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IRDA Does Not Want Insurers To Publish Their Ranking In Advertisements

IRDAThe Insurance Regulatory and Development Authority (IRDA) has send notices to insurance companies to ensure they do not publish their ranking in any advertisements.

As per Insurance Advertisements and Disclosures regulations, 2000, insurance companies cannot make advertisements, which can be misleading or which make unfair comparisons between companies and their products. The companies have also been advised to follow the code of conduct prescribed by the Advertisement Standards Council of India (ASCI).

In its earlier regulations, the IRDA had stated that insurance companies cannot claim any ranking with regards to its position in the market based on any criteria like premium income, number of policies or branches or claim settlement etc in any advertisements.

However, ratings given by external agencies can be given. Any rating or award should be based only on those declared by entities which are independent of the insurance company and its affiliates. However, insurers are not allowed to take any services from such independent entities so as to get a rating/ award.

Insurers say that though the ranking-based advertisements of an insurer may be factually correct, since it is based on data given by IRDA, but now IRDA is ensuring that no such rankings are mentioned in public advertisements. This is to make sure that prospective and current policyholders do not make any false assumptions based on these claims.

IRDA said that customers might not be fully aware of the exact criteria used by the company to make these claims. Therefore, it would not be fair to bring out such advertisements.

IRDA Imposed Penalty Of Rs 1.77 Crores On Reliance Life

RELIANCE LIFE INSURANCEThe Insurance Regulatory and Development Authority (IRDA) has imposed a penalty of Rs 1.77 crores on Reliance Life Insurance Company for violating norms including obtaining business from unlicensed entities.

IRDA observed that Reliance Life failed to monitor the activities of the corporate agent and this is considered as a serious lapse.

The IRDA examined 47 charges leveled against the company including violation of advertisement and product distribution norms.

Instances are noticed where the business is sourced from unlicensed entities through multi leveled marketing and was logged into the code of licensed entities.

Business was procured by forged signature or without signatures at the space specified in the agent’s confidential report column.

Of the total charges, maximum penalty of Rs 65 lakh was imposed for soliciting insurance business from unlicensed entities. The business sourced through unlicensed entities was logged in various code numbers of Reliance Third Party Distribution Channel, which is one of the new business vertical of the company.

IRDA also slapped a fine of Rs 50 lakh for violation of marketing and publicity norms.

The issue was with regard to payments to referral entities under contests. IRDA observed that the company has made these payments to referral entities under contests in violation of provisions. And hence, a penalty of Rs 5 lakh has been imposed.

All Distribution Channels Should Have Level Playing Field

OLYMPUS DIGITAL CAMERAThe Insurance Regulatory and Development Authority (IRDA) has paved the way for new distribution channel by issuing draft guidelines for Insurance Marketing Firms (IMFs). However, this draft also indicates towards some restrictions and raises some questions.

IMFs will be allowed to sell insurance products of multiple insurers and other financial products such as mutual funds and National Pension System (NPS) which have been approved by financial sector regulators.

In terms of insurance distribution, IMFs will be somewhere in between an insurance broker and an insurance agent.

An insurance broker represents the client’s interest and is allowed to shop from multiple insurers for its client. An agent, however, owes loyalty to the insurer and can sell insurance products of only one company. However, an IMF can sell insurance products of multiple insurers but it will have fiduciary responsibility towards its clients. But unlike an insurance broker there is no restriction on the volume of business from a single company. An insurance broker can’t have more than 50 % of business from a single client, and if the insurer happens to be within the promoter group, the limit is 25 %.

Insurers say that this model will encourage senior and successful agents to move this model. Currently, since agents are allowed to sell insurance products of only one insurer, a family of agents takes licenses from different insurers to offer variety. Model of IMF will allow such dedicated agents to sell products of multiple insurers.

Within  insurance marketing firms, there will be two kinds of licensed individuals –Insurance Salesperson (ISP) who will be responsible only for soliciting and marketing the products; and a Financial Services Executive (FSE), who will handle services, such as offering financial advice, sale of mutual funds and NPS.

To become an ISP, an individual needs to have passed class 10 and cleared the insurance broker’s examination. If an agent wants to be an ISP, he has to clear the broker examination and surrender his agency license.

