Simranjeet Singh's blog

State-run insurers asked to raise premiums

The finance ministry has asked state-run general insurers to increase premiums on health insurance, motor and other policies, and refrain from undercutting each other to get new business.

In a recent letter to National Insurance, Oriental Insurance, New India Assurance and United India Insurance, the ministry laid out a strategy for underwriting group health insurance policies. It said premiums on all stand-alone group health insurance policies coming for renewal this year should be revised upwards, keeping in mind the total expenses.

As the four non-life insurers are seeing a decline in net profit despite growth in premium, the government asked them to restructure their premiums and turn around loss-making branches.

The move has attracted sharp criticism from these companies, which have joined ranks with state-owned bank chiefs in accusing the ministry of “micro-management”.

They fear this would jack up insurance premiums of their customers, resulting in loss of business to private insurers.

“In a competitive environment, people reduce prices to get volumes. Pricing is not directed by one single player. The customer is now spoilt for choice. If some private company is giving a lower rate, he will switch over to that. Why should he pay higher premium?” said a top executive with one of the insurers.

The ministry had recently asked state-run banks to revisit their interest rates after the Reserve Bank of India lowered interest rates in April.

The ministry also asked the public sector insurance companies to stop undercutting each other to attract customers.

A PSU insurer won’t be allowed to take business of another state-run insurance company, if the sum assured is over Rs 100 crore for a fire insurance policy. The instruction came after the ministry noticed fire policies were issued at a discount of 80-85 per cent.

A shift within the insurance companies will not be allowed for group health insurance policies, provided the existing insurer gives his ‘no-objection’.

The companies have also been asked to analyse third-party motor insurance and exercise due diligence while offering such policies and increase premiums to pare losses.

The net combined losses of the four insurance companies on group health insurance were estimated at around Rs 1,500 crore in 2011-12.

“These losses are due to the lack of prudent underwriting and a very unhealthy and self-destructive inter-company competition among these four companies,” the ministry said in its letter.

The instructions outline how can these companies bring down their expense ratio and prune management expenses to improve profit. The ministry said the practice of giving heavy discount on premium to stanch business from other public sector company should be done away with.

The government, as a promoter shareholder, also advised public sector banks and insurance companies to make an action plan to turn around their loss-making branches. The ministry noticed that 50 per cent of their branches made operating losses in at least three out of last five years. The companies are expected to take the proposals to their respective boards.

“There is concentration of branches in major cities. We are suggesting there should be some rationalisation. They should go to unserved areas,” said a finance ministry official.

LIC hikes interest rates on loans against policies

Life Insurance Corporation has increased interest rates on loans against policies thereby shutting an arbitrage opportunity for policyholders. The corporation has also increased interest rates on delayed payments. Until recently the corporation charged 9% on loans against policies. This provided policyholders an opportunity to earn a spread by borrowing from LIC and parking funds in fixed deposits of triple A rate companies such as HDFC, which offers returns of 9.5% on 15 month deposits. To avoid this, the corporation has raised interest rates to 10%.

Explaining the reason why LIC had not revised rates for several years, a senior official said that interest rates have been largely steady in recent years. However , now volatility has compelled LIC to realign rates with the market. "The policy condition states that interest rates on loans would be revised from time to time," the official said. Unlike the EPFO, which allows employees to tap their retirement savings only for specific events, LIC freely grants loans to policyholders for up to 90% of the surrender value of the policy, including cash value of bonus. The only requirement is that the policy should be assigned in favour of the corporation.

In the private sector, Bajaj Allianz Life Insurance has already been charging interest at the rate of 10% on loans against policies. According to Rituraj Bhattacharjee, head, market management, Bajaj Allianz Life Insurance, this is cheaper than other personal loans. "Life insurance policies can be used as a collateral security for raising loans for some emergency funding that can be leveraged without losing the life cover. It is observed that self employed people prefer this mode for their working capital needs," he said.



Some other private life insurers charge higher rates of interest which goes up to 12.5%. Private life insurers promoted by banks, direct their policyholders to their parent banks for loans against policies. Similarly in the case of interest of delayed payments, LIC has hiked interest charges to 10%. Earlier the corporation was charging 8% interest.

The interest rates charged by LIC are lower than the interest rates charged on loan against public provident fund scheme. Under the PPF scheme loans are available at 2% over the prevailing rate, which at present is 8.8%. Also under PPF the maximum loan amount is 25% of the balance two years earlier.

Meanwhile, the All-India Bank Depositors Association and former deputy governor S S Tarapore have suggested to the Reserve Bank of India that premature termination of fixed deposits should be allowed for survivors in a joint fixed deposit account. "The logic behind this is that the joint holder has to usually face a lot of expenses and should not be further penalized through imposition of an early withdrawal penalty," said Ashok Ravat, secretary of the association.

