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Monthly Archives: July 2010

Medical Insurers withdraw Cashless Facility

Last week Public sector insurers withdrew cashless facility on health insurance segment and now private sector insurers are also following the suit. Mediclaim policyholders entitled to cashless facilities have some bad news to hear. Insurers have removed some high end hospitals from their network including Apollo, Fortis, Ganga Ram, Max or Medicity in Delhi, the national capital region (NCR) and the metros of Mumbai, Bangalore and Chennai.

All insurance companies providing mediclaim facilities, a cashless health insurance, have stopped direct payment of treatment charges to 150-odd high-end hospitals in Delhi and NCR alone from July 1. If you now go to any of these hospitals, you will have to pay from your pocket despite having a valid mediclaim policy with all premiums paid. You will then have to reclaim the amount from the insurer with no guarantee that the entire amount would be reimbursed.

At least 18 insurers including four public insurers namely New India, Oriental, National and United India have removed more than 150 hospitals in Delhi and NCR from their designated list for the cashless facility. This facility will now be available at only 100-odd hospitals, none of them from the big chains.

Insurers have taken this step because health sector was becoming a loss making segment due to highly inflated bills by most of the hospitals. Total estimated loss is Rs 1,500 crore annually on a yearly premium collection of Rs 6,000 crore on Mediclaim policies across the country. Hospitals overcharge customers for each hospitalization irrespective of the treatment and little funds are left for their next treatment. This move is aims at controlling the habit of  hospitals to unnecessarily inflating the bills. Insurers want these hospitals to fall in line to follow their rates, lower or higher rate will applicable based on the infrastructure of the hospital.

These 18 insurance companies had so far been providing cashless services at over 3,000 hospitals pan-India. But a recent study carried out by the TPAs found that only 350 of them or roughly 11% were consuming more than 80% of the total claims.

For instance, hospitals that are part of the big chains charged Rs 58,000 on average for a gall bladder operation. Now, according to the new package deal, a hospital would be offered anywhere between Rs 30,000 and Rs 48,000 for the same. Similarly, for a cataract operation, the average payout was Rs 35,000. The new deal provides for a maximum of Rs 24,000, while it would be Rs 14,000 if the surgery is done at a smaller set-up.

L&T General Insurance to start operations soon

The latest entrant in the general insurance industry is all set to start its operations.

L&T General has been recently registered with IRDA is planning to roll out its products in a next couple of months.

The company’s chief executive told to one newspaper that they are in the process of filing their products with IRDA. It will start operations with a network of 10 branches across the country in Delhi, Mumbai, Kolkata, Pune and Coimbatore and will expand to tier-2 and tier-3 cities a year later.

The company is a joint venture between Larsen & Toubro and European Aeronautic Defence and Space Company (EADS) with L&T holding 74% in the venture.

IRDA to join RBI, SEBI to protect regulators’ autonomy

Insurance regulator (IRDA) plans to oppose the move of centre to set-up ‘super regulator’.

The government has brought in an ordinance on June 18 which sought to form a joint committee to deal with differences among the regulators.  The spark for this originated during the tug of war between the market regulator (SEBI) and IRDA over the supervision of unit linked insurance plans (ULIPs).

The matter went to the High Level Coordination Committee on Financial and Capital Markets (HLCC), but there was a stalemate between IRDA and SEBI.

The finance ministry then intervened and decided in the favor of IRDA and to avoid a similar recurrence, the government proposed to form a joint committee, to be headed by the finance minister, with two government officials and the four regulators as members. IRDA opposes the move to set-up any joint committee as it would have statutory powers and its decision would be binding on all the regulators. This will reduce the autonomy of different regulators.

RBI Governor D Subbarao on July 12 met Finance Minister Pranab Mukherjee and expressed his reservations over formation of the committee. Reports suggest SEBI has also written to the government against the formation of this panel. IRDA has not yet conveyed its stance to the ministry but the news captured in Business Standard says it is not in favor of any such committee. The fourth, the Pension Fund Regulatory & Development Authority (PFRDA), is yet to decide on its stance.

If the government does not bring a bill to this effect in the monsoon session, the ordinance will automatically lapse and the existing HLCC, headed by the RBI governor, will remain the nodal authority for coordination among the regulators.

IRDA unveiled new rules for ULIPs

IRDA has come up with new set of guidelines for ULIP products making the ULIP products more attractive to customers. The new set of guidelines has directed Life Insurers to offer ULIP products at lower costs to customers.  These guidelines are expected to bring some protection and cheer to policyholders of unit-linked insurance plans (ULIPs).

IRDA has taken another step to add more value to the policyholder and make the products more transparent.

While life insurance customers will benefit, the new rules could lead to a substantial cut in commission for insurance agents and force life insurance companies to drastically cut costs.

In order to meet the emerging needs of prospective insurance policyholders, this circular specifies following elements which shall be incorporated in all ULIPs which may be offered for sale:

  • IRDA has increased the lock-in period for all ULIPs from three years to five years now, including the top-up premiums. The decision is expected to make these products more like long-term financial instruments that can provide risk protection. Longer lock-in would also discourage those insurance buyers who often entered ULIPs, which are market-linked products, for short term gains. This move has made ULIPs a long-term investment vehicle and will increase insurer’s time horizon for the investment giving better returns to policyholders.
  • The insurers would be allowed to distribute the overall charges, in ULIPs in an even fashion during the lock-in period of five years. At present, most ULIPs deduct high charges in the first two to three years, which reduces the amount actually invested.
  • All limited premium unit linked insurance products, other than single premium products, shall have premium paying term of at least 5 years.
  • IRDA has also said that all unit linked products, other than pension and annuity products shall provide a minimum mortality cover or a health cover.
  • All top-up premiums made during the currency of the contract, except for pension/annuity products, must have insurance cover treating them as single premium.
  • All ULIP pension / annuity products shall offer a minimum guaranteed return of 4.5 per cent per annum or as specified by IRDA from time to time, on the maturity date. This guaranteed return is applicable on the maturity date, for policies where all due premiums are paid.  Mortality and / or health cover could be offered along with the pension/annuity products as riders, giving enough flexibility for the policyholders to select covers of their choice.
  • In the case of unit linked pension / annuity products, no partial withdrawal shall be allowed during the accumulation phase and the insurer shall convert the accumulated fund value into an annuity at the vesting date. However, the insured will have an option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of vesting. In the case of surrender, only a maximum of one-third of the surrender value can be commuted after the lock-in period.  The remaining amount must be used to purchase an annuity, subject to the provisions of Section 4 of Insurance Act, 1938.
  • Caps on charges were fixed on Unit Linked contracts with a tenor of 10 years or less and for those with tenor above 10 years. However, taking into account the discontinuance/lapsation/surrender behavior and with a view to smoothen the cap on charges, the difference in yield is capped from fifth year onwards. The following limits are prescribed starting from the 5th policy anniversary. The reduction in yield is the difference between what companies earns on the fund and what it provides to customers after covering its expenses.
  • Annualized Premiums Paid Prescribed limits for reduction in Yield
    5 4.00%
    6 3.75%
    7 3.50%
    8 3.30%
    9 3.15%
    10 3.00%
    11 and 12 2.75%
    12 and 13 2.50%
    15 and thereafter 2.25%