Insurance Regulatory and Development Authority (IRDA) has proposed change in a commission structure for life insurance agent on limited paying term products.
Limited premium payment term products, or short-term plans, are those plans where policyholder has to pay premium for five, seven or ten years and they get life cover.
IRDA has suggested that the premium amount should be linked to and made proportional to the commission being paid on longer tenure policies. For instance, a ten-year policy should be made the benchmark and the commission should be decided in decreasing order from a ten-year term. In other words if agent earns commission of 40% on a policy with ten-year term, then commission for same policy with premium paying term of five years will be 20%.
At present commission structure is product based and has no relation with policy term.
This change in commission structure will be applicable on endowment policies, term plans and single premium payment policies.
However, industry is taking this change as positive. As per the insurers, industry is not worried as long as commission on Unit-Linked Insurance Plan (ULIPs) remains unaffected.
Earlier this in September 2010, change in commission structure on ULIPs resulted in significant decline in the sales of ULIPs.
Then IRDA had asked insurers to spread the commissions, which were as high as 40% in the first policy year, over five years for which the money is invested and locked-in. IRDA also asked insurers, that differential between actual yield and returns post-deduction of various charges needed to be capped at 4% from the fifth year of policy.
Buying insurance is a lot like buying any other commodity, for example a phone. You not only compare its price but also its features, performance, whether it meets your needs etc. You not only buy an insurance policy for yourself, but for your family too, to ensure it is able to meet their needs if something were to happen to you. Therefore while buying insurance you should look at its features, benefits, price, inclusions and extras. The following are some of the questions that you must ask before buying a policy.
- What are my needs? Every individual has different needs. Some people might buy an insurance to provide for their family, if something happens to them. Others might buy it to pay for higher education for their kids. Some others might buy it to save tax. Some might look at it as an investment tool. Whatever is the reason that you need insurance, you must carefully analyse why you really need a policy because different policies serve different needs.
- How much insurance do I have and how much do I need? This is a very important concept to understand. Some people think that if they have group insurance at work, that is enough and they don’t need any more. Right? Wrong! What happens if you lose your job or you quit? Therefore it is important to understand how much more insurance you need, depending on how much insurance you already have and also whether it is term insurance, group insurance etc. So how much insurance do you really need? This can only be answered if you have answered question no. 1. But in general this is a handy formula for calculating the amount of insurance you need:
- What kind of insurance should I buy? When it comes to insurance there is no one type that fits all. Depending on the purpose of insurance and how long do you need insurance; you can decide on the product that is right for you. For example, if you are only thinking of providing for children’s higher studies then a term insurance is a good buy. CAREFULLY CHOOSE BETWEEN term, whole life, endowment or money-back policy.If you are looking to protect your family, then buy whole –life policy. This will ensure that they get what is due to them in case of a mishap. If you want a policy that has both an insurance and investment component, then endowment policy is the answer. In such a policy you get the sum assured back at the end of the term.
- What are my premiums? It is important to compare the amount of premium that you will end up paying for each policy. This will give you an idea of the value of the policy. Also it is important to find out if there are ways of paying lower premiums while getting the same benefits. You should also be aware of whether the premium is to be paid annually, bi-annually or quarterly. What happens if you miss a payment? These questions will help you assess what your liabilities are exactly.
- What is included in the policy and what are the exclusions? What are the important features of the policy? Make sure to understand what is included in the policy before you buy it to avoid getting disappointed later. Also it is equally important to understand what is excluded from coverage, so that you can buy a policy that exactly fits your needs. You should be aware of the features of the policy like who are the beneficiaries, can you change the beneficiaries, what are the tax implications, how to file a claim etc. Carefully analyse the cost, benefits and returns before buying the policy.
Therefore, if these questions are answered after giving enough thought, you will not be disappointed with the purchase you made. The policy will be able to meet your needs.
This article is written by Mr. Mayank Gupta. You can find more of his articles related to insurance and mutual funds at www.ninemilliondollars.com
The finance ministry is likely to extend the income tax exemption on retirement benefits to private PF trusts up to 31 March 2013.
The extension of IT exemption is likely to be the part of the finance bill 2012, which will come up for discussion in Lok Sabha on 7 May 2012.
Earlier this month labour minister, Mr. Mallikarjun Kharge, has written to finance minister, Mr. Pranab Mukherjee, to consider extending time-limit expiring on 31 March 2012 for private PF fund to get exemption for EPFO act to up to 31 March 2013 so that enough time is available to process the eligible cases by EPFO.
