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FM To Track Insurance Sector To Boost Growth

Posted on April 12, 2013 by
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insurance india

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.

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

Posted on April 3, 2013 by
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insurance india

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 13th month, 25th month and 37th 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.

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Index-linked Products and ULIPs to be Treated at Par

Posted on March 7, 2013 by
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guidelines

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.

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Complaints Pile Up at Mumbai Insurance Ombudsman Office

Posted on February 13, 2013 by
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Insurance Mis-selling

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.

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Focus on Higher Commissions Adds to Insurance Mis-selling

Posted on February 7, 2013 by
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Insurance Mis-selling

The concern expressed by finance minister P. Chidambaram earlier this week on the issue of mis-selling in the insurance industry has brought the issue of malpractices while selling policies to the forefront.

While on the one hand penalties have been imposed on insurance companies time and again by the Insurance Regulatory and Development Authority (IRDA) for issues including malpractices in policies issuances, lapse on the part of agents to sell policies with higher commissions has led to continuance of mis-selling.

Post the Unit-Linked Insurance Plan (ULIP) reforms where commissions of agents were capped, insurers have noticed that agents do not want to sell these products. Due to low commissions, there is very low interest among distributors to sell these products and instead they offer other products to consumers, since the incentives are low. This may often be considered by consumers as mis-selling.

ULIP-related complaints accounted for 11,714 out of the total 309,613 complaints in the life insurance industry, according to IRDA annual report for 2011-12.

The report said that maximum complaints in the life insurance sector were related to malpractices and accounted for 34,799 complaints out of 100,770 complaints in unfair business practices 2011-12.

In the non-life sector, maximum complaints were policy-related, accounting to 38,076 complaints out of 93,155 complaints in 2011-12.

Among the various complaints filed with consumer forums, about 85% of them are against insurance companies.

Out of the total 3, 09,613 complaints in the life insurance industry, about 32% of them were under the category of unfair business practices.

In 2011-12, the IRDA annual report showed that sales related issues accounted for the maximum number of complaints in the life insurance sector.

While a number of measures have been taken, there are issues which need to be addressed, including concerns on persistency and mis-selling, said IRDA Chairman J. Hari Narayan.

However, insurers have different point of view, they say that every year about 50 million policies were being sold by the industry. The customer can be fooled once, but not always. It is not correct to assume that the high volumes in the industry is due to mis-selling. Since the volumes are high, even a few instances can show an exaggerated figure, which is not an appropriate representation.

General insurers are of the view that they are better placed in terms of mis-selling except health insurance segment; there was no major issue of mis-selling as it is easy to detect these cases in the general insurance industry. Health is a segment where there have been cases of certain coverage being promised and not offered at the time of a claim. But otherwise they are better-off.

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ULIP Redemptions Forcing Insurers to Sell Equities

Posted on February 5, 2013 by
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ULIP Exit

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.

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Life Insurers Seeking Separate Tax Exemption Limit for Premiums

Posted on February 4, 2013 by
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Life Insurance

Passing the key law to raise foreign shareholding in insurance companies and carving out a separate tax exemption limit for insurance premiums are among the demands the life insurance industry has placed with the finance ministry.

The pending insurance amendment bill seeks to raise the Foreign Direct Investment (FDI) cap in the private sector insurance companies to 49% from current 26%.

Raising the FDI cap will help insurers to raise additional capital for long term development and growth of the sector. The insurance industry requires a sizeable amount of capital over the next few years to reach its full potential. This move will reduce the pressure of capital infusion on Indian corporates operating in the sector.

Life insurers are demanding income-tax concessions to incentivise long-term policies for consumers. Currently, life insurance premium paid can be deducted from the gross total income under section 80C for calculating income tax liability.

However, along with insurance premiums, investments in public provident fund (PPF), National Savings Certificate (NSC), infrastructure bonds, equity-linked savings scheme (ELSS) and home loan principal repayment are all included within the Rs 1 lakh tax exemption limit. Hence, insurers say that there is need for carving out a separate tax-exemption limit for insurance.

Insurers are also looking at reversal of some of the provisions introduced in the 2012 budget.

In last year’s budget, it was mandated that for life insurance policies the sum assured would have to be ten times the premium for tax benefits to be applicable. Insurers want that government should go back to five times for income-tax exemptions as in the case of older people the mortality cost is higher and such a policy will be expensive for them.

The life insurance industry has also asked for a review of service taxes on Unit-Linked Insurance Plan (ULIPs) and immediate annuity products.

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Average Life Insurance Premium Fell 8% in FY’12: Study

Posted on February 1, 2013 by
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Insurance Industry

The average premium per life insurance policy fell nearly 8% in FY’12 over the previous year, according to a study by consulting firm Deloitte Touche Tohmatsu India.

The study on nine Indian private life insurers showed that those more than 8 years old managed to retain the ticket size of regular premium policies at around Rs 32,000 in FY’12, similar to that of the previous year.

