INSIDE THE ISSUE

19th - 25th Sept 2014

Life insurers get more time to convert policies to demat form - The Hindu Business Line

The Insurance Regulatory and Development Authority (IRDA) recently sent a circular to all life insurers allowing a one month-extension to meet the criteria for conversion of a minimum number of policies into dematerialised (demat) form as part of a pilot scheme. IRDA has licensed Karvy, NSDL Database, Central Insurance Repository, SHCIL Projects, and CAMS Repository Services as repositories.

The regulator had launched a two-month pilot project in July, making it mandatory for all life insurers to convert a minimum of 1,000 or five per cent of the total individual policies issued into demat format. Viiveck Verma, ED, Karvy Insurance Repository, said some life insurance companies were not ready with the testing and technicalities of system integration due to which there was need for the deadline to be extended.

At present, according to industry estimates, the five insurance repositories have around two lakh e-insurance accounts and around 60,000 policies in dematerialized format. For the policies converted/ issued in electronic form, within an e-Insurance Account, the insurance repository is responsible for providing the mandatory information such as policy status, history, premium dues with facility to print/download wherever necessary.

The CEO of a private life insurance company blamed the delay on slow customer feedback despite all the communication sent by the insurer. “While it is a good model for the future, the number of insurance policies held by an individual is limited. So, he may not feel an immediate need to dematerialise the policy, unlike multiple securities that an individual may hold and trade,” he said.

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Insurance buyers begin to see virtue in pure protection - Financial Chronicle

Unit-Linked Insurance products (ULIPs), which once constituted 80-90 percent of insurers’ incremental new business premiums, are getting relegated to the backburner, and return-obsessed Indians are now beginning to look at insurance for pure protection, top industry leaders said. “Roughly one-third of our business comes from. ULIPs now, compared with 75 percent in its peak, that was before 2010,” Rajesh Sud, CEO and MD of Max Life Insurance, said.

Ulips have undergone a huge transformation over the past four years following a space of regulatory changes and intense media scrutiny after market regulator Sebi raised the red flag over it in 2009-10, triggering a regulatory tussle that eventually ended in a complete overhaul of the product. In the nine months since IRDA’s new product guidelines came into force on January 1, requiring all insurers to redesign all of their products, fewer Ulips have hit the market. Public sector insurance behemoth Life Insruance Corporation (LIC) doesn’t have Ulip yet.

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HIGHER FDI - Life insurers seek clarity on Indian mgmt clause - The Times of India (Delhi)

The Life Insurance Council is seeking clarification on the term Indian management in the context of the government's move to hike foreign direct investment (FDI) in the insurance sector.Some private life insurance companies are worried that the leeway enjoyed by multinationals in nominating chief executive might be lost if they opt for a higher stake of 49%.

Meanwhile, the government has appointed a select committee headed by Chandan Mitra, the BJP's Rajya Sabha MP, which includes parliamentarians across parties, to submit a report on the Insurance Bill. The panel is receiving representation from all stakeholders and the life council too would be making its representation later this month. “Altogether 97 amendments are proposed under the Insurance Bill, but the focus right now appears to be on the issue of foreign direct investment and Indian management control,“ said V Manickam, secretary general, Life Insurance Council.

Besides these two issues, the council is also making a representation on Section 45 of the Insurance Act, which says that no policy can be called into question on the grounds of mis-statement after two years. The council wants that in case of suspected fraud, regulations should allow for policies to be called into question up to three years. This representation is being made given the rise in frauds in the industry.

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Large private life insurers see better premium growth - Financial Chronicle

The stock market boom has breathed new life into a few large life insurance companies, thanks mainly to unit-linked insurance plans (Ulips). Top private life insurers like ICICI Prudential Life, HDFC Life Insurance, Max Life Insurance and a couple of smaller players with a significant number of Ulips in their product baskets have been able to register double-digit growth in individual new business premium during April-August.

On the other hand, PSU behemoth Life Insurance Corporation of India (LIC) has witnessed negative growth in individual business for the same period. According to data available with Financial Chronicle, individual adjusted first-year premium calculated (as per international norms) by taking into account 10 per cent of single premium and 100 per cent of regular premium during April-August was Rs 1,347 crore for ICICI Prudential Life Insurance, up 34 per cent.

