Insurance & IRDA

India’s insurance and stock market regulators are engaged in a turf war over the regulation of unit-linked insurance plans, or Ulips, insurance products that mimic mutual funds.

The Securities and Exchange Board of India (Sebi) fired the first salvo last month when it sent a show-cause notice to all life insurance companies, including state-owned Life Insurance Corp. of India, or LIC, asking them to explain why they hadn’t taken its prior approval before launching Ulips.

The Insurance Regulatory and Development Authority, or Irda, hit back on Saturday.

“Ulips, globally, are managed by insurance regulators, and under no circumstance will we let Ulips to be taken over by Sebi,” R. Kannan, a member of Irda, said in an interview.

Sebi’s argument is that since Ulips generate a return on investment, they are similar to collective investment schemes such as mutual funds, which come under its jurisdiction. Ulips are hybrid products; the premiums collected from Ulips are predominantly invested in equities and bonds while a portion of the fund is kept aside as insurance.

Source: Live Mint By Anirudh Laskar Irda wants Sebi to keep off Ulips

Renewal premium of the industry increased from Rs 79,168 crore to Rs 96,917 crore, an increase of 22 per cent on y-o-y. In the case of ULIPs, the renewal premium increased by 41 per cent to Rs 37, 543 crore from Rs 26, 638 crore, indicating the popularity of this instrument.

According to S B Mathur, Secretary General, Life Insurance Council, "The drop in expenses was possible due to effective cost-cutting measures adopted by the life insurance industry, by curtailing operating expenses and rationalising their distribution channels coupled with an increase in total premium to Rs 164,353 crore from Rs 131,382 crore, an increase of 25 per cent."

The total infrastructure investment made by life companies stood at Rs 1,30,009 crore. Equity investment of life companies was in tune of Rs 44,358 crore for the period April-December 2009.

New business premium increased by 29 per cent to Rs 67, 438 crore from Rs 52, 215 crore with private companies also showing a positive growth. Share of linked business in new business has decreased from 61 per cent (December 08) to 53 per cent (December '09), indicating customers discomfort towards market volatility and opting hence opting fo conventional products.

Total benefits paid by life compa nies to the policy-holders were R 48,184 crore as compared to R 36,981 crore in the correspondin period last year.

The Life Insurance Council is statutory body under the Insuranc Act of 1938 and is the industry as sociation representing 22 life insur ers operating in the country.

The disclosure norms are seen as a precursor to allowing insurance companies to hit the primary market.

According to the new norms, insurers will have to publish their balance sheet on half-yearly basis starting from the period ending March 31, 2010, ie beginning with the October-March period. Such disclosures will be necessary for all insurers even if they are not listed on any stock exchange, the Irda said.

Irda said several insurance companies will be completing 10 years shortly, after which they may be allowed to go for an initial public offer (IPO).

It is also essential that investors are made fully aware of the financial performance, company profile, financial position, the risk exposure, elements of corporate governance in place and the management of the insurance companies. Such data shall preferably be made available for at least a 5-year period prior to the IPO.

The regulator has directed all firms to come up with a public disclosure framework to ensure a fair and stable insurance market.

Source: DNA By Nandini Goswami Half-yearly accounts a must for insurers

The Insurance Regulatory and Development Authority (Irda), the industry watchdog, is awaiting a proposal from the Life Insurance Council, an industry lobby, that will allow life insurers to dematerialize life insurance policies, just like company shares.

"Once the recommendations come to us, we will approve it," said a senior Irda official, who did not want to be identified.
"Insurance policies in demat form will help in smoother expansion of the industry, lower distribution costs, and higher transparency regarding benefit illustrations and costs involved for a policyholder."
A 12-member committee of the Life Insurance Council is expected to submit these recommendations to Irda next month, said S.B. Mathur, the council's secretary general.

Dematerialization (demat) means holding an investment in an electronic form, rather than in a physical form. Two depositories--National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL)--collectively hold and manage all demat accounts in the country.

Source: Live Mint By Anirudh Laskar DIGITAL DOCUMENTS - Irda to allow demat account for insurance

"After receiving our recommendations, the capital market's regulator will release the IPO guidelines for insurance companies," said R. Kannan, member (actuary), IRDA. "We expect SEBI to go by what the IRDA suggests on valuing the liabilities of insurance companies."

The route to the IPO guidelines has three parts to it. One is the finalisation of the Red Herring Prospectus requirements, disclosures that insurance companies will have to make and the methodology that will be used to value an insurance company.

So far private life insurance companies such as Reliance Life, HDFC Standard Life, SBI Life and ICICI Prudential have plans of going public.