On the other hand, the younger insurers saw a decline in the average ticket size of regular premium policies by 16% from around Rs 34,500 in FY’11 to about Rs 29,000 in FY’12.

Among all distribution channels, bancassurance continues to dominate in terms of getting the highest ticket size policies, followed by broking and direct channels: tells the study.

Unit-Linked Insurance Plan (ULIPs) constituted 54% of the overall business mix of life insurers, with the rest being conventional and pure life insurance products.

Deloitte said that as insurers gradually shift focus to more traditional products and ticket sizes stabilize, insurers will need to find innovative combinations of channels, products and customer segments to achieve growth.

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Insurance Density Falls for the First Time in India

Posted on December 24, 2012 by
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Insurance Industry

In 2011, India has seen a fall in insurance density to $49 or Rs 2,695 from $55.7 or Rs 3,063 in 2010. This is the first year since the opening of the insurance sector to private participation that insurance density has seen a decline. There was an increase hitherto in insurance density for every subsequent year from 2001.

The measure of insurance penetration and density reflects the level of development of the sector in a country.

While insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per capita premium).

The fall in insurance density is mainly due to the fact that life insurance sector saw a slowing in premium growth after September 2010 regulations on Unit-Linked Insurance Plan (ULIPs).

Similarly, insurance penetration, which surged consistently till 2009, slipped for a consecutive year and was at 4.1% in 2011, compared to 5.1% in 2010.

This decline in insurance penetration can be attributed to a slower rate of growth in life insurance premium as compared to the rate of growth of the Indian economy.

In comparison to other emerging markets, life premium income fell sharply as premium volume shrank in China and India.

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Life Insurers Witnessing Fall in Renewal Premiums

Posted on December 11, 2012 by
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ULIPLife insurance companies have been witnessing a significant fall in renewal premiums over the last one year, a factor which will severely affect their profitability in coming months.

According to insurers, there are many reasons for drop in renewal premiums such as large number of policyholders who had bought old Unit-Linked Insurance Plan (ULIPs) bearing high charges are surrendering them with the three year lock-in period ending and falling sales in the wake of the September 2010 regulations on ULIPs. Policyholders are also timing the market and not paying renewal premiums. Insurers are focusing on selling single premium policies and plans having premium holidays.

Country’s largest private life insurer, ICICI Prudential Life witnessed a negative growth of 11.6% in renewal premium during April-September 2012 to Rs 3,852 crores as against Rs 4,306 crores in corresponding period last year.

Renewal premium of SBI life for April-September 2012 stood at Rs 2,185 crores compared with Rs 2,593 crores in the same period last year, a decline of 15.7%.

During April-September 2012, Reliance Life’s renewal premiums stood at Rs 1,257 crores compared with Rs 1,676 crores in corresponding period last year, a decline of 25%.

Bajaj Allianz Life’s renewal premiums for April-September 2012 stood at Rs 1,668.6 crores as against Rs 2,124.3 crores during April-September 2011, a negative growth of 21.4%.

However, Life Insurance Corporation of India (LIC) managed a marginal growth of 2.3% in renewal premium during April-September 2012 to Rs 52,384 crores as against Rs 51,191 crores in corresponding period previous year.

Renewal premium growth happens when the new business premium of last year grows more than the exits (example people exiting a plan through surrenders, plans maturing, and policies with a premium holiday). Renewal premium is also a function of persistency. For example, there are existing policyholders who are not surrendering their policy, but are also choosing not to pay there premiums.

Renewal premium growth is negative for insurers as many policyholders are surrendering their old ULIPs whose three-year lock-in period has got over. This is because ULIPs which came after September 2010 have a lower charge structure compared to the older ULIPs.

Insurance Regulatory and Development Authority (IRDA) introduced new regulations for ULIPs which became effective from first September 2010These regulations capped charges on ULIPs and increased the lock-in period to five years from three years.

These regulations shrunk the margins for insurers and lowered commission for agents. As a result, insurers slowed down pushing ULIPs which were driving volumes for them and began pushing traditional products (which still have high charges and commissions for agents).

The new business premium growth for life insurance industry has been dragging since the new ULIP regulations from September 2010. Decline in new business premium does not impact the bottomline immediately for the insurers, but it has an effect in subsequent years. Negative growth in renewal premium is reflective of lower new business premium in the last three years. If the new business premium falls, the renewal premium in subsequent years will also be lower.

With the stock market doing well, many ULIP policyholders are timing the market and have stopped paying renewal premiums, but are not even surrendering their policies. When policyholders stop paying premium in an ULIP plan, the death cover lapses, but the maturity value or the fund value does not decrease.

Another reason for the fall in renewal premiums is the increase in sale of single premium policies by insurers, which means there will be no renewal premium in subsequent years.

Till September 2010, most life insurers had life insurance products that had premium holidays which mean you pay premiums for initial years after that you don’t need to pay premiums to keep the policy alive. This also brings down renewal premium growth.

However, in the last two years, insurance companies have moved towards selling more endowment plans, so renewal premiums should build up and the positive impact will be visible in the next year and the year after that.

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