During this period, ICICI Prudential Life’s market share increased by 410 basis points. One basis point is one-100th of a per cent. More than 70 per cent of ICICI Prudential Life’s premium comes from Ulips and the rest from traditional products. Similarly, HDFC Life Insurance had individual new business premium of Rs 855 crore during April-August, a growth of 31 per cent, which improved its market share by 228 basis points to 15.1 per cent. Max Life Insurance clocked a 15 per cent growth in individual first-year premium at Rs 614 crore during this period. A top official with a large life insurance company said, “A bull run is supporting higher Ulip sales, which could be one reason.

The other reason is that people are moving away from gold to financial products. Financial savings ratio as a percentage to GDP has now started to increase. But we need to wait, as these are early days as 60-70 per cent of actual sales of the life insurance industry happen in the second half of FY15.” For LIC, the individual premium declined by 7 per cent to Rs 7,719 crore, compared with Rs 8,332 crore during the same period of last year. SK Roy, chairman, LIC said, “The decline in individual business has nothing to do with Ulips. Maybe, August 2013 was a big business month and we have not been able to match the huge base this August. But if you see the data for April-July, it gives a different picture, as we have grown by 12-13 per cent combining individual and group businesses.” LIC so far has only traditional life insurance products in its product basket. Companies that focused largely on selling traditional insurance products registered negative growth in new business premium.

Bajaj Allianz Life Insurance registered (-) 28 per cent growth in individual adjusted first-year premium at Rs 213 crore in the first five months of the year compared with Rs 297 crore in the same period last year. Birla Sun Life Insurance saw its individual new business premium fall by 12 per cent to Rs 247 crore during April-August compared with Rs 282 crore in the same period last year. “Only large players that have Ulip products in their product baskets have grown, while the rest of the private players and LIC continue to see negative growth. An improvement in the economy has not aided the new sales of life insurance companies. We need to wait and watch,” said the chief executive officer of a private life insurance company. Reliance Life Insurance

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grew 3 per cent to Rs 428 crore during April-August in individual premium. Anup Rau, managing director and chief executive officer of Reliance Life Insurance Company, said, “We believe that the Ulip strategy is not the best strategy for the industry as customers tend to take a short-term view of their investments. Most Ulip customers are buying it for five years, which would be damaging for the industry.” “Growth in individual business for top players could also be because of a drop in their sales last year after they were exposed in a Cobrapost operation. Many of them made their processes very stringent which impacted sales last year,” said an official with another insurance firm. During 2013-14, Cobrapost had conducted a sting operation where it exposed 23 private and public financial institutions allegedly aiding money laundering.

Top banks such as SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Indian Bank, IDBI, Indian Overseas Bank, Dena Bank Corporation Bank, Allahabad Bank, Oriental Bank of Commerce, Central Bank of India, Yes Bank, Dhanlaxmi Bank, Federal Bank, DCB Bank, HDFC Bank, ICICI Bank and Axis Bank were named in the sting operation. Insurance companies named in the expose included LIC, Reliance Life Insurance, Birla Sunlife and Tata AIG. Banks that were promoters of insurance companies had to plug the loopholes and change their systems, impacting insurance sales during 2013-14. The industry as a whole did not see growth while the private players grew by 11 per cent in individual business. falaknaazsyed @mydigitalfc.com In case of growth in the number of policies, only four life insurers were able to register growth during April-August, namely, Max Life Insurance (4 per cent growth with 1.75 lakh policies), Canara HSBC OBC Life Insurance (8 per cent growth with 20,000 policies), India First Life Insurance (49 per cent) and Aegon Religare Life (5 per cent).

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Insurance companies can’t make unilateral changes in mediclaim policies: Forum - the Times of India

In two separate cases, a consumer forum has held that unilateral changes made in a mediclaim policy by the insurance company amounted to deficiency in service. In both cases the forum relied on a Supreme Court judgment which observed that renewal of an insurance policy means repetition of the original policy. "In common parlance, by renewal, the old policy is revived and it is sort of a substitution of obligations under the old policy unless such policy provides otherwise. It may be that on renewal, a new contract comes into being, but the said contract is on the same terms as of the original policy," the SC had said.