Source: Hindustan Times IRDA To Submit IPO Norms To SEBI in 10 Days

IRDA said the proposed product class enhances the penetration of personal lines of insurance business with a wider product choice to policyholders. While the IRDA adopts a business facilitative approach, it is expected that all insurance companies will put in place prudent market conduct practices and operational procedures for protecting the interests of policyholders.

The `Combi Products' may be promoted by all life Insurance and non-life insurance companies, Irda said. However, these guidelines do not apply to micro insurance products which are governed by IRDA (Micro Insurance) Regulations, 2005. Also the combi products are not allowed through `bank referral' arrangements.

The insurers are expected to offer the best covers as an attractive proposition for the policyholders. The underwriting aspects, premium collection issues and also other policy service related issues of the `Combi Products' under reference require suitable IT support at the offices of both the insurers. Hence, an advanced technology support is an essential pre-requisite to support the service of the `Combi Product class'.

The premium components of both risks are to be separately identifiable and disclosed to the policyholders at both pre-sale stage and post-sale stage.

The proposed productis expected to help policy holders choose an integrated product under a single roof without shopping around the market for two different insurance coverages from two different insurers.

The Insurance Regulatory & Development Authority (Irda) is expected to allow banks to sell insurance products of more than one company, allowing banks to retail insurance products and not just be distributors for one insurer.

A panel, set up by the insurance sector watchdog to look into bancassurance, is giving final touches to its report, an Irda official told ET.

Irda had allowed bancassurance from 2002. Under the norms, a bank was allowed to act as an agent for only one life and one general insurer. Bancassurance is a delivery channel in which an insurance company uses a bank's sales channel to sell its products.

Currently, bancassurance accounts for more than a quarter of the entire premium collected by the insurance industry.

Of the 23 life insurance companies in the country, nine are promoted by banks, while three out of 21 general insurance companies have banks as promoters.

Source: Economic Times Banks may sell covers of multiple insurers

A few days ago a friend's daughter walked up to this writer with a rhyme she had learnt at school. She went on to recite it: "Humpty Dumpty sat on a wall. Humpty Dumpty had a great fall... All the king's men and all the king's horses. Could not put Humpty Dumpty together again." It was wonderful to hear her recite it in her child's voice. But it also set me thinking about her vulnerability. What if, like Humpty Dumpty, something untoward were to happen to her father, the family's chief breadwinner? Had he bought adequate life insurance to protect his family against a contingency?

"In the event of a person's death, there are two kinds of losses: one is the emotional loss and the second is the financial loss. Nobody can compensate for the emotional loss that a family endures. However, the financial loss can be mitigated by buying the right kind of insurance," says Mumbai-based certified financial planner Gaurav Mashruwala.

Why a term cover?

Today insurance is sold more like an investment product rather than as a pure risk-cover product. Agents selling insurance products push investment cum insurance plans that enable them to earn higher commissions, rather than term plans on which their earnings are lower. In their sales pitch, they highlight returns and tax benefits that buyers can avail of by purchasing an insurance plan; the risk cover aspect is hardly discussed.

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• Points to remember

The Centre will soon hold talks with the states on the issue, a government official privy to the development told ET.

The stamp duty on life insurance products is about 20 paise per Rs 1,000 of sum assured. Some states, led by Uttar Pradesh, have written to the Centre seeking a substantial hike in the duty.

These states have suggested rates of up to 0.5% of the sum assured for life and group insurance, and 0.1% for sea and fire insurance. In the case of life insurance policies, the proposed rates are 25 times the current rates. At these rates, insurance will become prohibitively expensive. A Rs 10 lakh term assurance plan, where there is no survival benefit, for a 30-year-old will cost about Rs 3,000. Even a 0.1% levy of stamp duty could take it to nearly Rs 4,000.

Source: Economic Times States seek steep hike in stamp duty on life cover

Irda stated in a circular on Monday that it has been collecting data on motor and health from insurers and third-party administrators. Motor data was being collected in three structured tables. It has placed on the website HYPERLINK "http://www.irdaindia.org/sampledata.htm.

In order to maintain the confidentiality and to protect the business interests of the data providers, some of the fields are masked in the data set.

The regulator, however, stated that it did not guarantee the accuracy, adequacy or completeness of any information and would not be responsible for errors, omissions in the data.

“Irda is not obliged to give any clarification on the sample data,” it added.

The plan appeared attractive, so Suresh decided to invest in it. A person came over to his residence to get his signature on the application form and collect the required documents (photocopy of PAN card as identity proof and a photograph). Suresh did not think twice before signing the application form as the terms of the policy were clear to him and he looked forward to a long association with the company. Little did he know that he was getting into a financial quagmire and would have to spend a substantial amount of time and energy to get out of it.