Growth in health cover moderates

The share of health insurance in the non-life business has shrunk marginally with the group health segment seeing some pullback from buyers and retail not replicating the 30% plus growth in earlier years. 

Data released by the insurance regulator shows that motor insurance has the highest growth of 31.3% with premium collection of Rs 24,176 crore. As a result the share of auto insurance in the non-life business has risen from 38.8% last year to 41.1% as on March 2012. 

According to Sanjay Datta, head of underwriting and claims at ICICI Lombard, there was some pullback from buyers of group policies. This includes state level health insurance schemes bought by states, including Andhra Pradesh and Tamil Nadu. 

 

"Corporates are reluctant to pay more for health insurance. They typically shop for the best rates and in many cases because they have may have a fixed budget for employee costs, they cut back benefits rather than pay more," said Shreeraj Deshpande, head of health insurance at Future Generali Insurance. 

He added that reduction in benefits were usually in the nature of curtailing coverage for parents by making this a voluntary cover where there employees pays on his own. According to Deshpande, although companies have been taking measures to bring down losses, most insurers continued to bleed on their health portfolio. 

One reason for this was medical inflation which was higher than general inflation. "We are seeing some hospitals revise their charges twice a year as against only once in the past," he said. 

Health insurance-the second biggest segment-has grown by 18.6% to Rs 13,345 crore which is slower than the overall growth in the non-life business. As a result its share has shrunk from 23.7% in FY11 to 22.8% in FY12. Overall the non-life industry has grown 23.2% to Rs 58,357 crore. 

Meanwhile, the Insurance Regulatory and Development Authority (IRDA) has formed a panel which will recommend the way forward to provide health cover to those infected with the HIV virus.

How to avail loans against an insurance policy

If one has a life insurance policy, one can take a loan against it from the insurance company. The amount depends on the type of policy and the period for which the policy has been in force. The interest charged, which is available at a lower rate, the period of the loan and the terms of repayment are decided by the insurer. 

The loan is a percentage of its surrender value. In the case of traditional policies, the proportion of the surrender value available as loan may be as high as 90%. If an insurance company provides a loan against Ulips, the value will depend on the type of fund. 

Loan application 

The application has to be made by the policyholder in the format prescribed by the insurance company. The details of the policy, the policyholder and the loan applied for have to be provided in the form. 

Assignment 

The policy against which the loan is taken will be assigned to the insurance company as a security till the loan is repaid. The assignment will be executed by the policy holder and has to be endorsed on the policy. 

Repayment 

The loan amount and interest have to be repaid during the term of the policy. If the interest is not paid, it is added to the principal and interest is charged on it. Any claim or benefit payment will be made after deducting the outstanding amount. 

Points to note 

I. Since the loan amount is linked to the surrender value of the policy, it will be low in the initial years of the plan. 

II. The policy may be terminated if the outstanding loan and unpaid interest exceeds the surrender value of the policy. The policyholder will lose the insurance cover in such a case. 

III. If the application is made for a subsequent loan, the earlier loan and interest on it is deducted from the loan value and the balance is paid. 

LIC launches its first online, immediate annuity plan

Life Insurance Corporation of India (LIC) has launched its first online product, Jeevan Akshay VI, an immediate annuity product, on Thursday.

While private players have been selling insurance products online for past three years, LIC is taking the first step into online space.

On payment of a lump sum, a policyholder is entitled to an annuity from the very next month under any one of the seven annuity options chosen by him. The options are annuity payable for life at a uniform rate, annuity payable for five, 10, 15 or 20 years certain and, thereafter, as long as the annuitant is alive, annuity for life with return of purchase price on death of the annuitant, annuity payable for life increasing at a simple rate of 3 per cent per annum, annuity for life with a provision of 50 per cent of the annuity payable to the spouse on death of the annuitant.

The other two options are annuity for life with a provision of 100 per cent of the annuity payable to spouse in case of the death of the policyholder and annuity for life with a provision of 100 per cent of the annuity payable with the purchase price being returned to the last survivor.

The product is available for ages 30 to 85 years.

The product was launched by J Hari Narayan, chairman, Insurance Regulatory & Development Authority (Irda) during the senior divisional managers’ conference of LIC in Mumbai. The Irda chairman remarked that there is a need for more annuity products.

LIC’s Jeevan Akshay VI is the only immediate annuity product available in India.

