Life insurance companies in a reply to the notices issued by the market regulator said that unit linked insurance plans (ULIPs) come under Insurance Act.
SEBI issued notices to life insurers last months saying that ULIPs are collective investment scheme and why they have not asked for SEBI’s approval before launching the product. SEBI said the structure of ULIPs are similar to that of mutual funds and are in the nature of collective investment schemes, which come under its purview.
In response, life insurers said they were selling ULIPs, which had been approved under section 2(11) of Insurance Act. They said that law allowed ULIPs to be part of insurance. They also said insurance was explicitly excluded from the collective investment scheme of SEBI under the Act. The Insurance Regulatory and Development Authority (IRDA) has already objected with the SEBI on the issue of show cause notice. IRDA quoted SCRA (Securities Contract Regulation Act) and said Ulips were neither securities not securities-related transactions under the law. IRDA questioned the market regulator’s notices to insurers on conceptual, legal and structural grounds.
The background: Last month, SEBI had sent a show-cause notice to all life insurance companies asking why they hadn’t taken its approval before launching ULIPs.
What is ULIP: ULIP is life insurance solution that provides for the benefits of protection and flexibility in investment. Part of the premium you pay goes towards the sum assured (amount you get in a life insurance policy) and the balance will be invested in whichever investments you desire – equity, fixed-return or a mixture of both.
The issue: SEBI wants to regulate ULIPs as this is collective investment scheme and according to SEBI any such schemes come under the purview of SEBI.
What SEBI is saying: According to section 12(1B) of SEBI Act 1992 “No person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment schemes including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the regulations”. So SEBI sent notice to all life insurance companies asking why they haven’t took its approval before launching ULIPs.
ULIPs are collective investment scheme and it involves management of funds, SEBI is telling it has role in protecting the interest of investors. Section 11AA of SEBI Act defines a collective investment scheme as any scheme or arrangement offered by a company under which payments made by investors are pooled and utilized to receive profit, income, produce or property, and is managed on behalf of the investors.
SEBI wants regulatory control over ULIP products.
What IRDA is saying: Section 11AA 3 iii mentions that any scheme or arrangement being a contract of insurance, to which the Insurance Act applies, is not included under the definition of a collective investment scheme. ULIPs provide mortality benefits along with returns on investments, thus the product should continue to remain under the insurance regulator’s jurisdiction.
ULIPs are being sold by companies from last 10 years and are licensed by IRDA. The insurance regulator said the road map for regulation of ULIPS by IRDA was “well laid down, and settled,” and there was “no merit” in the contention that insurers must obtain a certificate of registration from the SEBI for selling these products. ULIPs are distinct from mutual funds.
ULIPs are IRDA property and under no circumstances it is going to give regulatory power to SEBI.
Why this happened: Life insurers have emerged as the biggest institutional investors in the equity markets. The value of equity assets under the life insurance industry was Rs4.15 trillion at the end of December. A major portion of ULIP’s premium, sometime 100%, goes into the equity market.
Travel Medical Insurance is a form of insurance coverage that provides medical cover while abroad and reimburses you for any emergency medical expenses incurred when you are traveling or living in a foreign country.
Why do you need this?
When you travel international be it for business or pleasure, it involves risk. Medical treatment abroad can be expensive and you never know when you would require it. When you are on a vacation or on business travel, you travel with limited budget. And you travel to places where you might face with an accident. If this happens it will come big on your pocket. Medicare and most domestic health insurance plans do not offer the required protection while one is overseas in a foreign country.
Travel medical insurance gives you coverage against any such risks. This also covers risk from any adventure sports for just a nominal additional premium.
When you hop job you are no longer remain covered under group mediclaim policy. You cannot guarantee that you won’t get sick or meet any accident during your transition period but this should not affect you adversely.
How to avoid any major financial loss on healthcare when you are hopping job or retiring? The only solution come to mind is you should have your own individual health insurance policy. If you were not having any individual policy before you will lose on the part of waiting period for covering certain ailments. You remained healthy life when you were covered under group policy and this should be rewarded when you take out any individual policy.
