IRDA « Archives of Policy Mantra Blog
Tag Archives: IRDA

LIC To Come Up With ULIP Soon

LICWith booming equity markets, insurance behemoth, Life Insurance Corporation of India (LIC) is working on launching a Unit-Linked Insurance Plan (ULIP) before the end of the year.

LIC so far has only traditional life insurance products in its product basket. Currently, LIC has 16 individual products and eight group products in its portfolio. LIC said that it cannot live on five products a year. The appetite of a company large as it is huge and therefore it needs a special dispensation.

After the Insurance Regulatory and Development Authority (IRDA) revamped ULIPs in 2010, bringing down charges and agent commissions, life insurance industry shifted to selling traditional policies.

IRDA then revamped product guidelines for traditional life insurance products in February 2013 and all products had to comply with the regulations from January 2014. IRDA asked insurers to file not more than five products per company in a year to ensure faster product approvals.

Top private life insurers like ICICI Prudential, HDFC Life, Max Life and couple of smaller players with significant portion of ULIPs in their product portfolio have been able to register double digit growth in individual new business premium during April-August 2014. On the contrary due to absence of ULIP, LIC witnessed negative growth.

ULIPs Set To Undergo For Another Round Of Reforms

ulipThere could be another round of reforms in Unit-Linked Insurance Products (ULIPs), as the Insurance Regulatory and Development Authority (IRDA) is tightening rules for ULIPs further as it indicated recently when it prevailed over an insurer to keep the component of investment option of debt or equity throughout the lifetime of the product instead of a specified period and asked another company to guarantee capital on its ULIPs.

The IRDA has earlier advised that life insurance products be designed with a saving element such that at a uniform assumed gross yield of 4% per annum, expected maturity in linked insurance products, is at least 90% of the total premium paid excluding the service tax. Insurers say that with this it will make it difficult to write ULIPs for older age groups where mortality charge is high. The total effect of total charges, including mortality on yield, could go beyond 4% depending on age. Insurers say that it seems that IRDA is trying to discourage ULIPs for people above 55 years.

IRDA is of the view that fund option is not independent of the product and it is not in favour of close-ended products.

IRDA has asked insurance companies to examine thoroughly the advantages and disadvantages for both the customers and the insurer at the design stage for each of the features proposed under the product and ensure that the features meet the needs of the customers and do not contain any scope for mis-selling.

ULIPs have undergone an overhaul with IRDA stipulating minimum risk cover and cap on discontinuance charge. Other charges were capped in 2010.

IRDA Directed SBI Life To Pay Rs 84 Crores

sbilife300The Insurance Regulatory and Development Authority (IRDA) has rejected an appeal by SBI Life and ordered it to pay Rs 84.31 crores to its group insurance members/ beneficiaries.

In October 2012, IRDA had ordered SBI Life to distribute the wrongful payments made to some of its master policyholders. In June 2008, an onsite inspection carried out at SBI Life found that the company had paid Rs 204.71 crores to 14 master policyholders flouting norms. In 2011, the IRDA had levied on SBI Life a fine of Rs 70 lakh. In 2012, IRDA ordered SBI Life to distribute Rs 84.31 crores to the members/ beneficiaries of the respective group insurance policies.

IRDA had asked it to identify them members/ beneficiaries as the case may be of each master policy against which the life insurer had reimbursed the administrative expenses as a percentage of premiums.

Further, they had asked them to distribute the wrongful administrative charges paid, amongst respective members/ beneficiaries of each master policy by way of refund to the respective members/ beneficiaries.

IRDA To Look Into Price Undercutting In Group Health Insurance Segment

IRDAThe Insurance Regulatory and Development Authority (IRDA) might take an exception to undercutting by general insurance companies in the group health space.

IRDA said that it will look in the group health space, which constitutes 55% of the health segment while retail health constitutes rest. Claims in group health are much higher than in the retail segment. In FY’13, incurred claims ratio for health insurance segment stood at 96.43% as against 94% in FY’12.

IRDA is looking at having higher capital requirements or solvency rates for those insurance companies that quote unviable prices.

To retain corporate accounts, certain general insurers are offering high discounts. Experts say that it is not sensible to offer discounts to large profitable firms, as such companies are capable of purchasing insurance without a subsidy. Experts also say that unhealthy competition is eroding group health space.

As there are differences in pricing for similar kind of treatments in hospitals, IRDA is planning to have standardized protocols and standard costing mechanism. A geo-code system is being envisaged to map hospitals across India. This data will be used to monitor hospitals for any fraud, claims processing and other treatment related standardization.

Group Health Cover Rates Set To Go Up

Group-Health-InsuranceThe Insurance Regulatory and Development Authority (IRDA) has said that it will penalize insurance companies that accept group health covers at a loss as these losses are ultimately subsidized by individual health insurance buyers. This means, rates of group covers for companies will go up where hospitilisation claims from employees exceed the premium paid.