5 health insurance changes you must know

Thanks mainly to new bunch of health insurance players, things are changing for the better for customers. Be it customer-friendly features, service standards or claim settlement experience - some companies are going all out to please their customers. It remains to be seen if others would join them. But, for the time-being, it is advantage customers, at least in certain areas. Here are some pro-customer steps that the individual health segment has seen in the recent past:

Life-long renewability

With the IRDA refusing to approve new products with a cap on the exit age, most companies have been forced to rejig their product structures to offer life-long cover. However, this move will not benefit the existing policyholders who may have suffered the agony of seeing their renewal request turned down at a time when they need it the most, despite having paid premiums for years. Yet, it is a significant step, as it will shield newer policyholders from such unjust treatment by companies.

Sub-limits out of favour

For long, policyholders have had no choice but to buy policies that incorporate sub-limits, or restrictions within the sum insured, on room rents, doctor's fees, operation theatre charges and so on. Now, companies like Apollo Munich and Tata-AIG have abolished such caps, paving the way for smoother claim settlements sans disputes.

Claim loading gives way to no-claim bonus

Again, some new-age health insurers have chosen not to impose premium hikes merely because of claims made in the previous year. The loading structure is considered unfair by many as it penalises policyholders for taking the very step they have bought the policy for. This apart, some insurers have begun shifting focus from such prohibitive tools to a friendlier practice of offering incentives by way of no claim discounts to ensure effective claim management.

Zone-based premium structure

It is well-known that healthcare expenses in metro cities are far higher than those in smaller towns. In spite of this, those residing in comparatively smaller towns are forced to pay premiums comparable to metro-dwellers. Perhaps to correct this anomaly, companies like New India Assurance, Bharti-Axa and L&T General have come up with zone-based premiums, where residents of smaller cities and towns are offered the choice of paying lower premiums. However, if they decide to undergo treatment at a hospital in a metro (or a city outside their zone), they will have to shell out a certain pre-decided proportion of the claim before the company contributes its share.

Cover replenishment

An innovative feature, it is part of certain policies offered by Star Health, L&T General and Apollo Munich. Essentially, they offer to restore your sum insured if you happen to use up the entire cover in a year. However, there are riders. For instance, L&T's product promises replenishment only in the event of the subsequent claims being related to accidents. On the other hand, the clause will get triggered in Apollo Munich's policy upon any ailment or condition, provided it is not related to the claim made earlier in the year

Health insurance forum to suggest sweeping changes

In a radical change, the recently-constituted Health Insurance Forum is set to recommend that fees charged by hospitals from patients with mediclaim policies might be capped.

The forum, constituted by the insurance regulator to help evolve policies and processes for the health insurance sector, is set to bring sweeping changes. For instance, it is also thinking of capping the rate of increase in premiums during renewals of claims. Besides, life insurance companies should issue policies with a minimum tenure of five years. On portability, the industry is talking about standardising the wording, along with a data-exchange mechanism to control frauds.

“These are the basic points being discussed in the initial meetings. We would like to see that these recommendations are in place by the next financial year. However, these are broad points, and it would take some time before new forming new regulations,” said a source privy to the discussion.

The fees hospitals can charge would be capped depending on the type of disease and the class of the hospital. This is aimed at reducing medical charges for the insured, as in India, a hospital tends to typically overcharge in case of cashless mediclaim polices.

“In India, for the same treatment, fees are higher for people with health insurance policies, while patients who don’t have such policies are charged lower. This practice is more pronounced for cashless policies. In developed countries, the situation is the opposite—people without health insurance policies are charged much higher,” the source said.

The members of the forum would include chief executives of health insurance companies, life insurers, third-party administrators (TPAs), officials from labour and health ministries and representatives of the health service providers.

The forum also favors capping the increase in premiums in case of a claim. The policy document should include the extent of the increase in premiums in case of claims.

“Right now, there are no such norms. Insurers increase the premiums based on their respective claim experiences, but there is a need for some standard norms for such rises. Policyholders should have some idea of the possible increase in premiums during renewals,” said another source.

Other changes being considered are removing the entry age barrier in health insurance policies, which would benefit senior citizens, sources said. Typically, for most existing health insurance plans, the entry age is capped at 65 years.

From October 1, the Insurance Regulatory and Development Authority had approved portability of health insurance schemes, allowing customers to change insurers without losing policy benefits. However, the scheme is yet to pick up, as there is concern regarding data exchanges between insurers. Keeping this in mind, the forum favours a standardized policy wording.

Bharti AXA aims to double its business in south by year end

Private insurer Bharti AXA General Insurance is planning to double its business in the southern region by the end of the ongoing calendar year. 

"The company is planning to double its business in the southern region by the end of the calendar year 2012," the company said in a release today. 

The general insurer, which has a premium collection to the tune of Rs 774 crore during April-February period, receives around 23 percent of the total premium from the southern region of the country. 

