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IRDA Launched Pilot Initiative To Reduce Number Of Uninsured Vehicles

Protected CarWith an aim to reduce the large number of uninsured vehicles in the country, the Insurance Regulatory and Development Authority (IRDA) has started a pilot initiative in Cyberabad, Telangana, to strictly enforce the provisions of the motor vehicles act.

As per motor vehicles act, it is a criminal offense to ply a vehicle without insurance.

The IRDA has collaborated with the police, which will send challans to owners of vehicles without an insurance policy.

Through the pilot, the IRDA has found that out of 12 lakh registered vehicles; almost 25% do not have an insurance policy.

IRDA has also said that if results of this pilot are encouraging, then it will extend it to seven more states. The IRDA is planning to collaborate with the ministry of road transport to use their data on the number of registered vehicles to corroborate data from insurers.

IRDA May Allow Insurers To Launch 5-Year Motor Insurance Policies

Car Insurance going upThe Insurance Regulatory and Development Authority (IRDA) is considering a proposal to allow insurers to offer one-time, five-year motor insurance policies.

IRDA may start with two-wheeler segment, and then based on experience, can introduce similar products for commercial vehicles as well.

The objective behind this long term insurance cover is to promote insurance, especially in rural areas. IRDA also said that this move could also promote the insurance culture.

This move will be beneficial for both insurers and customers. Customers will be saved from hassles of renewing insurance every year and general insurers feel that such a product will boost the renewal business, which is quite low in rural areas. This move can also help in increasing insurance penetration.

Insurance penetration in the country declined to 3.96% in FY’13 from 5.2% in FY’10. General insurance penetration in the country stands at 0.78%.

According to a report by KPMG, the under-penetration is driven by lack of overall financial awareness, lack of understanding of general insurance products, low perceived benefits and propensity to purchase insurance based on reactive drivers such as insistence by financers and statutory requirements.

However, insurers say that before introducing such a product, there are some issues that need to be resolved. For instance, you need a mechanism to factor in the ‘no claim bonus’ and subsequently the pricing of such a policy. There are also concerns about the possible liability on such insurance products exceeding the premium received.

Raising FDI Cap In Insurance Sector Will Spur Growth: IRDA

instrumentThe Insurance Regulatory and Development Authority (IRDA) has hailed the government’s budget announcement to raise Foreign Direct Investment (FDI) cap in the insurance sector to 49% from existing 26%.

IRDA said that this move will spur growth in the insurance sector. It will ensure entry of more players and existing players will be strengthened. Large scale capital coming in the sector will create more jobs.

IRDA also said that the hike in the FDI limit will help companies expand operations rapidly. It would also help insurers to improve their technology.

IRDA said that future agenda for the sector include leveraging technology, pricing the agriculture insurance for wider coverage, expanding the health insurance coverage by taking advantage of government sponsored schemes, launching of new products like catastrophe bonds and mechanism for tapping uninsured vehicles.

IRDA Tightened Norms For Replacement Of Life Insurance Policies

insurance-agent-trainingIn an attempt to safeguard interest of policyholders, the Insurance Regulatory and Development Authority (IRDA) has tightened replacement norms. The IRDA made it mandatory for agents to provide full details in transparent manner before recommending policyholder to shift to another life insurance company.

Tightening of replacement norms would help in retaining the life insurance policy. It would protect the long term interests of life insurance policyholders and discourage intermediaries persuading lapsing, surrendering or making paid-up of an existing life insurance policy with an intent to sell another life insurance policy.

The IRDA said that these guidelines will encourage fair market conduct and fair business practices amongst life insurers and insurance intermediaries.

IRDA also said that every insurance intermediary or an individual agent should make every reasonable effort to keep in force the existing life insurance policy. And if replacement is required, it will be subject to certain conditions, including obtaining a written consent from the prospect for replacing existing policy. Besides, there is need to obtain the particulars of all life insurance contracts of the prospect and details of those policies that are proposed to be replaced.

IRDA also said that the existing insurer has to be notified whose policies are proposed to be replaced along with the particulars of policies and also enclosing a copy of the consent of the prospect as obtained in annexure 15 days prior to submitting new proposal forms.

Other condition include submission of the proposal form to the insurer (new insurer) replacing the existing life insurance contracts after the expiry of 15 days from the date of notifying the insurer (old insurer) whose policies are proposed to be replaced.

