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Reliance Life Eyes 10% Growth In Premium Income This Fiscal

Posted on May 22, 2013 by Akanksha

Private sector life insurer, Reliance Life expects to maintain a 10% growth in total premium income on the back of growth in regular premium policies and better policy renewals.

By keeping in regular touch with existing policyholders and charting out a growth path for agents, the company aims to achieve double digit business growth during the current fiscal.

Reliance Life reported a Profit Before Tax of Rs 380 crores and mopped up total premium of Rs 4,020 crores for FY’13.

Currently, traditional life insurance products accounts for 80% of its total product portfolio, while Unit-Linked Insurance Plan (ULIP) accounts for the rest.

The company recently launched a ‘career agency’ format, offering a fixed stipend and variable commission payout for its 1.25- lakh agents. The company wants to focus on its strength, which is its agency channel. The company said that it wants to be the alternative to Life Insurance Corporation of India (LIC) in the private sector.

Reliance Life, as a late entrant in the life insurance industry, does not have a bancassurance tie-up (banks acting as corporate agents for distribution of insurance products) with any big bank.

Bancassurance accounts for 30% of the premium income for private insurers. However, for Reliance Life it is miniscule on this account.

As per current Insurance Regulatory and Development Authority (IRDA) regulations, one bank can tie-up with only one insurance company for bancassurance. In the Union budget this year, the Finance Minister announced that banks will be allowed to become insurance brokers which will enable them to sell policies of multiple insurance companies. Life insurance companies with existing tie-ups with banks could potentially lose some percentage of their business once banks become brokers.

Categories: News | Tags: Agency Model, Bancassurance, LIC, Policy Renewals, Reliance Life, ULIPs

FM To Track Insurance Sector To Boost Growth

Posted on April 12, 2013 by Akanksha

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Finance Minister, P. Chidambaram has decided to track developments in the insurance sector – life and general – very closely. He has asked the Insurance Regulatory and Development Authority (IRDA) as well as companies, both in life and non-life space, to submit a status report indicating the progress, hurdles and new measures undertaken by them by the first of every month.

The move has been undertaken by the finance minister to ensure roadblocks are reduced while increasing penetration.

The finance minister would personally examine the sector’s status.

Sectoral growth has been slowing down as fresh policy sales plunged after the IRDA enforced a new set of norms in September 2010 for Unit-Linked Insurance Plan (ULIPs). The norms benefit consumers, but reduce the profitability of companies and agent’s commission.

The finance minister has already underlined the need to revive growth in the sector. He has also initiated talks with the opposition leaders to introduce the Insurance Bill in the current session of parliament. The bill seeks to raise Foreign Direct Investment (FDI) in the insurance sector to 49% from current 26%, as the sector needs immediate capital of $5-6 billion to expand operations and increase penetration.

In the last few years, no global insurance company has entered the country, though Canada based Manulife, French firm Scor Global Life and South Korean Samsung Life insurance had shown interest.

The penetration level in the life and non-life segments is 4.4% and 0.76%, respectively.

Categories: News | Tags: Insurance Regulatory and Development Authority, IRDA, ULIPs, Unit Linked Insurance Plan

10 Life Insurance Funds Beat Nifty With Better Returns

Posted on April 5, 2013 by Akanksha

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Amid turbulent times in the stock markets, at least 10 funds managed by the life insurers have given better returns than the stock market benchmark index with gains of as high as 12.4% in the last fiscal.

The market barometer index Nifty gave 7.31% return during financial year 2012-13.

In comparison, at least 10 market-focused life insurance funds have a return higher than 7.31%, shows an analysis of life insurance fund for 2012-13.

These funds invest the money collected from policyholders in the stocks as per the authorization taken from the customers.

Topping the list, SBI Life’s Horizon Equity Fund gave a return of 12.39%, while there are two funds managed by Reliance Life in the top-five – at third and fifth places.

The second best return came from TATA AIA Life’s Invest Assure Equity Fund (9.96%), followed by Reliance Life’s Life Equity Fund 3 (9.76%), Bharti Axa Life’s Grow Money Fund (9.22%) and Reliance Life’s Life Equity Fund 2 (8.76%).

Other fund having given a better return than Nifty include funds managed by Bajaj Allianz, Kotak Mahindra Life, PNB MetLife, Birla Sun Life and Aviva Life. Their returns for FY’13 were in the range of 9.68% to 8.69%.

Among other life insurers, ICICI Prudential’s Life Time Maximiser Fund gave a return of 6.25%, Max Life’s Growth Super Fund gave 5.93%, ING Vysya Life’s Equity Fund’s return for the year was 5.12 % and HDFC Standard Life’s Growth Fund 4.76%.