The forum directed The New India Assurance Company Ltd to reimburse Rs 87,186 and pay compensation of Rs 27,000, to Dadar resident Soli Modi. The firm had sanctioned Rs 62,814, instead of the assured sum of Rs 1.5 lakh that Modi had incurred in a hernia surgery in 2012. In the complaint filed before the Central Mumbai District Consumer Disputes Redressal Forum, Soli said on perusing the reasons for sanctioning only a part amount of the claim, it was noticed that the deductions were made on account of changes in the policy terms that were made without his knowledge.

In the second instance, a Dahisar woman who had undergone a hysterectomy in 2011, was sanctioned Rs 22,500 instead of the Rs 1.2 lakh incurred as charges for the surgery and tests. On probing the reason for the part rejection, she learnt that her policy was changed from an Individual policy to a Janta policy without her consent. "The insurance firm and third-party administrator have acted arbitrarily and tried to modify the terms...of the earlier policies issued to her husband. The firm had indulged in unfair trade practices by issuing Janta Policy and under the garb of that policy curtailed the rights of the complainant which were available to her...under the old policies," the forum said. The woman will get Rs 20,000 compensation and Rs 42,624 reimbursement.

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Health insurers offer Nano price - The Times of India

With increased penetration of government health insurance schemes like RSBY (Rashtriya Swasthya Bima Yojana) coupled with private hospitals building capacity across the country, health insurers are also looking at smaller markets. Private health insurer, Star Health is at present piloting a Rs 1 lakh sum insured cover with an annual premium of Rs 1,000 across a few districts in Tamil Nadu and Kerala. "The increased penetration of healthcare facilities has resulted in lesser movement of patients to metros at least for routine procedures. If a person chooses to get a procedure done in a metro, the entire sum insured is wiped out very soon. On the

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other hand, the same policy can be better utilized if the same procedure is possible back in his home town," V Jagannathan, CMD, Star Health and Allied Insurance said.

And while a differentiated product offering may help insurers get volumes initially, officials state a growing population plus demand for quality health care is pushing insurers to look at such markets. "Today, customers from smaller towns and cities want an open product with minimal exclusions with many not minding to pay additional premium for the same," Renuka Kanvinde, associate VP at Bajaj Allianz General Insurance said.

With banks allowed to tie-up with one standalone health insurer, penetration is expected to rise. "For mono line companies, it is not feasible to open branches in locations with limited potential as it takes them minimum four to five years to break even," Antony Jacob, CEO, Apollo Munich Health Insurance said. Nearly, 30% of the company's customer base resides in such locations. Even recent entrants are finding takers from the mini metros and other regions. For instance, Cigna TTK Health Insurance is seeing good traction in Aurangabad, Kochi, Indore and Kanpur.

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Air India’s insurance contract up for renewal on October 1 for an estimated $25 million - The Economic Times

The race for Air India's insurance account is boiling down to a contest between the public and private sector. A consortium of state-owned insurers led, by New India Assurance, has emerged as the frontrunner for the national carrier's business, while the private sector has rallied behind a group led by ICICI Lombard GeneralInsurance. The insurance contract for the flag carrier's 105-strong fleet comes up for renewal on October 1 at an estimated premium of about $25 million.

Experts said the New India Assuranceled consortium has United India Insurance, Oriental Insurance and National Insurance as co-insurers. The other group has ICICI Lombard General Insurance as lead insurer and Reliance and HDFC Ergo as co-insurers. The insurance companies ET spoke with on the matter declined to comment. However, a senior executive at a staterun insurer said the New India Assurance-led consortium was ahead in the race.

According to industry executives, aviation premiums have increased following arise in mishaps, pushing up the bill for insurers. For instance, in 2013 when the market had softened, Air India paid a premium of $23 million. This was lower by over $1 million than the premium in 2010 when an Air India Express jet crashed in Mangalore killing 158 people.

General insurers led by Reliance General that had provided cover to Air India in 2010 had to pay Rs 350-400 crore in compensation claims. Most of the claim money came from international reinsurers who dictate rates depending on the state of the market. Air India's current insurance policy, issued by New India Assurance, includes a $9.5-billion hull cover and a combined single liability of $1.5 billion.