According to the company, while western region contributes around 36 percent of the total premium, northern zone provides 35 percent and eastern zone's share stands at six percent. 

The insurer is also planning to increase its premium collection volume from Visakhapatnam of Andhra Pradesh.

"South India is a key focus market for us & Vizag being one of the biggest cities in South India is very important for us. We are looking at fuelling our growth by creating awareness about the need for insurance in this region," Chief Executive Officer and Managing Director of Bharti AXA General Insurance, Amarnath Ananthanaryanan said. 

The company is hopeful of posting a growth rate of 45 percent in its gross written premium collection in the current financial year. 

Bharti AXA General Insurance is the joint venture between Bharti Enterprises and AXA group in which 74 percent stake is being held by Bharti group. 

AXA group, which is a global player in insurance and asset management, had grossed revenue to the tune of 91 billion euros in 2010.

 

Will your insurance policy get tax benefits

When this year's budget laid down new rules for life insurance, it was presumed that mis-selling would lose its sting. Far from it, mis-selling has now become more dangerous for your finances. 

Till 31 March, if someone was mis-sold an unsuitable life insurance policy, the most he would have lost was the liquidity and the opportunity to invest in a more lucrative avenue. But at least he got the tax benefits-tax deduction of the premium under Sec 80C and tax-free income on maturity under Sec 10(10D). 

Now, if a buyer is not careful, he may end up buying a policy that won't offer any tax benefits. Even the money received by his nominee in case of death will be taxable if the policy does not cover the buyer for 10 times the annual premium. 

Individual agents as well as aggregator sites are happily selling insurance policies that are not eligible for tax benefits. Till last week, a prominent insurance portal was hawking Jeevan Vriddhi, a single premium plan from LIC that covers the buyer for 5 times the premium. Posing as a buyer, ET Wealth called up the portal and was given the assurance that the policy will offer the tax benefits under Sec 80C and Sec 10(10D). 

Insurance agents also have their hands in the till. They are bombarding buyers with attractive benefit illustrations without educating them on the post-budget tax implications. An agent of a private insurance company approached us with an endowment insurance policy that offered a cover of 7 times the premium. 

It is by itself a good plan because it offers the option of a whole life cover as well as term cover and accidental death riders. But the five-year option that he was trying to sell is not eligible for any tax benefits and he was oblivious of the fact. When this was pointed out to a senior official, he mumbled that the company will soon be conducting training sessions on the changes in the rules. 

 

To ensure that companies don't design products to circumvent the rules, the budget has clarified that the cover shall not include bonuses and other payments made by the company. Only the basic sum assured will be taken into account. 

The budget has also mentioned that the cover should remain at least 10 times throughout the tenure of the policy. This means that plans in which the cover comes down from the second year onwards will also not make the cut. 

If you are planning to invest in a life insurance policy, make sure it complies with the new eligibility norms for tax benefits. The base cover offered by the policy should be at least 10 times the annual premium. For instance, if the premium is Rs 12,000 a year, then the cover should be at least Rs 1.2 lakh. 

 

Two weeks back, Finance Minister Pranab Mukherjee had asked the Insurance Regulatory and Development Authority to take strict action against companies that are mis-selling insurance. The truth is, companies don't mis-sell-their agents and advisers do. 

The problem is that companies don't actively discourage the mis-selling and errant agents usually get away with a mild rap on the knuckles. Insurers will have to take stricter action against mis-selling. If they do not take corrective measures now, in a few years Irda will be inundated with mis-selling complaints from taxpayers who have been denied tax deduction and exemption on their investments in life insurance.

Good policy communication is responsibility of insurer: IRDA

Faced with large number of complaints against non-life insurance companies, the regulator IRDA today suggested making the common people understand the policy by simplifying the language. 

Speaking at the first meeting of newly-formed Health Insurance Forum, IRDA Chairman J Harinarayana said they received 92,898 complaints in the non-life sector, of which 38,891 or 37.48 per cent were with regard to health insurance. 

"Probably the lack of clarity in communication is reflected in the form of increasing number of complaints. Therefore, good communication is the responsibility of the insurance company and not with the policy holder. 

"So, if he does not understand something, some aspect of the policy, the problem lies with the insurance company and need to be addressed," Harinarayana said. 

"We should look at the question of the language. Whether the usage of local language would help or is the nature of the language itself including the construct of the language has to be changed," he added. 

He said insurance companies should treat the complaints as consumer feedback. 

Replying to a query on the health insurance portability, the regulator said, there not much of portability or shift among insurance companies. 

"All companies are equally good or equally bad. There is not much to chose. This is what the customer feels," he quipped. 

Speaking about the Health Insurance Forum, Harinarayana said, this forum will transform into a self regulatory body much in lines with life council and non-life council.