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MNC Insurers Pitched for Hike in FDI Cap in Insurance Sector

Posted on January 14, 2013 by Akanksha

A group of multinational insurers have made a strong pitch for raising the Foreign Direct Investment (FDI) limit in the insurance sector to 49% from current 26%.

Insurers argued that uncertainty in increasing the cap is impacting the business plans of current joint ventures and has led to a delay in the entry of other foreign companies in the insurance space in India.

They also said that an increase in the limit would improve the insurance penetration in India while bringing in more stable and long term capital flows in the country.

The insurers said that their companies were willing to invest for long term in India. They urged the government to meet India’s implicit commitment to increase the ceiling in a conscionable period of time and make it consistent with FDI policy for every other segment such as banking, asset management, investment banking and securities broking.

The insurance amendment bill, which seeks to increase the FDI cap in private sector insurance companies to 49% from 26%, has already been approved by the cabinet and is now expected in the upcoming budget. The opposition is against raising the ceiling.

The Standing Committee on Finance, headed by senior BJP leader Yashwant Sinha, had recommended retaining the limit at 26%.

Insurers said that entry of foreign companies in the insurance market has resulted in expanding the product basket. The move to consider the Insurance bill proposing higher FDI is timely for various reasons including India’s appetite for foreign capital.

They further added that some foreign companies which were interested in coming to India had put their plans on hold due to lack of clarity. Hence, bringing certainty would help both domestic and foreign insurers to decide whether they want to stay invested or not.

Categories: News | Tags: FDI, Foreign Direct Investment, Insurance India, Insurance Industry

In long term Insurance Industry is poised for a Strong Growth: Report

Posted on August 7, 2012 by Akanksha

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In a joint study by Confederation of Indian Industries and leading Global Professional Services Organization, the report says that though the short term insurance industry may be undergoing through a catharsis, the picture is not all gloomy. The long term picture is still compelling, and a stronger and better-founded insurance industry is likely to emerge from this challenging situation.

The report says that the long term insurance industry is poised for a strong growth as the domestic economy is expected to grow steadily.

Report pointed out that Innovation is a first casualty in tightly controlled markets, leading to drying of incentives for product manufacturers and decline in business activities.

The report also says that the today’s market is primarily dependent on Push, Tax Incentives and Mandatory Buying.

The report says that there is very little Customer Pull, which will come from increasing financial awareness along with savings and disposable incomes. Till then stakeholders will have to strive for Product Simplification, Transparency of Cost and Pricing, Effective Distribution and Improving Customer Servicing to drive sales.

For the first time in 12 years, in 2011-12 the Life Insurance industry witnessed a decline in the first year premium collection to Rs 1,142 billion as against Rs 1, 258 billion in FY’11, which is a drop of 10%.

The report also cites that business model for insurers have been changing for the last couple of years because of regulatory changes. While regulatory changes were aimed at consumer protection and increasing transparency in pricing and operations, it gave the industry very little time to adjust which resulted in many uncertainties in the market environment.

Report also says that as soon as the regulator finalizes the guidelines for Mergers and Acquisitions, the industry is also likely to witness a consolidation.

Categories: News | Tags: Confederation of Indian Industry (CII), Effective Distribution, Improving Customer Servicing, Insurance Industry, Mandatory Buying, Mergers and Acquisitions, Product Simplification, Push, Tax Incentives, Transparency of Cost and Pricing

Lloyd’s Witnessed Second Biggest Loss on Account of Natural Calamities

Posted on March 29, 2012 by

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The Lloyd’s of London insurance markets had to bare its second biggest loss on account of claims arising out of last year’s natural catastrophes including earthquake of Japan and floods in Thailand. For 2011 Lloyd’s reported a loss of £516 million or$824 million as against the profit of £2.2 billion in 2010. This loss is the second just to the £3.11 billion deficit of 2001 following the September 2001 attacks.

This loss is the aggregate financial performance of 80 competing insurance syndicates that make up for Lloyd’s market.

For 2011 Lloyd’s incurred claims of £4.6 billion on account of natural disasters which is a record. Total payouts for 2011 for Lloyd are stood at £12.9 billion.

Last year was the second costliest year for insurance industry for catastrophes. Last year’s earthquakes, floods and tornadoes generated total claims of $116 billion. It was surpassed only by insured loss of $123 billion in 2005, when hurricane Katrina devastated New Orleans.

During last year total returns on its portfolio has also fallen 24% to £955 million due to low interest rates and strong demand of high-quality government bonds.

