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Insurers Required To Display Unclaimed Amount Above Rs 1,000

unclaimed-moneyThe 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.

Insurers Allowed To Invest In Onshore Rupee Bonds Issued By ADB, IFC

IRDAThe 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.

IRDA Asked Insurers To Become More Active Investors

IRDAThe 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.

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.