Total assets under management of Unit-Linked Insurance Plan (ULIPs) across the industry are around Rs 2 lakh crores, which is equally divided among equity and debt.

Categories: News | Tags: Insurance Funds, Nifty, SBI Life’s Horizon Equity Fund, ULIPs

IRDA Limiting New Products Each Year To 5 May Be Restrictive: Life Insurers

Posted on April 3, 2013 by Akanksha

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With Insurance Regulatory and Development Authority (IRDA) asking insurers to file a ‘product planner’ each year, life insurers say that the IRDA’s proposal to limit number of new products every year to five may be challenging.

This, according to them, would be inadequate, since the product categories are varied and they would need to re-file products following new traditional product norms.

IRDA has asked insurers to indicate the number of products that they are planning to file each quarter. It also said that if the products to be filed in a financial year exceed five, the insurer should furnish the supporting market research, product-wise persistency for 13^th month, 25^th month and 37^th month as on April 30th of the previous year. For 2013-14, insurers have been asked to submit the ‘product planner’ on or before 30 April 2013.

In February, IRDA published traditional product guidelines, which called for non-linked variable insurance products (index-linked products) to be treated at par with Unit-Linked Insurance Plan (ULIPs). The insurers have been given time till 30 June 2013, and 30 September 2013 to re-file their group and individual products, respectively.

Insurers believe that apart from re-filing products under new norms, they have a large product category and merely five products a year would be restrictive.

Insurers say that due to regulatory changes and change in market dynamics, it is difficult for the industry to plan a product calendar.

Depending on the size of the life insurance company, approximately 8 to 10 products are filed by insurer each year, in the area of individual, group, health and pension among others. If the products to be filed are capped at five per year, insurers would not be able to file more than one product in each category.

Insurers also say that this may be a constraint for new insurance companies, who do not have a complete product portfolio. Some exceptions need to be made for them, to enable them to file more than five products each year.

While this decision may expedite product approvals in the long run, implementing it this year would be a difficult task for insurers.

There is yet, no clarity whether riders would be included in this planner, as a separate product. If riders are included as separate products, it would be more difficult to file for new products, since insurers introduce additional riders on existing products.

Life insurers are expecting some modifications in this decision, to boost their business. Insurers say that they would prefer a mechanism where the regulator puts a limit of five products a year in the individual category. Group products and riders should be kept out of this.

Further, insurers are also hoping that IRDA does not put a mandatory limit of five products. IRDA should define a range of number of new products (not riders) to be filed every year that companies should adhere to. A definitive limit on the number of products would be detrimental to the industry.

Categories: News | Tags: Insurance Regulatory and Development Authority, IRDA, Product Planner, ULIPs, Unit Linked Insurance Plan

IRDA Mandated Monthly Disclosures on ULIPs

Posted on March 11, 2013 by Akanksha

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Life insurers will now have to inform Unit-Linked Insurance Plan (ULIP) customers of the reduction in yield on a monthly basis, according to Insurance Regulatory and Development Authority (IRDA).

Reduction in yield – the difference between gross and net yields (expressed in percent) – refers to the lowering of investment growth within a fund on account of the various charges. The net yield can be arrived at after deducting all prescribed charges from the gross yield.

According to the IRDA’s new guidelines on linked-plans, insurers must also issue annual certificates detailing the contributions, charges and taxes deducted from the fund value, and the final payments made.

Typically, the burden of charges on a policyholder reduces as the tenure increases.

The IRDA has capped the reduction in yield at 4% for policies with five year tenure, 3% for ten year tenure and 2.25% for more than 15 years.

In case the limit is not adhered to, insurers will have to add more units to the policyholder’s account and maintain the fund value at the prescribed limit.

Currently, most insurers are not adhering to any limit and they inform customers about the reduction only at the time of maturity. The measures will help to curve this practice and bring in some uniformity in reduction.

However, insurers are not comfortable with this; they say that IT systems of insurers are not designed to generate monthly certificates of reduction in yield of individual customers. This will create practical difficulty.

Insurers can now offer Variable Insurance Plans (VIPs) – where the benefits are dependent on the performance of the approved index linked to the product – on the linked platform too. Insurers will need to offer a non-negative guaranteed return on it.

The death benefit offered under VIP will include some assured mentioned in the policy document, along with balance in the policy account.

The way this works, each policyholder will have a separately managed (shadow) account, reflecting the premium paid by the policyholder as well as the interest gained from the particular index to which the fund is linked.

IRDA also said that insurers will need to keep a separate account of all receipts and payments for the product. The policy account value of each product must be disclosed on a daily basis through a specifically assigned identification number.