FSEs need certification from regulatory bodies. For instance, to sell mutual funds, they need to be certified by the Association of Mutual Fund in India (AMFI). For distributing NPS, they need certification from Pension Fund Regulatory and Development Authority (PFRDA). And for sale of products regulated by Securities and Exchange Board of India (Sebi), they need to register as investment advisors under the Sebi (investment advisors) regulations, 2013.

But these draft guidelines are not free from restrictions. For instance, IMFs will be allowed to operate in only one district initially and will be allowed to extend to a state once the license is up for renewal after three years.

This will restrict the entry of big companies with more potential. Also confining their role to one district will mean that small agents become IMFs. Such firms will be all over, and given that IRDA is centralized office, it will be difficult to inspect these firms.

These firms will be eligible for commission capped at 30 % as per section 42E of the Insurance Act, 1938. Insurers are also allowed to pay them for expenses towards infrastructure and marketing and also a performance incentive.

However, experts believe that it doesn’t make any sense to allow extra payments in this channel when other channels are restricted by commissions. They say that all distribution channels should have a level playing field. Since IMFs has fiduciary responsibility towards policyholders. So allowing insurers to pay them based on performance could lead to conflict of interest.

IRDA Issued Draft Guidelines For Setting Up IMFs

Business-Insurance-Marketing-PlanThe Insurance Regulatory and Development Authority (IRDA) has issued draft guidelines for setting up Insurance Marketing Firms (IMFs). This will pave the way for new distribution system.

IMFs can market and service insurance, apart from marketing other financial products. These include products of mutual fund companies, pension products of Pension Fund Regulatory and Development Authority (PFRDA) and other financial products marketed by investment advisors of Securities and Exchange Board of India (Sebi) through the financial service executives engaged by an IMF.

IRDA said that it is mulling to allow distribution companies to have multiple tie-ups with insurers.  This model will be like independent financial advisor. In this model, Insurance Sales Person (ISP) will be an individual employed by IMF to undertake solicitation and marketing of insurance products who will be granted a certificate issued by the authority.

Further, FSE would be an individual employed by an IMF authorized to undertake financial service activities such as investment advise through an investment advisor who will be granted license by Sebi, mutual fund salespersons holding a certification under association of mutual funds in India (AMFI) and registered with an association of asset management companies of mutual funds.

Combined Ratio For Motor Insurance Likely To Touch 200%

motor insuranceOn the back of higher claims and subdued growth in the third party segment, the combined ratio for motor insurance might touch 200% by the end of FY’15, say insurers.

Recently, the Insurance Regulatory and Development Authority (IRDA) has hiked the third party premium rates by 9-20%. Insurers say that with this overall motor cover prices might go up, but it will not be able to compensate for the underwriting losses and higher combined ratio.

Currently, combined ratio for the motor insurance segment stands at 140-150% for the industry, owing to the losses in the third party motor segment.

Combined ratio is the sum of incurred losses and operating expenses, measured as a percentage of earned premiums. It is a measurement of profitability. A combined ratio below 100% indicates that an insurer is making profit.

Insurers say that while the industry had sought a minimum of 60% third party premium hike, they have not been given even one-third. They say that due to this their books stand to suffer. The commercial vehicle segment has been a constant cause of concern in the motor segment, due to which insurers have sought steep hikes in overall third party premiums.

In FY’13, general insurance companies incurred total claims of Rs 17,589.4 crores in the motor segment. The total premium from the segment stood at Rs 28,460.3 crores. Third party claims stood at Rs 9,177.3 crores, whereas own damage claims stood at Rs 8,412.1 crores. IRDA has also asked general insurers to increase mandatory provisioning from 110% to 210%, to safeguard against the risks in the declined risk pool.

In motor insurance, third party coverage including the liability of third party during a motor accident is mandatory, while own damage motor insurance is optional. However, it is advisable to take a comprehensive cover since it covers the risks of both self and third party claims.

While the own damage segment is de-tariffed, motor third party pricing is still regulated by IRDA and revised annually. On the back of higher claims and subdued growth in the third party segment, the combined ratio for motor insurance might touch 200% by the end of FY’15, say insurers.