Hull all-risk insurance covers any damage to the body of the aircraft caused by an accident, while war risk, part of hull cover, insures against war, invasion, insurrection, rebellion and hijacking. In addition, the insurance covers liability toward passengers and covers legal protection against suits. A series of aviation disasters this year—the disappearance of a Malaysian Airlines jetliner in March, the crash of a Malaysian Airlines aircraft in Ukraine in July and that of an Air Algeria plane in Mali in the same month—have turned aviation insurers wary.

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General insurers want lower penalty for mis-selling - Deccan Herald

General insurers have pitched for relief from the hefty penalty for mis-selling proposed in the draft Insurance Amendment Bill. They have submitted a representation in this regard before a Parliamentary Select Committee through the General Insurance Council (GIC). A number of GIC members, who also head the general insurance firms, recently called on the committee members in New Delhi to express their opinion on the Bill that seeks to hike FDI in insurance to 49 per cent from 26 per cent. "The Council has demanded a relief from

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high penalty they are supposed to pay in case of mis-selling any products to customers by their agents," a state-run general insurance company's chief told PTI. The Bill has incorporated stringent conditions, including hefty fine, against the general insurers in case products are mis-sold by their agents to customers. However, the general insurers have argued that such stringent conditions would adversely affect their marketing activities and also growth of the key industry.

"There should be fines but they shouldn't be that prohibitive to suffocate growth. Certain penalties have been recommended in the Bill which we are opposing and we have already given our representation on the issue before the select committee through the Council," another state-owned general insurer said. The companies have also suggested to revive the commission on obligatory reinsurance business with the country's official reinsurer GIC Re.

There is a provision in the Bill for withdrawing existing commission, currently pegged at 5 per cent, when the general insurers reinsure the mandatory portion with GIC Re. The existing regulations provide that 5 per cent of general insurance business has to be reinsured with GIC Re. Normally, when a general insurer does business with a reinsurer the latter pays a commission to the former to compensate the expenses spent on procuring the business.

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Some PSUs not allowing GIC to compete for A/Cs on fair terms - The Financial Express

India's only reinsurance player GIC Re has asked state-owned large companies to adopt fair and level-playing business practices while seeking reinsurance covers. The company, which is facing stiff competition from international reinsurers, has managed to bag reinsurance accounts of only a few large domestic companies like ONGC and BPCL.

"We are the reinsurer for the energy major ONGC on the basis of international competition. We can provide such reinsurance leadership to more accounts from the country, but we are unable to do so, since some of the large corporates are do not allow GIC Re to compete for their accounts on fair terms," GIC Re Chairman and Managing Director A K Roy told PTI.

In fact, many state-owned companies are laying down certain clauses which bar GIC Re from bidding their accounts, he alleged. "The real reason for us not being the lead reinsurer for many domestic companies other than ONGC is neither lack of capacity nor competition.

"It is simply because we are being prevented by them to have their account on technical grounds. Still, I can only tell you that if they come to us, they will get a cheaper rates compared to any other reinsurer. Our ONGC account could be a case in point. It will save the country a lot of forex," Roy said. Some large corporates have been laying down certain 'artificial conditions' as eligibility criteria for bidding their reinsurance accounts, which act as barriers for GIC Re to compete with other global reinsurance majors, he said.

It is a normal practice for large state-owned corporates to choose a set of reinsurers under one leader from global markets, while selecting a domestic insurer, since majority of their assets have to be reinsured. They always examine claim paying capacity of a reinsurer before finalising the reinsurance cover for themselves.

On the other hand, general insurers argue that GIC Re doesn't have enough capacity to provide reinsurance cover to a large corporate on its own. For example, GIC Re is out of the race to provide reinsurance cover to accounts like Air India, which is in the market to renew its insurance account.

"Some of the conditions that have been put out by Air India for choosing a reinsurer include high ratings and some experience in handling large-scale airlines globally. While GIC Re has not reinsured any airline as a leader so far, its rating is constrained by sovereign rating," an industry source said.

"Even in the case of ONGC, GIC Re is backed by the powerful Lloyd's syndicate, while United India Insurance is the local insurer for ONGC," a senior executive of a general insurance firm told PTI.

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Indonesia: Amended insurance law takes effect from October - Asia Insurance Review

Indonesia's House of Representatives has made legislative changes to the outdated 1992 Insurance Law to cope with swift changes in the growing insurance industry. The new law takes effect next month. Finance Minister Mr Chatib Basri said that the new law, passed on Tuesday, provides a stronger and more complete legal foundation than the 1992 Insurance Law, according to The Jakarta Post.