However, Lloyd’s is disappointed that insurance prices which have been declining or stagnated since 2008, even after last year’s catastrophe has also not risen significantly.

Typically, insurance price rise, in the wake of large payouts by the industry as financially week players retrench, which ease the competitive pressures on remaining players and they become free to charge more.

But this year significant increase has been only confined to the directly catastrophe-related lines of businesses. And there has been only moderate increase in the broader market.

Lloyd’s also said in an environment where investment returns are at record low insurance industry is still an attractive place to park capital.

Categories: News, World Insurance | Tags: Catastrophic Loss, Hurricane Katrina Losses, Insurance Industry, Insurance Syndicates, Japan Earthquake Losses, Lloyd's of London, Thailand Flood

Economic Survey Concerned About Over Inter-linkage of Insurance and Banking Sectors

Posted on March 16, 2012 by

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Although insurance sector is well capitalized, Economic survey has expressed the concern over increasing inter-linkages of banking and insurance sectors. As many insurance companies are part of financial conglomerates they are significantly exposed to banking system.

To reduce the dependence of insurance sector on banking sector, government is also planning to put in place a mechanism to develop strong re-insurance market to provide long term stability to the sector. However, present regulations do not allow foreign reinsurers to set up their subsidiaries in India. In India General Insurance Corporation of India (GIC) is the only reinsurer which also has limited capacity.

This de-linking of banking and insurance sector seems to be mooted on the backdrop of U.S.A. and Europe crisis because during financial crisis linkage of both sectors have resulted in massive rout in both equity and debt markets.

In India out of all 24 life insurance companies 11 companies have bank stakeholders.

Earlier this Reserve Bank of India (RBI) has also expressed its concern on the linkage of both sectors. It said if either of the two sectors is in stress then it might impact other sector. Hence, RBI has proposed holding company structure to prevent banks and its subsidiaries from having cross exposure trouble in future, this will act as fireball.

As per insurers there is no need to worry in over exposure of banks in insurance sector, because if compared to other sectors banks have very little exposure in insurance. And in fast expanding economy of India all sectors are interlinked and it is not possible to separate them.

Categories: News | Tags: Banking Partner in Insurance, General Insurance Corporation, Insurance Industry, Reinsurance

General insurers convincing auto makers to bring down cost of repairs

Posted on February 2, 2012 by

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General insurance industry has asked auto industry to bring down the cost of repair as most of it is paid by insurance sector. To this request auto industry has also responded positively.

In recent years private individual companies has developed scale and statistics to negotiate with auto manufacturers.

Bajaj Allianz general has been sharing claim data with insurers for several years and it also has been recommending changes in processes.

Company has convinced auto makers to bring some changes such as supplying child parts, inclusion of anti-theft devices in low-end models and getting service centers to have high-end dent removing equipment.

Child parts will significantly bring down the repair cost, for instance earlier damage to headlight lens required the assembly to be replaced. This was very expensive as modern headlights include motor-driven levelers which are expensive.

If dealers have high-end dent equipments then also it will bring down the repair cost. Earlier if a four-year old car a dented door is replaced then owner had to bare the half of the cost because of depreciation. But if dealer have high-tech dent removal equipments then this repair can be done at a fraction of the cost.

Insurance industry is also making efforts to standardize the cost of parts and labour.

Categories: News | Tags: Car Insurance, General Insurance, Insurance Industry, Motor Insurance

Govt. to form four committees to prepare roadmap for insurance industry

Posted on January 31, 2012 by

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Government has formed four committees to take stock of insurance business with representation of insurance companies, insurance bodies, rating agencies and financial ministry officials. But it did not have representation from IRDA. Though as per IRDA since the post of member life is vacant no one attended the meeting.

Government and Insurance Regulatory and Development Authority (IRDA) has been at loggerheads since finance ministry directed General Insurance Corporation of India (GIC) not to pay ceding commission to general insurance companies for the business that they have to mandatorily reinsure with GIC Re. In that situation IRDA had to step in and force GIC Re to honor the contracts with insurance companies.

Panels will prepare a roadmap for insurance industry in India. It will also find ways to increase the penetration of insurance. And it will also work on the steps that need to be taken in short-term and long-term. Four committees will also look into issues related to the growth of the industry, development of products, issues with regulators and other bodies.

In its first meeting government also asked insurance companies and other agencies feed backs including on IRDA.

The consultation process is the part of finance ministry’s plan to set up advisory groups across segments to discus issues impacting the sector and finding the solutions for these problems.

These committees have been formed under these advisory groups to take industry-wide consultations.