Recently, the Insurance Regulatory and Development Authority (IRDA) has hiked the third party premium rates by 9-20%. Insurers say that with this overall motor cover prices might go up, but it will not be able to compensate for the underwriting losses and higher combined ratio.

Currently, combined ratio for the motor insurance segment stands at 140-150% for the industry, owing to the losses in the third party motor segment.

Combined ratio is the sum of incurred losses and operating expenses, measured as a percentage of earned premiums. It is a measurement of profitability. A combined ratio below 100% indicates that an insurer is making profit.

Insurers say that while the industry had sought a minimum of 60% third party premium hike, they have not been given even one-third. They say that due to this their books stand to suffer. The commercial vehicle segment has been a constant cause of concern in the motor segment, due to which insurers have sought steep hikes in overall third party premiums.

In FY’13, general insurance companies incurred total claims of Rs 17,589.4 crores in the motor segment. The total premium from the segment stood at Rs 28,460.3 crores. Third party claims stood at Rs 9,177.3 crores, whereas own damage claims stood at Rs 8,412.1 crores.  IRDA has also asked general insurers to increase mandatory provisioning from 110% to 210%, to safeguard against the risks in the declined risk pool.

In motor insurance, third party coverage including the liability of third party during a motor accident is mandatory, while own damage motor insurance is optional. However, it is advisable to take a comprehensive cover since it covers the risks of both self and third party claims. While the own damage segment is de-tariffed, motor third party pricing is still regulated by IRDA and revised annually.

Safety Rating System For Cars May Be Linked To Insurance

car safety insuranceIn the light of several issues being raised over the quality of vehicles made in the country, the government is planning to formulate a safety rating system for cars based on their robustness. And, the rules if implemented may be linked to lower insurance premiums.

Talks will be held with the Insurance Regulatory and Development Authority (IRDA) on improving safety and lower insurance premiums to entice the customer.

The issue of safety of cars built in India came into light after UK based independent testing agency ‘Global NCAP’, said that four out of five popular cars plying on the Indian roads did not pass crash-test norms.

Now the government is mulling a new code to enhance the safety aspects in cars though a star rating system. While the crash safety norms are couple of years away due to non-availability of any such testing facility in India, a safety rating system could be an interim answer to enhance safety in cars. The ministry of Road Transport and Highways is expected to be the nodal agency to monitor its enforcement.

In Europe, cars with higher NCAP rating attract much lower premium and are preferred by customers. Such ratings could be very useful for the consumer as well as insurance companies to bring down their overall compensation and damages. The government is planning to bring some coordination with test agencies after some standards are laid with the help from IRDA.

For the long term, the government is also planning to develop NCAP-type norms in India to standardize the safety structure across all vehicles in the country. The new standards could take a while as the crash-testing facilities are likely to come up by 2015.

Despite Hike In Rates, Industry Likely To Have Third Party Loss Of Rs 8,000 Crores

third-party-insuranceWith effect from first April 2014, the Insurance Regulatory and Development Authority (IRDA) has increased third party motor premium rates by meager 9-20% against its draft proposal of up to 137%.

Insurers say that this marginal increase will not help curtail the losses for them. Insurers say that this increase is inadequate. They had asked the IRDA to increase the premium rates by 50-100% depending on the category of the vehicle.

General insurers say that despite this increase, they would have an estimated third party loss of around Rs 8,000 crores in FY’15. The third party loss ratios were 180-183% for insurers for FY’14. Hence, such a mild increase will not bring down loss ratios, say insurers.

Interestingly, the maximum hike of 20% is being given in the case of private cars where the loss ratios are low but it has hiked the rates for passenger carrying vehicles by only 9% where the loss ratio is 200%.

Motor third party losses are rising as courts are awarding higher compensation to the victim’s family due to rising inflation. Courts are not only asking insurers to compensate for the loss in income but even for the possible future income, multiplying it with inflation. Earlier, the courts never considered the loss of future income.

Motor third party insurance cover is mandatory by law for all vehicles. The policy covers the financial liability of a vehicle owner in case of death or injury to a third person. The IRDA administers its pricing and reviews the rates annually based on a pre-determined formula.