THE FRAUD

Since he luckily received the policy document on a holiday, he had ample time to go through it. To his distress, he found that his signature had been forged on the illustration page and the fund value at maturity (as given in the illustration form) was far below what he had been promised. Further, he found that the misleading sales pitch had come not from the insurance company but from an advisor, Vighnaharta Direct Insurance Broking Pvt Ltd. He also found that the insurance cover on the policy was Rs 1.5 lakh and not Rs 2 lakh. The policy offered no health cover, and the claim that it would pay an annual bonus of Rs 6,000 was an outright lie.

A highly perturbed Suresh wanted to file a case with the Government's Economic Offences Wing against the broking house on the grounds of impersonation and forgery. However, before doing so, he approached this writer who in turn asked experts what Suresh's options were and the best grievance redressal mechanism available to him.

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The life insurance industry has serious concerns that the minimum alternate tax of 2 per cent proposed in the draft Direct Taxes Code will adversely impact the health of companies. Further, it wants long-term investments to be defined as those which have a tenure of 10 years and not 20 years as proposed in the code.

The Life Insurance Council, an industry body, feels that insurance companies' assets belong largely to policy holders. "We are suggesting that MAT should be applied at a lower rate only on shareholders' assets and not on total assets. A 2 per cent MAT is very high," said S B Mathur, secretary general, Life Insurance Council. The way DTC is framed right now, MAT may also lead to double taxation. The government proposes to tax insurance companies through MAT and then tax policy-holders as well.

Further, the draft code defines 20 years or more as a benchmark for longterm investments. Therefore, it proposes to tax maturity proceeds of life insurance policies that have a policy term of less than 20 years and premium of more than 5 per cent of the sum assured. According to the current laws, maturity proceeds of life insurance policies are not taxed. The proposed change will have huge liability on life insurers. The insurance industry is opposing this recommendation and suggesting that this limit should be brought down to 10 years.

Source: The Indian Express Life insurers seek lower minimum alternate tax

The proposal, aimed at protecting the interests of 188 million investors in the country, features in a consultation paper of a panel set up by the High-Level Committee on Financial Matters (HLCFM), an apex forum for financial sector regulators.

Currently, Irda has the power to licence insurance agents and brokers. The proposal is being interpreted as a back-door entry for FINWEB to take over this function. Going by the consultation paper on ‘minimum common standards for financial intermediaries and financial education’, FINWEB will also have a self-regulatory arm to bring all financial advisors under one common standard.

But Irda has opposed any new arrangement to create a new architecture for financial sector advisors. “The mandate of the insurance regulator is to find the fine balance between the duty to regulate, promote and ensure the orderly growth of the insurance business, re-insurance business and protect the interests of policyholders. The insurance regulations have achieved this balance,” Irda chairman J Hari Narayan told ET.

Source: Economic Times Irda rejects plan to register all financial advisors

IRDA has been receiving numerous representations on the structure of payments of commission offered by insurers to banks acting as their corporate agents. This issue, they feel, needs a detailed examination to ascertain sustainability of the business through bancassurance channel and its impact on the insurers and the policyholders.

In order to analyse the impact of various payments made to banks on the premiums and balance sheets of insurers, IRDA has decided to seek relevant information for the years 2008-09 and the first half of 2009-10. Insurers will have to mandatorily submit such information by October 10.

"At present, the rules stipulate that one bank can tie up with only one life insurer and one general insurer. All large banks have already tied up with insurers in the first two-three years after the insurance sector was liberalised leaving virtually no bank for new insurers to tie up. Additionally, only a few banks have changed partners, all these years leaving no scope for the new ones. Banks, therefore, command a better position in terms of tie-ups for bancassurance in comparison to insurers. Grapevines have it, insurers, often resort to paying hard cash to tie-up with insurers. Payments can be as high as Rs 50 crore," said a senior industry official.

Source: Economic Times Furnish payments details made to bancassurance partners: IRDA to insurers

Barring a few, most companies in the country's insurance space have 74 per cent stake held by the Indian owners and the rest by foreign partners. The inability of companies to raise capital through the foreign direct investment mode had led them to seek regulatory approval to being an IPO.

Lately, Reliance Life Insurance has shown interest in exercising this option. The company is a 100-per cent Indian subsidiary of an Anil Ambani group company and has been knocking at the doors of both the regulator and the government to seek approval. However, the government is yet to take a decision.

Meanwhile, these norms will at least help companies make accurate valuations. Unlike non-insurance companies that are valued according to their past performance, insurance companies have a notional value attached to them that essentially shows the company's potential to earn in the future.

Source: The Indian Express IRDA to release final IPO norms for insurance companies by this week