continuing with the other option. For any claim under this product policyholder only need to deal with the lead insurer and rest is taken care by them.

But before coming out with any such kind of product it is mandatory for the insurance companies offering the ‘Combi Product’ to have in place a Memorandum of Understanding covering the modus operandi of marketing, policy service and sharing of common expenses. Also the tie-up need to obtain a prior approval of IRDA by duly filing the copy of the agreement entered in this regard. All in all it is going to take some time for this product to hit the market, let’s see how warmly market welcomes this.

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Should Indian regulator allow bank to tie-up with multiple insurers?

Posted on December 23, 2009 by
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The Insurance Regulatory and Development Authority (IRDA) has formed a committee to look into bancassurance model and give its suggestions to the authority on relaxing the current norm of agency tie-up with only one insurer. Govardhan Committee, the said committee, is due to submit it reports on its findings. Though not confirmed but news going in the market is that committee is positive with the bank tying-up with multiple insurers. Non-bank insurance venture would be happy if this come into effect as they too want to utilize strong network of other bank insurance ventures. But will it help customers or affect them adversely?

This type of arrangement is called open architecture model where a bank can sell products of more than one insurer, some time compulsorily imposed by regulator or bank wants to cater the need of their customers. The two other types of bancassurance models are integrated model and non-integrated model. Integrated model is the one where regulation allows a high level integration of banking and insurance activities and in particular does not prevent the sale of life insurance and pensions products by branch staff or the exchange of customer data between a bank and an insurance company. In non-integrated model bank staffs are not allowed to perform sale of life insurance products. A formally trained financial advisor is employed by bank to sell regulated life insurance products. Regulation or tax treatment does not allow a close integration of banking and insurance activities.

Open architecture model could be good based on the need of origination, whether the bank want to serve its customer better or insurer has asked them to sell. If latter is the case then it can be clearly deduced that bank will sell only if they get better commissions and that would be arrived after biding from the insurers. Here, in India, insurer need bank and not the vice versa as nationalized banks are very well placed. Irda panel is mooting to allow bank to sell insurance products of two life, two non-life and two health insurance companies. Means bank would be restricted to sell no more than two company’s product in each segment. So banks either sell insurance policies of their insurance subsidiaries or promote products of insurers which give them higher commission. And the insurer will surely not bear this high cost of acquisition and will pass it on to the customers. Mis-selling would be one of the major drawbacks of this open architecture model as sales are based more on branch staff’s sales objective than on an analysis of the client’s need. Client will mostly be sold high paying commission products.

The only benefit that customer will have is, if he do due diligence, he can get range of product to compare and to buy but that too is limited only to two company’s product.

Whether customers get the benefit or not insurers and banks will surely reap the benefit by increased sales and high commissions.

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