The IRDA increased the third party premium rates in FY’12 on average by 58%, in FY’13 by 15% and in FY’14 by 20%.

Banks Might Be Given Five Years To Migrate To Insurance Broking Model

BROKER MODELThe committee set up by the finance ministry to break the deadlock between the finance ministry and banks on insurance broking, is likely to suggest that banks will have to sell covers of multiple insurance companies. However, they will be given five years to migrate to this model.

Over the past two months, the finance ministry and banks are at loggerheads over the insurance broking issue.

The finance ministry is of the view that banks should sell covers of multiple insurers, while banks have contrary view. Banks say that different banks have tied-up with different insurance companies to exclusively sell products of their company.

The finance ministry had set up a committee headed by Reena Banerji, General Manager, Reserve Bank of India (RBI), to suggest a solution for banks to adopt this model.

The panel has members from the RBI, Insurance Regulatory and Development Authority (IRDA), Indian Bank’s Association and senior officials from commercial banks. The report is being finalized by the committee and soon be submitted to the finance ministry.

The report suggests that banks should be given five years to achieve 25% ceiling on the extent of the business that a bank can do with an insurance company.

Third Party Premium Increased By 9-20%

Perspective-Feb.qxdThe Insurance Regulatory and Development Authority (IRDA) has increased third party premium by only 9-20% against the proposal of up to 137%. The new rates will be effective from first April 2014.

For private cars, the third party premium has been increased by 19-20% across categories -sub-1,000 cc segment, the 1,000-1,500 cc segment, as well as the category for cars exceeding 1,500 cc.

In the two-wheeler segment, the third party premia has been increased only 9-10% across categories –sub 75 cc, 75-150 cc, 150-350 cc and more than 350 cc. For hired vehicles with four or more wheels and carrying capacity exceeding the number of passengers and three wheeler passenger vehicles on hire with capacity exceeding 17, rates have not been changed.

For the taxi segment (four wheelers), the third party premium has been increased by 19-20%. For auto rickshaws (carrying not more than six passengers), a 10% rise has been announced.

General insurers had sent a representation to the IRDA to consider an increase of 50-60% in motor third party premia owing to rise in loss ratios in this segment. The combined ratios for the motor insurance segment stand at 130-135%. A ratio below 100% indicates that an insurer is making profits.

Motor insurance comprises two segments own damage (it is optional) and mandatory third party cover. Motor third party insurance is mandatory for all vehicles plying on roads. It covers liability arising from third party claims due to accidents.

Motor third party pricing is not de-tarriffed. IRDA considers factors such as the cost inflation index notified by the Central Board of Direct Taxes, as well as the claims of insurers while deciding the premium for motor third party insurance. Last year, IRDA increased motor third party premium by 20-30% across different categories with an average increase of 18%.

 

Premium as on April 1

2013

2014

Category

Rs.

Rs.

Absolute Increase Percentage increase
Private cars (not exceeding 1000 cc)

941

1129

188

20%

Private cars (exceeding 1000 cc but not exceeding 1500 cc)

1110

1332

222

20%

Private cars (exceeding 1500 cc)

3424

4109

685

20%

Two wheelers (not exceeding 75 cc)

414

455

41

10%

Two wheelers (exceeding 75 cc but not exceeding 150 cc)

422

464

42

10%

Two wheelers (exceeding 150 cc but not exceeding 350 cc)

420

462

42

10%

Two wheelers (exceeding 350 cc)

804

884

80

10%

 

 

Insurers Allowed To Collect Advance Premiums

PREMIUMThe Insurance Regulatory and Development Authority (IRDA) has modified its linked and non-linked insurance products regulations. Now IRDA has allowed insurers to collect advance premium.

Insurers are allowed to collect advance premium within the same financial year for the premium due in that financial year. However, if the advance premium is collected for the next financial year, then insurers can collect advance premium for a maximum period of three months in advance of the due date of the premium.

The premiums collected in advance can only be adjusted on the due date of the premium. And also commission will be paid after adjustment of premium on due date.

Earlier, the IRDA had said that premium due may be collected 30 days before the due date. However, in the monthly premium payment mode, insurers could accept three months premiums in advance only on the date of commencement of the policy.