Both private and public sector general insurers have started offering continuity of features of group mediclaim policies to employees even after one quits an organization where the cover was originally offered. But this policy will no longer remain a group health policy. So when you are hopping job inform your insurance company and ask them to arrange for individual policy.
Of course premium will be higher what you were paying in when covered under group policy but features like inclusion of pre-existing diseases and continuity clauses remain with the policy while waiting periods for covering certain ailments are waived. However, maternity cover will not be extended when it converted into an individual policy.
People retiring can also continue to avail of the facilities of the group health policies.
All the four in public sector general insurance and ICICI Lombard & Bajaj Allianz in private sector are offering these facilities.
Come April and you may get the freedom to change your health insurance provider, according to the new guidelines being prepared by the industry in tandem with the sector regulator.
Companies are working on the norms for portability and final draft is soon expected to hit the floor at IRDA. Under the existing regulations, if a consumer is dissatisfied with a service provider he will have to buy a new policy from the firm of his choice. However, he will lose the benefits on his existing policy, most importantly the pre-existing illness cover. In the case of new health policies, existing illnesses are not covered for initial few years, and companies charge a heavy premium for waiving this off. Policy continuity is therefore important in the case of health insurance.
With the portability norms customers can choose and pick the best service provider without losing continuity benefit and pre-existing illness cover. But the facility can be availed only in the case of similar products, in similar age groups having similar premiums across service providers, as the regulations suggest.
General insurers and the General Insurance Council had sent a draft of the guidelines for consideration of IRDA some time ago and are now giving it finishing touches in line with directions from the regulator. Portability or changing service provider would not attract any additional fee or charge. Portability criterion would include parameters such as age, premium charged for products offering coverage up to Rs 1 lakh, a person involved in the process.
Non-life insurance sector has not developed much since the opening up of market here in India a decade ago. It is still in nascent stage. Penetration as a percentage of GDP remains stagnant at 0.6%1.
Indian non-life insurance market has not experienced any product innovation. Even the de-tariff of motor insurance couldn’t contribute much to the growth. Premium calculations for motor insurance is still based on pre de-tariff formula. Industry has not efficiently involved actuaries in the pricing of products.
Government is mulling to take some steps in the wake of improving the penetration. These steps may include recapitalizing of public sector insurance companies and introduction of some saving linked risk covers/longer dated risk covers.
One of the major reason preventing the penetration is requirement of large capital base. As per current IRDA regulations, an insurer has to maintain 150% of solvency margin. With the inflow of capital from government will help in improving the situation of public sector insurer, we expect that it should also think on increasing the FDI limit on insurance sector to 49%.
Also idea is floating that government will allow both public and private sector insurers to raise capital in the form of long-term subordinated/perpetual bonds, albeit without any sovereign backing.
We think the sector needs much more from the government apart from just some capital infusion. People should be informed and educated with the benefits of insurances. Government should help in promoting insurance in rural sector, may be through some campaign or incentives to insurance companies, or may be opening single office in rural areas, giving infrastructure support to insurers, where different insurers will be allowed to sell their products. Making aware of mukhiya/surpunch with the concept of micro insurance and ask them to encourage inhabitants to go for insurance.
An organic effort is needed to increase the penetration of non-life insurance.
The decision about whether you need life insurance was made for you the day someone else starting depending on you for financial support. While the idea of premature death is scary, neither shopping for life insurance nor the premium you pay should be scary. Consider the following five money-saving ideas:
The earlier, the better — The sooner you identify the need for and purchase life insurance coverage the better. Why? The chances of a younger, healthier person dying are not as great as older, less healthy people. Life insurance companies historically offer their most favorable rates and coverage limits to people who fit this description. The earlier the better – it’s never cheaper to buy a life insurance policy than it is today.
Know the purpose of your policy — There are many different forms of life insurance that offer many different benefits. Some are complex, for example combining a death benefit with savings and other investment vehicles that accumulate cash value. Others are simple, such as a “Term Life” policy with a death benefit (e.g. 20-year term for Rs.30 lakh benefit). While the idea of a fancier policy may sound good, a less expensive term life policy may be more affordable to help you achieve financial security for your family.
Ask your employer for group insurance policy — Check whether your employer has taken out group policy or not. If offered, an employer-sponsored group plan is an excellent way to purchase higher coverage amounts for a significantly lower premium.