In 2006, the then finance minister, Mr. P Chidambaram has made it mandatory for all such PF trusts to seek exemption certificate from labour ministry within a year for enjoying the tax benefits.
Since all these trusts could not get exemption certificates in that year, successive budgets have given annual waiver on request of labour ministry.
So far out of 2,700 PF trusts only 284 trusts have received exemption certificate from labour ministry while 400 applications are under process. However, labour ministry has assured finance ministry that the process of issuing exemption certificates to these trusts will be expedited and will be completed within the current fiscal.
Issue has serious implications for both employers and employees. In the absence of waiver, annual accretion to the PF will be considered as part of salary and hence will be taxable.
Two years after introducing sub-limits in health insurance policies, non-life insurers are now removing the clause from new plans to attract retail customers.
Sub-limits impose specific restrictions on room rents, doctor’s fees and operation theater’s charges. They were introduced to cut losses in the health insurance segment.
TATA AIG’s MediPrime and Apollo Munich’s Optima Restore are the recent products that have done away with Sub-limits. And other non-life insurers are also mulling a similar move.
However, these limits will continue in group health insurance policies as such policies can not have unlimited benefits.
The average industry claim ratio, which is the claim paid versus premium earned, in retail health insurance segment is 60-70% that means an insurer for every Rs 100 premium earned has to pay claim of Rs 60-70. In group health insurance segment industry for every Rs 100 earned as premium, pays Rs 110 as claim.
Premium on products without sub-limits and co-pays is 15% higher than those with limits.
Retail health insurance market is already lucrative for insurers. And fraud management has also become better with monitoring of claims online and some companies have also started their in-house third party administrations to monitor claims and bring down the cases of loss and claims.
The segment is growing at 25% to 30% on year-on-year basis. The retail health insurance segment contributes more than Rs 5,000 crore to the income of the industry while the size of the industry is Rs 12,000 crore.
In a bid to give boost to the penetration of insurance products government has asked Insurance Regulatory and Development Authority (IRDA) to examine and relax branch opening norms for smaller cities. This will increase insurer’s presence and eventually reflect in penetration of insurance.
At present there are 23 life and 24 non-life insurance companies in the country but still the penetration of life insurance policies is only 4.4% while non-life is mere 0.7%.
At present insurance companies need prior approval from IRDA before opening any new branch.
Finance ministry has said that Reserve Bank of India (RBI) has also eased the branch opening norms for banks and IRDA also needs to do the same.
Private insurers are also in the favour of relaxing norms. As per them any licensing policy acts as a deterrent, if insurers are free to span out they can come out with innovative products and schemes in areas such as micro insurance.
However, IRDA is reluctant to change the norms immediately. As per IRDA firstly insurance sector can’t be compared with banking sector as it is still in evolving stage and secondly it did not want that companies in order to compete open branches which risk their capital adequacy and other ratios.
But government is not convinced with IRDA’s argument. As per government any private insurer will not open a branch unless it is a profitable venture. It also said that state-owned insurers also have social responsibility.
According to IRDA’s existing regulations, rural business of an insurer should account for 7% of their total gross written premium after eight years of operations.
There are 57 districts where country’s largest insurer LIC does not have presence and 91 districts do not have presence of state-owned non-life insurance companies. Hence, there is a need for models such as ultra small branches which has low cost.
In a move to benefit around five crore subscribers of Employee’s Provident Fund Organization (EPFO), rate of interest on Employee’s Provident Fund (EPF) will be increased to 8.6% for current fiscal as against 8.25% given in FY’12.
Last fiscal rates were brought down to 8.25% from 9.5% in FY’11 due to lower income on investments and special deposit schemes.
Interest rate was lowered last year on the finance ministry’s recommendation that with the kind of return it was not possible to continue with 9.5% given in FY’11.
EPFO has parked in excess of Rs 55,000 crore in Special Deposit Scheme (SDS) with the aim to provide better returns to non-government provident funds and other such funds.
As per government rate of interest on funds depends on the revenue, as money belongs to workers the government does not intend to reap any benefit out of the fund and returns every penny of the fund for the welfare of the subscribers.
To bring in uniformity in information Insurance Regulatory and Development Authority (IRDA) has proposed a standard proposal form for all life insurers. It will be mandatory for all life insurers to adopt the proposals. These guidelines will be implemented from first September 2012.