SBI Life Filed Special Leave Petition In SC

sbilife300Private insurer, SBI Life insurance company has filed a special leave petition in the Supreme Court, in response to the Allahabad High Court order asking the Insurance Regulatory and Development Authority (IRDA) to scrutinize all policies of SBI Life and asked it to order the company to discontinue its policies and wind up its business if it detects any regulatory breaches.

The matter is related to Virendra Pal Kapoor, a 72 year’s old retired scientist from Lucknow. In 2007, he invested Rs 50,000 in SBI Life – ‘UNIT PLUS II- single’, a unit-linked product offered by SBI Life with an option of a limited term of five years, on the basic sum assured for life with risk cover at 625% of Rs 3,12,500, with a choice of investment in growth fund. The petitioner survived the term of the policy of five years. On its maturity he was paid only Rs 248 as a balance in the fund.

The Court noted that SBI life is a subsidiary of State Bank of India (SBI), and that ‘SBI Life Unit Plus II-Single’ a unit-linked product on a standard form contract did not have the approval of Irda to its twin options in which the higher option reduced the entire investment of a senior citizen with high rate of mortality charges.

Insurers Divided Over Repository System

insurance_repositoryThe Insurance Regulatory and Development Authority (IRDA) has mandated all life insurance companies and insurance repositories to participate in the pilot launch of the insurance repositories. The pilot launch will be for two months starting from first July 2014.

However, insurers are still divided over whether the new system will be beneficial from business and customer perspective.

Insurance repositories say that this will bring clarity to the system to make sure that every life insurer ties up with all five insurance repositories, so that customers can choose which repository’s service to avail of.

An insurance repository is a facility to help policyholders buy and keep insurance policies in electronic form instead of as a paper document. Insurance repositories will hold electronic records of insurance policies issued to individuals and such policies are called electronic policies or e-policies.

Some life insurers have tied up with more than one insurance repository, while some other insurers are yet to tie-up with all insurance repositories.

Insurers say that it is not clear what additional services will be provided by an insurance repository. At the face of it, it looks they would merely provide a platform for viewing documents, for which each insurance repository would charge a commission.

Insurance repositories will be responsible for providing mandatory information like policy status (including premium status, NAV status, bonus status, loan status, claims status, nominee status), premium due calendar and online premium payment facilitation, premium history and annual statements.

Insurers also say that there is a fear that there would be stiff competition among the insurance repositories based on the pricing mechanisms. If an insurance repository offers a better price, there would be a tendency to push a customer to get his policy digitized with that particular entity. This would be detrimental from a customer perspective.

Currently, there are more than 330 million life insurance policies and 90 million general insurance policies that are in force in the country.

Insurers Allowed To Deal In Derivatives

interestRateDerivativesThe Insurance Regulatory and Development Authority (IRDA) has allowed insurance companies to deal in rupee interest rate derivatives, including forward rate agreements (FRAs), interest rate swaps (IRS) and exchange traded interest rate futures (IRF).

Insurers could undertake different types of plain vanilla FRAs/IRS. IRS having explicit/implicit option features is prohibited.

The reasons behind IRDA permitting insurers to deal in interest rate derivatives include reinvestment of maturity proceeds of existing fixed income investments, investment of interest income receivable and expected policy premium income receivable on insurance contracts, which are already underwritten in life and pension and annuity business in case of life insurers and general insurance business in case of general insurers.

The counterparties necessarily have to be commercial banks and primary dealers, as permitted by Reserve Bank of India (RBI) for FRAs and IRS. Insurers shall in aggregate not exceed an outstanding notional principal amount equivalent to 100% of the book value of the fixed income investments under policyholder fund (excluding ULIP fund in case of life insurers) and shareholders funds taken together.

Insurers have welcomed the move. They say that these would enable life insurers to hedge the interest rate risks on the future premiums to be collected by them. Earlier, the risk was borne by insurers. Insurers also say that this could also popularize regular premium traditional products with in-built guarantees.

IRDA Made Insurance Repository Must For Life Insurers

insurance_repositoryTo ensure that life insurance companies have some policies in digitized form, the Insurance Regulatory and Development Authority (IRDA) has asked all life insurers and insurance repositories to participate in the pilot launch. The pilot launch will be for two months from first July 2014.

During the pilot launch, each life insurer would have to convert a minimum of 1,000 or 5% of the individual policies (issued in hard form and currently inforce (whichever is less for each of the insurance repositories into electronic form. This will be subject to a minimum of 250 policies per insurance repository. During the pilot launch, an insurer will not deny any request for electronic policy by any policyholder.

