Insurance & IRDA

While raising funds for its operations, Irda ended up with a marginal surplus. According to the insurance regulator's Chairman J Hari Narayan, Irda has been communicating with the finance ministry on
the issue.

"The issue is not new and it has been going on for some years now," he said, while refusing to specify how much surplus funds Irda had. It may be recalled that the finance ministry had asked market regulator Sebi and insurance watchdog Irda to deposit surplus funds with the government.

The directive followed suggestions by the Comptroller and Auditor General (CAG) of India, which felt the move would improve the regulators' accountability to the exchequer.

Surplus funds generated by financial sector regulators through fees and penalties on companies are now parked in their respective accounts.

However, major chain of hospitals such as Fortis, Apollo, Max and other multi-speciality biggies like Medanta, Hinduja, Leelavati are still out of this network as they are yet to agree on standardized rates.

The maximum number of hospitals, which agreed to be on cashless network, is in Delhi (163) followed by Mumbai (121), Chennai (84) and Bangalore (81). In the rest of the country, the earlier process of rendering cashless facility has, however, been continuing without any problem.

In July, the four PSU insurance firms National Insurance, New India Assurance, Oriental Insurance and United India Assurance had stopped the cashless facility in private hospitals, including the expensive ones known as 5-star hospitals.

However, through mutual consultation a broad agreement has been reached between 449 hospitals and insurance companies.

"More and more hospitals will join the network (Preferred Provider Network) in coming days," said minister of state for finance Namo Narayan Meena while replying to a calling attention on the issue, raised by BJP member S S Ahluwalia, in the Rajya Sabha. He said public sector insurance companies had to resort to rationalisation of rates for cashless facilities as they suffered a loss of Rs 2,000 crore because of overcharging by hospitals in Mumbai, Delhi, Chennai and Bangalore.

A committee, including Mortality and Morbidity Investigating Centre (MMIC), an affiliate of the Institute of Actuaries of India (IAI), actuaries and members from the industry has prepared a new mortality table based on 2008-10 data. It has considered the data collected by both Life Insurance Corporation (LIC) and the private sector insurers. The committee has presented the table to the insurance regulator.

Once the Insurance Regulatory and Development Authority (Irda) approves the table, companies will start using it. At present, industry uses a 1994-96 LIC table. Life expectancy of Indians during 2005-10 rose to 64.7 years compared with 62 years during 1997-2001.

According to the Indian Assured Lives Mortality (1994-96), for people who are 40 years old, the probability of their death is 2.053 per 1,000. For 60-year-olds, the probability is 13.073 per 1,000, which results in a higher premium.

According to an actuary, since 1994-96, mortality rates have come down by 25 to 30 per cent in the higher age brackets. This may translate into a reduction of premium by 15 to 20 per cent in certain segments.

Source: Business-standard By Shilpy Sinha Life cover may get cheaper

Terming as "disturbing" the differential charges by health insurers based on the mode of payment.

J Hari Narayan, Chairman, Insurance Regulatory and Development Authority (IRDA) said, even the payment of claims to the insured were not in sync with IRDA regulations.

"The market assumes complete transparency of information regarding costing. Some trends point to inappropriate market behaviour. For instance, the cost of a treatment should not be influenced by the mode of payment which is done either by cash, cheque or credit card," Narayan said while inaugurating FICCI's Health Insurance Conference: `De-Bottlenecking the Health Insurance Growth'.

He said the time has come to decide what level of disclosure of information should be made to the public so that the market could function correctly.

Narayan said the payment of claims to the insured should be time bound and it is time to take a view whether an element of interest could be added in cases of delayed payment.

The regulator also hoped that the row over withdrawal of the cashless treatment facility at select hospitals by public sector insurance companies will be sorted out shortly.

Source: expressbuzz.com Draft norms on health insurance policies soon

This means there will be strict guidelines which will disincentivise withdrawal of money from both Ulips and other savings schemes, making them truly long-term funds which could be invested in long-gestation infrastructure projects.

With these changes and a mandatory life/health cover, Ulips will acquire the character of pure life insurance products a prerequisite for complete tax exemption, as per the revised discussion paper on the direct taxes code (DTC) unveiled recently. The tax benefit coupled with the relatively higher returns Ulips could still yield are expected to retain their popularity.

