General insurance companies will soon be able to launch commercial products on pilot basis for a limited period, according to the recommendations by a working group set up by the Insurance Regulatory and Development Authority (IRDA).
At present, insurers use ‘file-and-use’ system. Under this system, insurers have to file and get approval from the IRDA before launching the products.
Insurers have been demanding ‘use-and-file’ system to co-exist with ‘file-and-use’ system, for certain products. Due to this, insurers can respond to customer requirements faster.
According to the working group’s report, insurers can launch pilot products for a short period of time in a defined pilot area with defined exposure limits after informing the IRDA. After seeing the performance of the product, they can finalize and take it through the approval process.
The working group pointed out that developing an innovative product requires experimentation, testing, refinement and finalization. However, the current system does not afford the freedom of testing and refinement; it jumps from experimentation to finalization.
The group has also suggested that there will be just two classes of products–retail and commercial. The group has recommended ‘use-and-file’ system for commercial products while retail products will continue to be governed by the ‘file-and-use’ system.
Most of the products of specialist mono-line companies will fall in the commercial category.
Taking a big step forward in the evolution of the general insurance industry, The Insurance Regulatory and Development Authority (IRDA) is set to scrap the standardized general insurance policy format covering fire and accident. This will leave customers free to pick what kind of risk they need protection against. This is the evolution from risk based pricing to risk based coverage.
This move could lead to reduced premium for companies that want fewer events covered and vice-versa. This will change the way corporates buy insurance, and insurance companies price products. Certain risks will come in line with the need of the market. Smaller companies can avail of customized products as per their needs.
The current general insurance cover of Rs 2,500 crores and above is referred to as large risk or mega risk for any company for a single location adopts a ‘one size fits all’ approach. Its an all risk policy that insures against perils such as flood, earthquake, landslide and explosion. Once changes are implemented, companies can choose the risk they want to insure against. For instance, a power plant located in a desert state could seek cover against fire and explosion, but exclude flood. Meanwhile, factories near a river or located in low-lying areas could seek flood cover.
The move will bring certainty and transparency for insurance clients. Products could be customized to suit the needs of clients and supported by reinsurance.
The first phase of liberalisation took place in 2007, when prices were de-tariffed, or companies were allowed to set their own rates. Later, in 2009, while freezing the basic wording, IRDA allowed companies to write in add-ons. The latest proposal, once implemented, will constitute the third phase of liberalisation.
The Insurance Regulatory and Development Authority (IRDA) has warned policyholders against fictitious offers, including insurance bonus and refunds, and advised customers to contact the police to furnish the numbers from which the call originates.
At least, 15 insurance companies have received 4,500 alert calls from customers in the last three months on the commission-bonus offer.
The modus operandi is simple: the caller, posing as a new agent, gains the confidence of policyholder by detailing his details like address, policy numbers, sum assured and date of policy issuance.
After that, this new agent will portray the original agent as a fraudster who has claimed Rs 50,000 – Rs. 2 lakh as commission on the bonus earned from the policy. Then, new agent asks for one cancelled cheque and another in the name of a different product of another insurance company from the policyholder, in order to prevent the agent from getting the rightful money of the policyholder. He gets these documents under the guise of adjusting the claimed bonus.
Policyholder will become aware of the fraud only after three months, by which time the agent would have become untraceable on the number provided.
While the new agent traps the customer with a new policy that helps him earn the highest commission, the customer ends up having two policies.
Usually, such calls take place around pay-out time of an existing policy or month end when premiums are due.
The misuse of database is rampant. The data becomes easily available as most companies outsource their field operations to cut costs.
The Insurance Regulatory and Development Authority (Irda) has said that insurance companies will be required to display information about any unclaimed amount above Rs 1,000 on their respective websites. This will come into force from first October 2014.
Policyholders would be given an option in the insurer’s website to check whether any amount of theirs is lying due with the insurance company.
For this, the policyholder would be required to enter their PAN details, policy number, name and date of birth.
Insurers will be needed to provide this information as of December 31, 2014 by January 31, 2015. Subsequently, this will be uploaded on half-yearly basis as on March 31 and September 30, and by April 30, and October 31, respectively.
For new insurance policies, companies will have to have bank details of insured in the proposal form. However, this is not applicable to term insurance policies with annualized premium up to Rs 25,000 and those with bank accounts not linked to Reserve Bank of India (RBI) Core Banking Solutions.
The Insurance Regulatory and Development Authority (IRDA) has allowed insurance companies to invest in onshore rupee bonds issued by Asian Development Bank (ADB) and International Finance Corporation (IFC), an arm of World Bank.
IFC has proposed to raise $5 billion in next ten years through rupee bonds. The proceeds would be used to fund IFC’s projects in India that require rupee financing. The centre has onshore rupee bonds, issued by multilateral institutions like ADB and IFC as securities.
These bonds would be duly approved by the sectoral regulator (Securities & Exchange Board of India or SEBI).
Further, these bonds are require to meet the rating criteria to qualify as ‘approved investments’ prescribed by IRDA’s investment regulations as amended from time to time. If SEBI exempts the rating requirement from rating agencies registered with SEBI in view of the rating obtained from international rating agencies, then such rating would be considered for classifying as ‘approved investments’.
Also, these investments should be classified in line with the National Industrial Classification for the sectors to which the said tranche belongs. For instance, if most of the proceeds of a tranche are meant for infrastructure, then such investments shall be treated as exposure to infrastructure. If the same is not identifiable, then the exposure shall be treated as exposure to the BFSI (banking, financial services and insurance) sectors.
The Insurance Regulatory and Development Authority (IRDA) wants insurers to become more active on issues related to corporate governance in listed companies. This would not only ensure that insurance companies get best returns but also ensure safety of investments for policyholders.
Insurance companies hold significant stakes in listed companies. Life Insurance companies manage assets of over Rs 19 lakh crores. Life Insurance Corporation of India (LIC) is the largest domestic institutional investor managing assets of over Rs 13 lakh crores. Despite all this, insurers have been considered passive investors.
Securities and Exchange Board of India (SEBI) has been urging IRDA to ask insurers to be more vigilant with regard to corporate governance of companies.
In 2013, the finance ministry has asked LIC to place nominees on boards of all companies in which it has significant stakes to protect shareholder’s interest.
However, over the last year insurance companies have been more active investors and have started exercising their voting rights to protect policyholder’s interest.
With 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.
The 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.
The 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.
In 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.