Comparison shop — There are many life insurance companies that would like to provide you a policy. Get quotes to three or more companies and let them duke it out for your business. May the best and lowest policy win!
Riskier the life, higher the premium — People who are careful drivers qualify for better motor insurance rates. Similarly, people who live a low-risk lifestyle qualify for better life insurance rates. Maintaining a healthy lifestyle is a fun, easy way to keep costs down.
AEGON Religare Life Insurance in a press released said that it has infused an additional capital of Rs.85 crore into its business. This fiscal so far, the company has infused Rs.250 crore into its business and its current capital base is Rs.550 crore, the release said. The funds will be used to build up the company’s distribution network to support business growth.
Last month Aditya Birla Nuvo unveiled its plan to infuse additional capital of Rs.800 crore in its life insurance arm, Birla Sun Life Insurance (BSLI), by the end of next financial year. In this financial year, the company has infused Rs.200 crore till date, taking the current capital base of BSLI to Rs.2100 crore. Of the Rs.800 crore, the company is planning to pump in Rs.400 crore into BSLI in the current quarter depending on growth, said a top company executive to The Economic Times.
In news last month Future Generali India Life Insurance Company showed its intention to infuse in excess of Rs.150 crore in the business to support the aggressive growth in premium income in the current financial year. The current capital base of the company stands at Rs.667 crore but to match its premium growth promoters call-in to infuse additional capital.
If the main reason you want life insurance is to protect your family from debt in the event of your death, then term life insurance is for you. It is commonly referred to as “pure insurance protection,” because it doesn’t have a cash value feature like ULIP or endowment insurance. Term life insurance provides coverage at a fixed rate of payment for a limited period of time and is set to expire after the agreed period. The named beneficiaries receive a death benefit upon the death of the insured while he or she is covered.
How much term cover do you need?
There are many factors that should be sorted through when deciding on what kind of coverage to get. Short-term debt, long-term debt, mortgages, outstanding loans and any other financial obligations should be taken into account when making the decision. At least you should take out term cover of 10-15 times of your annual salary.
After you purchase a term life insurance policy, be sure to give it a yearly check-up. Keep your eyes open for the same kinds of products and services at other life insurance companies, because not all companies charge the same amounts. And as always, be sure to read and understand everything before signing it, there may be clauses or fine print that adds hidden-fees.
Another thing to consider as time goes on is how much life insurance you still need. If you purchased life insurance when your children were considered dependents, and they are now grown-up with families of their own, you may be able to save yourself a lot of money by reconsidering your current financial needs. In fact, you might be able to scale back the amount of coverage you have, which will help you save you money.
Determining what’s best
While term life insurance may be good for some, for those who want to build interest and cash value, a type of insurance called ULIP is available. The perk of ULIP is that you can change your death benefit and premium payments over time. The economy dictates what kind of interest you accrue, because you invest your cash value in stocks and bonds.
Larsen & Toubro (L&T) is gearing up to enter the general insurance business and Religare plans to voyage solo in health insurance business.
L&T in association with European Aeronautic Defence and Space Company (EADS) is working out to enter general insurance business. L&T will hold 74% in the joint venture while the remaining 26% will be hold by EADS. SBI General was the latest to get R3 license from IRDA in December ’09.
Post de-tariff regime, general insurance market has experienced a price war. Every insurer was giving high discounts to get hold in the market. Prices have gone down sharply but now the market needs some innovative products and better services.
In the other development Religare plans to enter solo in the health insurance business. In June ’09 it signed a non-binding term sheet with Swiss Re to set up health insurance joint venture, but three months later the two parted. Religare was looking for another partner since then but now evaluating the option of going alone. The company may soon apply for R1, R2 & R3 license with IRDA, commented its CEO. Health insurance market is expanding and there lies too much potential of growth so Religare would not like to miss the train.
Religare is doing life insurance business with Bennett, Coleman & Co. Ltd. (BCCL) andAEGON, a Dutch insurer. In the joint venture Religare holds 44%, BCCL 30% and AEGON 26%. iTerm plan, online term insurance plan, from AEGON Religare Life Insurance became a recent hit in the market.