More than Rs 2 lakh crore is mobilised annually as premium from Ulips and the tax exemption has been a major driver behind the huge success of this product. The paper says pure-insurance products along with designated PFs including EPF and specified pension schemes would continue to qualify for the exempt-exempt-exempt (EEE) tag or tax exemption at all three stages of contribution, accretion and withdrawal.

Under the extant Income-Tax Act, for a `pure-insurance product,' the premium paid by the investor should be less than 5% of the sum assured. While many Ulips qualify for the tag, there are some which do not. So, the proposal has raised doubts that the high-risk, high-reward Ulips could get taxed at the time of withdrawal. The finance ministry's move is to retain the EEE benefit for Ulips by aligning their character with that of other savings schemes, sources said.

Source: The Indian Express By Anto Antony,KG Narendranath Ulips to turn long-term investments

Insurance companies will be required to adhere to the Reserve Bank of India's latest guidelines on pricing of shares of unlisted companies, increasing the amount investors would have to pay for buying into them.

The central bank has taken up the issue with the insurance regulator, IRDA, after the latter had said the new rules will not apply to insurance companies.

Irda is expected to clarify on the issue soon, said a government official privy to the development.

A number of Indian promoters are believed to have entered into agreements with their foreign partners to allow them to increase their stake to 49%, as and when regulations allow.

Foreign investment in insurance is capped at 26% but a bill proposing to increase the limit to 49% is with Parliament. According to the new RBI norms, shares of unlisted companies can be transferred at a price not less than the fair value, which is to be determined by a Sebi-registered merchant banker or chartered accountant as per the discounted free cash flow method.

Source: Economic Times By Deepshikha Sikarwar New Valuation Norms For Insurers Too

"Certainly, yes," Insurance Regulatory and Development Authority (IRDA ) chairman J Hari Narayan told PTI when asked whether the insurance regulator would unveil new guidelines for ULIPs to make them attractive for investors.

The government has ended the turf war between IRDA and Sebi, saying unit linked insurance plans (ULIPs) will be regulated by IRDA.
On Friday night, President Pratibha Patil issued the Ordinance, explaining that the life insurance business shall include any unit-linked policy or scrips or any such instruments.

The government has also constituted a high-level committee chaired by Finance Minister Pranab Mukherjee, which will sort out all issues of jurisdiction regarding hybrid products.

Source: Business-standard IRDA to frame new guidelines on ULIPs

This gives IRDA the sole right to adjudicate over any issue relating to insurance,and eliminates any room for the other regulator,SEBI,to claim regulatory jurisdiction over the ULIPs business.IRDA and SEBI were engaged in an intense turf battle over ULIPs.

This would set at rest all the issues regarding ULIPs between the two financial regulators, a statement issued by the finance ministry said on Saturday.

The feud over ULIPs began in April this year when the SEBI banned 14 life insurers from raising any fresh money from ULIPs unless they were registered with it.Its contention was that ULIPs were like mutual funds since they invested the majority of their corpus in the capital market.

The IRDA,however,protested saying SEBI has no jurisdiction over ULIPs and that regulating any product related to insurance fell under its domain.The finance ministry first refrained from mediating saying that the two regulators should seek legal recourse and till then status quo should be maintained.

Source: Times Of India ULIPs part of life insurance business  

Till now, insurers are required to show the difference between net and gross yield at the time of selling an Ulip product in benefit illustration. But they are not required to comply with the cap during the term. If someone decides to withdraw from a policy in the middle of a term, the return depends on the way the fund behaves and is left at the discretion of the insurer. In January, Irda capped the difference between gross and net yield.

A senior Irda official said the difference between net and gross yield would be slightly moderate during a policy term. It would be around 3.25-3.5 per cent during five-10 year of a policy.

At present, for products with a maturity of 10 years, insurance companies maintain the difference between gross yields and net yields at 300 basis points. Similarly, for products with a tenure of over 10 years, the difference between gross and net yields cannot exceed 225 basis points. Within the overall cap, the fund management charges are capped at 1.25 per cent for all tenures.

He said insurers would be given another 15-20 days to comply with the new norms. They were earlier required to meet the new norms on Ulips, including pension products, by June 20.