The new law includes an outline for Shariah-based insurance services, a protection mechanism for policyholders and the enforcement of administrative and criminal penalties. Mr Chatib said that he hoped the public would place more trust in insurance providers with the new law. “The practices stipulated in the previous law are obsolete and allows for loopholes that, if left unattended, would be detrimental to the local and global community,” he said.

The revised law obliges insurers to legally take the form of limited liability companies, cooperatives or mutual companies. The law also governs matters regarding foreign ownership in local insurance companies, but leaves out the exact limits on foreign shareholdings which instead are to be stipulated in government regulations.

Currently, 10 of the largest domestic life insurance providers in terms of premiums are joint ventures backed by foreign insurers, including the UK’s Prudential, Canada’s Manulife Financial and Germany’s Allianz. State-owned Jiwasraya is the only local company competing in the top tier. Mr Julian Noor, executive director of the Association of General Insurance Companies’ (AAUI), welcomed the new law. He also welcomed the role that the Financial Services Authority (OJK) will play in the supervision of the insurance sector under the new law. “Now with the OJK in charge of supervision, there needs to be synchronisation of all related regulations,” he said.

He also said that all supplementary regulations need to be clarified as quickly as possible, especially the ones governing the foreign ownership cap. As the new law mentions no specific clause regulating a foreign ownership cap, foreigners will still be able to own up to 80% of local insurance companies, in line with a 2008 government regulation on the insurance business.

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Malaysia: Non-life sector reports steady H1 growth - Asia Insurance Review

Gross written premiums of the Malaysian general insurance industry rose by 6.4 % for the first six months of 2014 to MYR8.9 billion (US$2.7 billion) from MYR8.3 billion for the same period last year, the General Insurance Association of Malaysia (PIAM) has announced.

During the period under review, motor insurance which is the largest non-life insurance class, saw an increase of 8.3% in gross premiums, with liabilities and medical/health insurance recording impressive gains of 13.9% and 10.9% respectively. Fire or property insurance grew 4.2%, while personal accident rose 4%.

PIAM chairman, Mr Chua Seck Guan, said that motor insurance business continued to be a key segment for the industry, owing to the increasing numbers of new vehicles being registered. Other personal and commercial line products show strong potential to be new drivers of future growth. The association said that it expects the general insurance industry to continue its growth momentum in the second half of this year.

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Australia: Insurers attain 61.6% loss ratio - lowest in 5 years - Asia Insurance Review

Australia's insurers reported a loss ratio of 61.6% for the year ended 30 June 2014, which was the lowest level attained in the past five years. The performance is attributed to growth in earned premiums and a stable claims environment, according to the international accounting and consulting group, KPMG.

In its 2014 General Insurance Review which is a detailed report on the sector, KPMG said that insurers delivered record gains post-global financial crisis, generating combined profits of A$4.96 billion (US$4.38 billion) and an insurance margin of 18.5% for the 12 months to 30 June.

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"It was another year of benign catastrophic claims, with the New South Wales bushfires being the only event costing the industry in excess of A$150 million," Asia Pacific Head of Insurance Accounting for KPMG Scott Guse said. "Stronger investment returns in the equity and alternative asset markets for some insurers was another key contributor to the record result."

Gross written premiums rose by 3% to A$32.58 billion, driven by increases in commercial insurance, while personal premium levels remained relatively flat. Net claims were consistent with the previous year. However, KPMG warned insurers of significant challenges ahead because of intensified competitive pressures.

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Nepal: Insurers allowed to sell micro-insurance through agents - Asia Insurance Review

Insurance companies can now sell their micro-insurance policies through agents and local organisations enabling them to reach a wider customer base, according to a micro-insurance directive from the Insurance Board (IB). The IB said that the new directive would benefit the poor who have no access to insurance services, reported the eKantipur website.

The IB move has also opened the door for insurers to work with non-governmental organisations, community-based organisations and cooperatives and enlist them as agents. “The insurers, based on the financial strength of the local organisations, can appoint them as agents to collect premiums as well as underwrite insurance policies for the poor,” said Mr Shree Man Karki, director of the IB.