In its circular IRDA has proposed to mandate revised proposal form for life insurers in respect of individual policies. These regulations are aimed to provide standard proposal form for individual policies in life insurance that has an inbuilt flexibility for seeking additional information that is product-specific or specific to a particular risk category.
These regulations are issued in terms of the powers vested upon the IRDA under section 14(B) of IRDA act 1999.
The objective of the regulation is to introduce standard proposal that not only brings uniformity in information sought but also ensures that it takes into consideration all relevant questions that are required to understand the need for a particular product and make the recommendation to the prospect that is based on Suitability in a simple and straightforward manner bringing transparency and thereby protecting policyholder’s interest.
These regulations will require insurers to have in place a process and system to assess the needs and analysis is carried out for each and every proposal received and soundness of the recommendation about a particular product.
As per the draft guidelines an agent or a broker has to make a declaration that a product that he has recommended is suitable to the buyer based on the information submitted by the buyer. A buyer also has to provide an acknowledgement that agent or broker explained the features of the policy and it suits his needs.
According to IRDA’s prescribed format, details of the prospect, need of the prospect and agent’s recommendations are the three mandatory categories in the form. Specialized information category is mandatory but can be modified by the insurer as required.
Nursing homes in East Midnapore are turning away patients covered under Rashtriya Swasthya Bima Yojana (RSBY) because insurer has held back their dues for last two years alleging discrepancies and inflated bills. 33 nursing homes in the district have stopped offering this facility to patients covered under the scheme.
As per New India Assurance, it is scrutinizing bills send by nursing homes and therefore it is taking time. It also said that it found discrepancies in claims submitted by all nursing homes. The claims were not justified. It also said that it has not received premia under the scheme in last fiscal.
Under RSBY, Below Poverty Line (BPL) families are entitled to cashless treatment of Rs 30,000 annually. In East Midnapore around 2.5 lakh families are covered under the scheme. Of annual Rs 600 premium per head, central government pays 75% while rest 25% is paid by state government.
Though facility is available in both private and government hospitals, the government hospitals are under tremendous pressure. If a patient under the scheme needs urgent surgery, he will have to wait for months as operating theatres are heavily booked.
In a move to increase the penetration of New Pension System (NPS) in private sector Pension Fund Regulatory and Development Authority (PFRDA) is set to introduce a fee structure for pension fund managers soon.
As per the proposed structure, pension fund managers will be appointed, subject to due diligence process, and once they are in the business they can quote their own fee and approach the customer with advice. They can quote their fee structure and yield track record. And then customer can choose their fund manager. PFRDA will fix a cap below which individual pension fund managers can quote their individual fees. And market forces will take care of the cost factors associated with the whole process.
Main reason why so far NPS was not successful in attracting people from non-government sector is that, the same scheme which was introduced for government employees was extended to private sector, where it was not mandatory.
At present biggest challenge faced by NPS are marketing and distribution issues. Hence, it also needs to be marketed and promoted like any other financial product. And to address the marketing and distribution issues there should be incentives. In current structure of the NPS nobody has a marketing role to play.
As per PFRDA its role is to see that profits are reasonable for stakeholders and there is no mis-selling. Unless pension fund managers are incentivised and allow them to start looking at multiple channels for marketing and distribution there is no other way to reach out to people for whom it is intended.
Bajpai committee, in its recommendations, had said that marketing and distribution had to be more active and aggressive and for that incentive structure had to be looked into.
PFRDA had already revised the incentive structure for Point of Presence (POPs).
Pressure is mounting up on government and Insurance Regulatory and Development Authority (IRDA) to come out with health insurance strategy for senior citizens. Elderly are worst impacted with the upward revision of health insurance products in 2010, when insurance companies stopped cashless hospitalization and treatment claiming that hospitals were inflating bills.
A joint action committee for senior citizen has said that though IRDA has asked insurers not to discontinue a policy based on age, but it has not given any directive on pricing.
IRDA has indicated that re-pricing will be applicable for all policyholders including senior citizens.
According to joint action committee for senior citizens, health insurance products have not remained affordable for senior citizens. Pricing of health insurance products for senior citizens should be different as they are finding it difficult to continue with policies with rise in premium and limited income.
According to official estimates, by 2025, over 189 million Indians will be 60-plus.
KS Sastry committee of IRDA, which looked into the issue, stressed the need for the national policy on older persons. Committee also said that insurers should promote separate products for senior citizens.