Source: Business-standard By Shilpy Sinha Irda may cap charges during Ulip term

"We want Indian promoters to have a minimum 51 per cent stake in insurance companies. It is for the government to decide on disinvestment and take a call on raising the foreign direct investment (FDI) limit to 49 per cent. Foreign partners will have to reduce their stake if the government sticks to the 25 per cent public shareholding norm," said a senior official with the Insurance Regulatory and Development Authority (Irda).

FREE FLOAT FALLOUT

• Foreign partners will have to reduce their stake in insurance JVs

• They can currently hold up to 26 per cent stake

• Insurance Amendment Bill seeks to raise FDI to 49 per cent

• Companies can tap public market after 10 years of operations

Indian partners own 74 per cent in insurance JVs, while foreign partners own the rest. FDI would be raised to 49 per cent after the Insurance Amendment Bill, cleared by a parliamentary Standing Committee and pending before the Parliament, comes into force.

Source: Business-standard By Shilpy Sinha Foreign firms may have to cut stake in insurance JVs

It has said it will issue rules in this regard and these will cover selling by `voice mode', which includes telephone calls, `electronic mode' (e-mails, internet and interactive television) and also the `physical mode', though postal mail and newspapers.

Web-based selling of insurance products is at a nascent stage in India. Although the volumes here are low, the regulator said the guidelines would cover distance marketing activities of insurers, brokers at the stages of offer, negotiation and conclusion of sale. It has asked insurers to ensure every telecaller is trained either in-house or at an institute accredited for pre-license training of agents.

Moreover, insurers or brokers will have to prepare standardised scripts for presentation of benefits, features and disclosures under each of the products proposed to be sold under telephonic mode. Irda wants the name of the insurer, name of the caller the language options available and the purpose of approach to be clearly highlighted.

Source: Business-standard Irda to regulate telemarketing of insurance

Irda, in a circular issued last night, said the decision to appoint a "person holding a valid licence as a corporate agent, on transfer from other insurer, will be taken only in the corporate office of the insurance company".

According to the new circular, the appointment can be made only by the CEO, CFO or chief marketing/sales officer, among others, designated for the purpose by the board.

The insurers are mandated to submit a list of officers designated for licensing corporate agents by 30 June, and they are required to scrutinise the agent's track record prior to his/her appointment.

"The officer shall obtain and record the reasons leading to cancellation of corporate agency agreement with the earlier insurer," the Irda circular said.

Source: The Statesman Irda tightens norms for corporate agents

Emphasising the need to ensure the required information is digested by policyholders, Irda said insurers should keep key feature documents in mind while coming up with new breeds of products such as unit-linked insurance plans (Ulips).

"Spurred by competition triggered by this opportunity, the market has seen a plethora of new products. This has raised new concerns regarding availability of information to prospects and policyholders," Irda said.

It said the ultimate test of a policy document was whether the target customer understood the product's main features and was able to take an informed decision.

Poor understanding of the product is the main reason for higher mis-selling. The general complaint against Ulips is that policyholders do not know whether the product is a single-premium or a regular-premium product. Since agents who explain these products sell all regular premium products as single-premium to earn commissions, the buyer becomes a victim of mis-selling and the policy lapses.

Source: Business-standard Skip jargon, keep it simple, Irda tells insurers

In the draft guidelines, the regulator suggested the surrender charge during the first year of the policy be fixed at 12.5 per cent of the premium paid in case the policy term is less than 10 years. For longer duration policies, surrender charges are proposed to be capped at 15 per cent. At present, insurers levy up to 60 per cent surrender charge in the first year, which drops to 30 per cent in the second year.

"It (the draft circular) provides the ceiling on surrender charges instead of leaving it to the discretion of the insurers," Irda said.
In addition, the regulator, under pressure on regulation of Ulips, which are investment-cum-insurance plans, has proposed that the grace period for payment of premium be fixed at 30 days. For policies involving monthly premium payment, the grace period is expected to be fixed at 15 days. This is in line with other life insurance policies, though there are no fixed norms for Ulips at present.  The reforms proposed on Tuesday are in line with the initiatives announced by Irda since April 9, when the Securities and Exchange Board of India (Sebi) asked 14 insurance companies to register with it or stop selling and renewing Ulips. The decision has since been kept in abeyance and the matter is now being heard in the Supreme Court.

Irda is also working on standardising the Ulip terms. It is expected to come out with the new norms in the next couple of months.

Source: Business-standard Irda to cap surrender charges on Ulips, standardise terms