As per insurers there is a need to rationalize the regulatory part and focus on development.

Life insurance industry had to face many challenges on account of regulatory changes brought by IRDA. Due to regulatory changes brought by IRDA on Unit-Linked Insurance Plan (ULIPs) insurer’s new business premium collection dropped to 15% in 2010-11 against 25% in 2009-10. This year from April-December premium growth fell by 17% to Rs 71,954 crore.

After bringing sweeping changes in ULIPs IRDA also announced comprehensive changes in pension plans on both traditional and unit-linked platforms. As per insurers though these changes are customer-friendly but they also say that IRDA does not give them enough time to implement and adjust to new regulations. For instance IRDA brought in changes in pension plans in November 2011 and asked insurers to refile new products by January 2012 hence, due to this pension market in the country has become vacant.

Categories: News | Tags: Insurance Industry, Insurance Penetration, IRDA, ULIPs

Indian insurance industry likely to touch Rs 3.75 lakh crore mark in FY’12; says study

Posted on November 22, 2011 by

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India insure, a risk management and insurance broking company in its annual report of 2011 has said that Indian insurance industry is likely to touch the Rs 3.75 lakh crore mark in FY’12. Study also said that in FY’12 Indian insurance industry will achieve the growth of 15%.

Key drivers for this growth include stabilizing of premium rates and insurers focusing on profitability.

In FY’ 11 Indian economy recorded the growth of 8.6% despite struggling world economy and Indian insurance industry registered the growth of 11.5% and non-life insurance industry recorded the growth of 22%.

Now insurers will have to maintain standard of services, distribution mechanism and innovative products because that is the only way for them to increase or maintain market share and profitability in this highly competitive world.

As insurers are focusing on risk-based rating hence policyholder may have to see a premium hike in health and motor insurance.

Survey also said that significance of group gratuity will increase as many corporates are out sourcing their funds to life insurers. And superannuation amongst the psu clientele will increase as private companies are not interested in it.

Survey also said that this year as well Unit-Linked Insurance Plan (ULIP) will see the reduction in charges; which will make it unattractive for distributors while it will make ULIP attractive for customers.

Non-life insurance companies have also started to come out from the impact of de-tariffing of rates in the FY’11 as premiums have started to be rationalized. IRDA has also increased the premiums for commercial third party motor insurance bringing them to more realistic levels.

In FY’11 health and motor insurance segment has shown a robust growth; as health insurance segment register the growth of 34% which is the highest ever for this segment.

As per statistics more than 70% health expenses of an individual are beyond hospitalization hence insurers are planning to insentivise the wellness programs and offer out-patient cover and health saving accounts. And as per the survey at present only an out-of -the-box thinking of insurers will help them to tap the under tapped market of health insurance.

Though Indian insurance industry has come a long way since the opening up of the industry to private players last decade but till now they have been successful in only increasing the top line especially for general insurance companies but still profitability remains the biggest challenge for insurers; in last decade life insurance industry accumulated the loss of Rs 16,000 crore while non-life insurance industry has accumulated the losses of Rs 40,000.

Categories: News | Tags: Health Insurance, Indian Insurance market, Insurance Industry, IRDA, Life Insurance, Premium, ULIP, Unit Linked Insurance Plan

Health insurance portability will be a speedy process

Posted on September 14, 2011 by PolicyMantra Team

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Insurance Regulatory and Development Authority (IRDA) in its final guidelines on health insurance portability has mandated that insurers has to share data on policies that are to be migrated within seven days from the date of the request.

As per insurers; industry is also prepared for executing portability as insurers has already done a test-run of portal which is the most important factor for portability as data of policyholder will be routed through it; with the help of this data credit for pre-existing diseases can be given to the policyholder immediately if they migrate to another insurer.

Health insurance portability will come in force from first October 2011. If you want to port your health insurance policy then you have to apply at least 45 days before the renewal date. And if there is bonus accrued then it will be carried forward by the new insurer after migration. Any individual policy or family floater policy can be ported.

Circular has also cleared that a health insurance policy can be ported from non-life insurer to another non-life insurer only.

As per the insurers there will be the impact of portability in long run but initially it will have less impact as initially only customers who have some issues with their existing insurer will migrate and for other it will take some time to understand the process.

However, according to insurers overall it will be beneficial for customers and smaller companies who provide better service as they might gain share.

Categories: News | Tags: Health Insurance, Health Insurance Portability, India Insurance, Insurance Industry, Insurance Regulatory and Development Authority, IRDA

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