An insurance repository is a facility to help policyholders buy and keep insurance policies in electronic form, rather than as a paper document. These repositories will hold electronic records of insurance policies issued to individuals and such policies are called electronic policies or e-policies.

The insurance repositories will be responsible for providing mandatory information like policy status (including premium status, NAV status, bonus status, loan status, claims status, nominee status), premium due calendar and online premium payment facilitation, premium history and annual statements.

Starting from July 16, 2014, insurance repositories have been asked to submit a fortnightly report on digitization of policies.

Maximum charge has been fixed at Rs 60 for e-policy issuance (new policy) payable by insurer to insurance repository. For an e-policy conversion (existing policy), the maximum cap on charges is Rs 40.

Currently, there are more than 330 million life insurance policies and 90 million general insurance policies inforce.  On an average, Rs 150-200 per customer is spent annually by insurers in maintaining policies in physical form.

Rising Equity Markets Taking Toll On LIC’s Performance

lic-revampOn the one hand, amidst rising equity markets, country’s largest institutional investor, Life Insurance Corporation of India (LIC) is finding it difficult to sell insurance as household savings are being garnered by mutual funds and banks.

And on the other hand, a stricter regulatory regime that came into effect from first January 2014 has stripped off all its old insurance schemes even as its new schemes are unattractive.

LIC said that this year will be bad for the life insurance sector, be it public sector or private sector as growth is not being seen. This is because the Insurance Regulatory and Development Authority (IRDA) compliance schemes are not still getting market acceptance.

The IRDA introduced new regulatory regime after it received complaints of mis-selling. Customers were being sold investment products as insurance products.

This changed regime has taken a toll on LIC’s performance. The behemoth is now left with only 12 products, down from 54 till December 31, 2013.

First quarter post the new regulatory regime (January-March 2014), LIC’s new premium collection stood at Rs 24,350 crores as against Rs 26,210 crores in corresponding period of last fiscal, a decline of 7.1%.

But it’s not just restricted regulatory regime but also poor marketing strategy that was also responsible for its current predicament.

There are few places in the country, at least those above population of 10,000 where LIC is not present with offices. But despite with such robust infrastructure, it is finding it difficult to do business. LIC said that it need to take a re-look at the way it does business and sell ints policies and bring back the strategies it had in 80s. LIC said that its challenge now is to connect again with customers.

However, LIC is hopeful that by year end it would be able to retain its market share of 82% on the back of several schemes that are awaiting clearance from IRDA.

Allahabad HC Directed IRDA To Critically Examine Policies Sold By SBI Life

SBI LifeThe Allahabad High Court has directed the Insurance Regulatory and Development Authority (IRDA) to scrutinize every policy sold by SBI Life Insurance and order the company to discontinue its policies and wind up its business if it detects any regulatory breaches.

This order has came in response to a petition filed by an SBI Life customer, a 72 years old Virendra Pal Kapoor. Kapoor had invested Rs 50,000 in 2007 in SBI Life’s Unit Plus II-Single, a Unit-Linked Insurance Plan (ULIP) with an option of a limited term of five years, on the basic sum assured for life at Rs 3,12,500 (625% of the investment), with a choice of investment in a growth fund. But on maturity, he was paid just Rs 248.

Allahabad High Court called the policy document an unconscionable contract that was thus arbitrary, illegal and void. Hence, the Court directed SBI Life to return the original amount of Rs 50,000 to Virendra Pal Kapoor within a month.

The Court held that the central government will do well to insure that the investors are not cheated in a manner, as in this case, in which the entire investment of the senior citizen has been lost on the pretext of the policy being in tune with IRDA guidelines.

The Court found that the policy in question was sold to Kapoor by an agent on behalf of SBI Life, on the basis of certain terms that did not have IRDA’s approval.

The Court found that Kapoor was sold the policy in the premises of SBI, and was allegedly mislead by an agent of SBI in breach of IRDA’s rules, the Court deemed an alongside inspection of SBI’s directors (who are part of SBI Life’s board) necessary to find out if any lawful gain had been made from sale of such policies.

However, SBI Life said that the scheme of the policy was that the mortality charges and other applicable charges were to be deducted every month by cancellation of appropriate number of units and as on the date of maturity, the remaining fund value would be paid. The insurance premium less the initial expenses were invested in the growth funds opted by Kapoor. Considering the advanced age and the high sum assured, the mortality charges were obviously higher and the policyholder paid only one premium under the policy and thus fund got reduced every year with the deduction of charges.