Categories: News | Tags: IRDA, Reduction Yield, ULIPs, Variable Insurance Product

Index-linked Products and ULIPs to be Treated at Par

Posted on March 7, 2013 by Akanksha

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In the latest traditional product guidelines, the Insurance Regulatory and Development Authority (IRDA) have called for non-linked variable insurance products (index-linked products) to be treated at par with unit-linked products (ULIPs). The insurers have been given time till June 30 2013 to re-file group products and September 30, 2013 for individual products re-filing.

The ceiling for first year commissions has been put at 15% for the first year for a 5 year term, 30% for 10 years and 35% for 12 years or more (40% for insurers aged less than 10 years). If the polices are procured by direct marketing no commission will be allowed for direct marketing, IRDA stated.

The minimum guaranteed surrender value would be 30% of the total premiums paid less any survival benefits paid, if policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 70% of the total premiums paid less any survival benefits already paid. If surrendered during the fifth to the seventh policy year, it would be 90% of total premiums paid, less any survival benefits already paid,” the norms said. The surrender value beyond the seventh year would need to be filed by the insurer under the File & Use for clearance.

IRDA fixed the minimum death benefit at highest of 125% of the single premium or minimum guaranteed sum assured on maturity or any absolute amount to be paid on death, for single premium products. For other products, it will be highest of 10 times the annualised premium or 105% of all premiums paid on date on death, or minimum guaranteed sum assured on maturity or any absolute amount to be paid on death.

Categories: News | Tags: Commissions, ILIPS, Index Linked Insurance Plans, IRDA, Par products, Term Insurance, Traditional Insurance Policy, ULIPs, Unit Linked Insurance Plan

Insurers Not in Favor of Banning Highest NAV Guaranteed Products

Posted on February 25, 2013 by Akanksha

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The Insurance Regulatory and Development Authority (IRDA), under former chairman J Hari Narayan, had decided to ban highest Net Asset Value (NAV) guaranteed products. However, life insurers feel that IRDA should have curbed mis-selling in this segment, rather than ban such products.

Highest NAV guaranteed products are a type of Unit-Linked Insurance Plan (ULIP) that promise to pay the highest value the fund records during a certain period of the term (five to seven years). For this, insurers have to invest aggressively in stocks, something that may lead to undue risks.

The controversy surrounding highest NAV guaranteed products started in September 2010, when IRDA indicated its discomfort on the grounds of systemic risks associated with the way such funds were managed. IRDA felt that such products emphasized on debt instruments and had a risk of heavy sell-off in equities, in case of a fall in the stock markets.

Insurers have different point of view, they say that products, per see, do not have any fundamental problem. The problem is that these products have a tendency to be mis-sold, since the customer does not understand market fluctuations could be risky. Hence, disclosures should be made clearer, rather than banning the product.

However, some insurers have a traditional view, they say that these products are neither good for the customer, as there is a significant possibility of mis-buying this product, nor for the economy, as these may expose stock markets to systematic challenges in the form of markets spiraling down when all fund managers start dumping equities in favour of bonds to prevent their losses.

Of the complaints registered with ombudsman office, most pertain to the life insurance sector. In the life insurance segment, ULIP accounted for most complaints, with issues related to highest NAV guaranteed products topping the list.

Experts say this is because the returns promised might not be achieved, owing to adverse stock market performance.

Experts say that with a new chairman at IRDA, some revisions might be expected. A lot of administrative procedures are yet to be completed before this product is banned.

Categories: News | Tags: Highest NAV Guarantee Plan, IRDA, Mis-selling, ULIPs

Insurers Keen to Offer Schemes Approved under RGESS

Posted on February 18, 2013 by Akanksha

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Insurance companies are keen to offer fund approved under Rajiv Gandhi Equity Saving Scheme (RGESS) to potential policyholders for Unit-Linked Insurance Plan (ULIP). Even the Insurance Regulatory and Development Authority (IRDA) is with the sector on this.

IRDA said that tax breaks should be available for all equity investors across instruments. It would be inefficient to discriminate between investors based on the instrument they invest in.

Insurance sector experts say that when the idea is to get tier II/III capital into equities, it would be beneficial for the RGESS to include ULIPs, as many small investors put money in insurance products.

The sector is very much interested in participating in RGESS but will need to be modified a bit to suit the sector’s needs.

IF RGESS is offered in the current form of ULIPs, there will be contradictions. For instance, RGESS has a lock-in period of three years, while a ULIP has five years. Which one will investors adhere to? Secondly, RGESS qualifies for tax benefit of Rs 50,000 under section 80 CCG and ULIP gets a benefit of up to Rs 1 lakh under section 80C. In such situation which section should investor claim?