The new directive allows insurers to sell policies under seven different categories, five related to non-life and two related to life insurance. In household micro-insurance, insurers can sell policies with a maximum insurance coverage of NPR200,000 (US$2,045). The upper limit for health insurance is fixed at NPR35,000 for a family of five. Likewise, the ceiling for accident and livestock insurance is NPR150,000 each. The maximum crop insurance amount is NPR50,000.

The IB also allows insurers to sell term life and endowment insurance policies with covers up to NPR150,000 and NPR100,000 respectively. According to Mr Karki, term life and endowment insurance policies cover death due to accident or natural causes. “However, they do not cover suicide cases,” he added. The government already provides a 75% subsidy on insurance premiums for crops and livestock. Mr Karki said that the government is considering extending the subsidy to the non-agricultural micro-insurance products as well.

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Australia: Planners focussing more on life insurance - Asia Insurance Review

Financial planners are focusing more on life insurance and this trend is expected to continue over the short term, according to the Planner Risk Report, an in-depth study of Australian financial planners' usage of insurance by Investment Trends. The proportion of planners advising on risk has remained steady at 90% over the last 12 months, and those who do are sourcing a greater proportion of their practice revenue from providing risk advice (29%, up from 27% in 2013). Looking forward, planners expect this trend to continue with risk advice accounting for 31% of their practice revenue by 2017.

"Risk continues to be a key component of many planners' businesses," said Investment Trends Senior Analyst Recep Peker. "Providers can help facilitate planners' intention to grow their risk business by addressing some of planners' key challenges, chiefly high premiums, administration issues and inefficient processes."

The study is based on a survey of 885 financial planners concluded in June 2014. Following the tightening of underwriting standards over the last year, the average number of days planners say it takes providers to process underwriting submissions has increased from last year's levels. This has resulted in planners' satisfaction with underwriting falling slightly at an industry level over the last 12 months. "The underwriting process is the strongest driver of overall satisfaction with insurers," said Mr Peker. "So, any falls in satisfaction with the underwriting process is noteworthy."

"Underwriting is very important for both acquisition and retention, and will be a key battleground for insurance providers over the next year," said Mr Peker. Around 45% of planners said insurance providers should focus on improving underwriting speeds to help them with their advice on risk.

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Singapore: Construction insurance grows as emerging markets build - Asia Insurance Review

Singapore has become Asia's insurance hub for insuring construction risk , with companies based in the city-state projected to underwrite US$4.5 billion worth of construction projects this year, a 22% increase over the past five years. The figure is set to increase to US$6.5 billion by 2018, participants at a conference last week hosted by AIG were told.

New research by AIG found that for the first time, construction in emerging markets is outpacing that in developed markets. Mr Daniel Abramson, AIG's global head of construction, said that this shift is being driven by Asia's population growth and increasing urbanisation.

"Last year, 52% of the world's construction was in emerging markets. By 2025, we expect this figure to grow to more than 60%, with big infrastructure projects in China and India set to lead the way," he said. The insurance sector in Singapore would play a key role in promoting this growth.

Mr Rudi Spaan, AIG's head of broker and client management, said that what is being seen in Singapore not only indicated the increasing number of projects being undertaken across Asia, but also the multiple risks involved in these projects.

"Today projects involve a global supply chain, where materials and equipment are sourced all over the world, and this inherently increases the risk," he said. "When the complexity of multiple jurisdictions is introduced, different legal exposure, contractual obligations, tax and compliance issues, and cultural norms such as work safety have to be taken into consideration."

Companies therefore need to look for tailored solutions to ensure they implement risk management strategies that are tailored specifically to their project because in today's environment there is no one-size-fits-all strategy, he said.

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China: Insurers could be allowed to issue preference shares - Asia Insurance Review

China is considering allowing the country's insurers to issue preference shares in a bid to offer more funding options for the sector. The country’s insurance watchdog sent a circular to insurers last Thursday seeking feedback on the issuance of preference shares, reported Reuters citing the Shanghai Securities News, a state-owned newspaper.

The circular from the China Insurance Regulatory Commission said that China’s insurers will be able to issue preference shares through public and private channels. The amount of preferred shares will be limited to 50% of the value of common stock and 50% of net assets, the paper added. China published detailed rules on commercial bank issuance of preferred shares in August, paving the way for lenders to begin fundraising designed to enable them to withstand an expected rise in bad loans.

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