Currently, large companies with loss making group health covers escape rate hikes as they shift to other insurers. And health insurers also accept loss making business in order to increase their top line. Insurance companies cite these high losses to raise rates for individual policies where the buyer does not have bargaining power.

IRDA said that it has seen cases where insurers are quoting rates below their burning costs. Since insurance business is nothing but pooling of resources hence, if group premiums are inadequate, they are being subsidized by someone else. Burning cost is a measure use to calculate the extent of premium required to cover claim payments.

IRDA also said that it is going to increase solvency margins for companies that accept group health insurance at rates below their burning cost.

The IRDA has also asked insurance companies to come up with savings linked insurance plans so that insurance buyers do not see a hike in rates as they age. Under such plans, a portion of the premium could go towards savings used in old age.

Insurance Brokers Opposed To 100% FDI

FDI InsuranceInsurance broking industry has come out in opposition to any gradual move to hike Foreign Direct Investment (FDI) in the insurance intermediary segment to 100%.

An Insurance Regulatory and Development Authority (IRDA) panel has recommended hiking FDI in all insurance intermediaries like surveyors, brokers, third party administrators and web aggregators to 49%, from current 26% immediately and then 100% over the next three years. The panel is headed by IRDA joint director Suresh Mathur.

Brokers say that there ought to be level playing field between insurance companies and their brokers. They say that they welcome 49% FDI but they are not in favour of 100% FDI in their segment.

Currently, there are 350 brokers in the country and one needs only Rs 50 lakh as capital investment to open an insurance broking firm in the country. Out of these 350 brokers, there are only four broking firms which have foreign partners. At present, there is only one foreign surveyor which is present in the country.

Brokers say that unlike insurance industry, the insurance broking sector is a non-capital intensive one hence there is no need to increase FDI to 100%. Brokers also say that if higher foreign holding is allowed, it would put domestic players in trouble.

Insurance Regulations To Be Brought In Line With Companies Act

IRDAThe Insurance Regulatory and Development Authority (IRDA) has formed a 12-member working group to bring its corporate governance and disclosure requirements in sync with the Companies Act 2013.

The committee will recommend any changes that need to be made to the insurance regulations in light of companies act 2013 and rules, especially social responsibility, related party transactions and financial statements. The committee will undertake a comprehensive review of the guidelines especially on composition of board and its committees, provisions relating to independent directors, appointment and responsibility of directors, auditors, company secretary and key managerial personnel, disclosure and reporting requirements, provisions relating to remunerations of Chief Executive Officer, managing director and whole-time directors.

Many of the changes have a significant impact on the regulation, reporting and compliance of insurance companies.

The committee will also undertake a comprehensive review of the regulations on registration, accounting, amalgamation and issuance of capital by insurance companies in light of Companies Act 2013.

The committee will be chaired by R K Nair, member, finance and accounts at IRDA, R S Sridharan, president of institute of company secretaries of India, J Venkateswarlu, central council member of the institute of chartered accountants of India, P R Ramesh, partner at Deloitte and officials of insurance companies.

Govt. May Scrap Surveyor Requirement For Motor Insurance Claim Settlement

motor insuranceThe government is planning to scrap the need for surveyors for claim settlement in motor insurance. If the proposed amendment to the Insurance Bill goes through Rajya Sabha, this could lead to lower premium and faster settlement for motor insurance policyholders.

According to current rules, any loss beyond Rs 20,000 cannot be settled unless a report is obtained from a licensed surveyor. The amendment has proposed scraping of sub-section 2 of section 64 UM of the Act, which stipulates this ceiling.

Usually, surveyors take 10-15 days in assessing a claim. On an average, for a private car, surveyors charge Rs 1,200-2,000 and for commercial vehicle Rs 2,500-3,000.

The removal of the section can be cut both ways. In an event of dispute there is no third party to go to. The amendment will empower Insurance Regulatory and Development Authority (IRDA) to frame regulations to protect policyholder’s interest in a situation like this.

The government may also raise the Rs 20,000 limit to Rs 50,000. The IRDA had relaxed the norms by increasing the limit to Rs 50,000 in case of floods in Uttarakhand last year and in Jammu & Kashmir this year. If the limit is raised, any claim up to Rs 50,000 can be settled by the insurer without requirement of an external surveyor.

Some private companies have started using technology to assess loss internally and eliminate the need of a licensed surveyor. Surveys with the help of technology are done at one-fifth the price.

Insurers May Be Allowed To Launch Commercial Product On A Pilot Basis

Use-&-fileGeneral 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.

IRDA Set To Scrap ‘One Size Fit All’ Format

onesizeTaking 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.