Insurers say that a fund qualifying under RGESS cannot be added to the existing basket of ULIPs. Hence, insurers might have to launch a new ULIP, offering only RGESS for investment, for which IRDA might relax the lock-in period to at par with RGESS.

Commission structure for the new ULIP might be similar to the one offered by all ULIPs. But some insurers say that commission will need to be increased to be able to attract more policyholders.

Insurers also say that government should club the tax benefits and the section under which both RGESS and ULIPs can get similar tax breaks.

Categories: News | Tags: IRDA, Rajiv Gandhi Equity Saving Scheme, RGESS, Tax Benefits, ULIPs

Complaints Pile Up at Mumbai Insurance Ombudsman Office

Posted on February 13, 2013 by Akanksha

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At Mumbai insurance ombudsman at least Rs 2,500 complaints are lying for decision and it will take more than a year to clear this backlog. The reason is that there is no ombudsman; the post has been vacant since October 2012.

Given the backlog, it could take up to a year to clear just the pending cases, before new ones could be taken up.

The institution was created through a November 11, 1998 notification to quickly dispose grievances of insurance customers. According to this notification, the ombudsman should pass an award within three months from receipt of a complaint. The awards are binding upon insurance companies. If policyholder is not satisfied with the award, he can approach other venues such as consumer forums and court of laws.

The 90-day time frame to dispose cases was fixed in 1998, when there were only five insurance companies. Although this number has gone up, the number of ombudsmen across the country still remains 12. At present, there are around 50 insurance companies in the country including both life and non-life insurance sector.

On an average, time taken to resolve a complaint ranges from six months to nine months.

As per IRDA, since 100-plus applications have come for the post of the ombudsman, it was taking a longer time to decide.

Till last year, 62% of complaints were from the non-life insurance sector and 38% from life insurance sector. However, there has been a gradual shift with 52-56% coming from non-life and 46-48% from life segment.

Among life, Unit-Linked Insurance Plan (ULIPs) accounted for highest number of complaints, with issues related to highest Net Asset Value (NAV) products topping the list.

Insurers say that although ULIP guidelines were introduced in September 2010, the repercussions were still to be seen. Many insurers and their agents have promised high returns on certain ULIP products. However, due to adverse market conditions, these returns may not be achieved by consumer. So there is a tendency of customers to complain.

IRDA has taken steps to curve insurers from selling Highest NAV-ULIPs. IRDA has stopped approving such products.

On the non-life front, health insurance complaints topped the list, with most of these relating to late filing of documents.

When such complaints reached the ombudsman’s office, they were decided in favour of the customer. The ombudsman has told insurance companies that claim should not be repudiated merely citing late submission of claims.

Categories: News | Tags: Highest NAV, Insurance Ombudsman, IRDA, NAV-ULIPs, Net Asset Value, ULIPs, Unit Linked Insurance Plan

ULIP Redemptions Forcing Insurers to Sell Equities

Posted on February 5, 2013 by Akanksha

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Due to large scale surrenders in Unit-Linked Insurance Plan (ULIPs), state-run Life Insurance Corporation of India (LIC) and other insurance companies have turned heavy sellers of equity in the third quarter of financial year 2012-13.

Domestic Institutional Investors (DIIs) including insurance companies and mutual funds have sold equities worth Rs 18,724 crores during October-December 2012. More than 70% of the selling from the DIIs have been from insurance companies. All life insurers are forced to sell shares everyday due to redemption requests from investors.

During the same period, Foreign Institutional Investors (FIIs) bought equities worth Rs 46,029 crores.

This year, in January alone, DIIs have redeemed shares in the net worth Rs 17,542 crores while FIIs have been net buyers at Rs 22,059 crores.

Life insurers have seen investors, who bought ULIPs in 2007 and 2008 with three to four year lock-in period, surrendering policies.

Investors are redeeming ULIPs as their lock-in period is coming to an end and moving into traditional products. Hence, insurers are seeing fresh inflows into traditional products than ULIPs.

In 2010, Insurance Regulatory and Development Authority (IRDA) revamped ULIP norms by increasing the lock-in period and lowering commissions on their sale. This led to a massive dip in ULIP sales.

ULIPs which used to constitute 90% of insurer’s business have come down to 5-10% now in favour of traditional products, where investments have to be made in fixed income securities such as government securities and bonds.

Insurers witness almost one third of their sales between January and March for tax saving purposes. This has resulted in high redemptions in January.

To meet the government’s disinvestment target, LIC has sold shares worth an estimated Rs 8,000 crores by lowering holding in more than half of the blue-chip firms of Nifty-50.

Categories: News | Tags: DII, Domestic Institutional Investors, IRDA, ULIPs, Unit Linked Insurance Plan

Health Insurance Plans