New rural cover scheme does away with health checks

PEOPLE living in rural parts of the country will soon be able to buy insurance cover without being subject to mandatory health checks, as is the norm for life insurance policies. The department of posts is set to launch an ambitious micro life insurance policy that will not require insurees to disclose their health condition or existing diseases at the time of buying the plan.      The proposed insurance scheme, meant for economically weaker sections and particularly women, will provide a risk cover up to Rs 25,000, said an official in the ministry of communications and information technology. The department aims to cover around one-tenth of Indians and become a major player in the domestic insurance sector by easing out the procedural formalities that precede the purchase of a life insurance policy.      While the new scheme has been designed to be customer-friendly, the postal department will put in place systems and processes to prevent fake claims. For instance, a claimant will have to file a death certificate issued by a government doctor on a deceased's cause of death before claiming the insurance amount, the official said. If the medical report says the insuree was suffering from an ailment that existed prior to the purchase of the policy, the postal department will have the option to reject the claim.      The policy premium will vary according to the age of the insuree and the tenure.      India Post expects to cover around 100 million Indians by the end of 2011 under the scheme. The move is part of India Post's initiative to expand its insurance services and ensure a strong presence in the sector, especially in rural parts of the country, the official added.      Since the launch of the rural postal life insurance scheme in 1995, 8 million lives and a sum of Rs 40,000 crore have been insured under various policies offered by India Post. The department also plans to tweak its investment norms for life insurance policies to pump in a part of daily collections in revenue-generating instruments, including stocks, a move that is likely to begin from October 1, 2009.      With a huge presence in the country through 1.55 lakh post offices, the postal department is slowly developing itself as a centre for offering diversified services such as the National Rural Employment Guarantee Scheme, life insurance and financial solutions to its customers, apart from the mail delivery system.

Norms for insurance IPOs soon

Mumbai: Insurance regulator IRDA will come out with disclosure norms for IPOs to be launched by insurance companies by month-end, its chairman J Hari Narayan said on Friday. "We will be ready with the disclosure norms by the end of this month,'' Narayan said. Insurance companies like Max New York Life and Kotak Insurance are planning to launch IPOs. IRDA thinks proper disclosure norms will make the process transparent and consumers aware of thehealth of the company.      "There are few (insurance) companies which have shown interest for IPOs, and IRDA is working with market regulator Sebi to come out with guidelines,'' Narayan said. The route towards an IPO would have three milestones — finalisation of the red herring prospectus (RHP) requirements, disclosure normsand valuation of insurance companies, he added.      "The first milestone towards IPO will be finalisation of the RHP. The design, structure and disclosure required in consultation with Sebi. The second milestone would be the pattern of disclosure, which IRDA would mandate to insurance companies for IPO,'' he said. "We have worked and standardised it (calculation of valuation). The Indian Institute of Acturial will bring out a guidance note on it. And once the guidance note is ready, we will make it mandatory for the insurance companies,'' Narayan said.      "The disclosure norms are under our jurisdiction and they would be ready by the month, he said. The other milestones may take few more months as there are several other players involved in the process,'' he said.      IRDA also expressed concern over the increasing underwriting losses in the nonlife insurance industry. "Due to increase in competitive pressure post detariffing, underwriting losses in the Indian non-life space is increasing which is not a healthy sign,'' Narayan said. "We do not have actuarial capabilities in non-life industry which is a matter of regulatory concern.'' There is also a shortage of skill-sets with respect to evaluating a product and risk factors before fixing the rate, he said.      Hari Narayan further said that the bancassurance model used to distribute policies by insurance companies in the country is weak at the moment. "We find from observation and examination that the bancassurance model is weak at this point.'' It (bancassurance model) is certainly robust at the time of settlement of credit claims but poor at the time of settlement of claims of personal line products,'' Hari Narayan said. With competition, the fastgrowing insurance industry may witness a consolidation among smaller players, and see the emergence of some big companies, a report said.

HOW ABOUT MAKING COMMISSIONS OFFICIAL?

The best way to bring down distribution charges in insurance is to increase price competition among agents by legalising rebates. Dismantling the agency structure could have unintended consequences, says Mayur Shetty   THE global financial crisis has left Indian banks largely unaffected. With the central bank releasing Rs 4.2 lakh crore of liquidity support, banks are awash with funds. The ratios for bad loans are better than their average for this decade. The assets of other players in the financial sector have also not been impacted. But what appears to be changing is the war on charges by regulators across the board.      Banks have been asked to waive charges on the use of ATMs. Mutual funds have been told to remove load from August 2009. Life insurance companies have been subjected to a cap whereby the difference between gross yield (the return had there been no charges) and the net yield (return net of charges) is no more than 300 basis points over 20 years. These are all positive developments for consumers. The reduction in charges is expected to improve the return.      But that appears to be only the beginning. A consultation paper titled 'Minimum Common Standards for Financial Advisers and Financial Education' has said that all financial products should go 'no load' with effect from 2011. The consultation paper is the work of a panel constituted by government. It is headed by D Swarup, chairman of Pension Fund Regulatory and Development Authority, and has members from the ministry of finance, ministry of corporate affairs, RBI, IRDA and Sebi. Other suggestions include a system for improving financial literacy and creating a self-regulatory organisation for financial intermediaries who will work for fees from the customer.      The insurance industry has reacted by saying that the views of the major constituents has not been taken into consideration. The industry says that the view of life insurers was not taken into account, neither do the views of insurance regulators find any place in the parts of the report that was made public. The existence of insurance agents' association was not also acknowledged. An investor meet to discuss the report and the industry's response will be held on Wednesday and a clearer reaction of the industry may emerge from the meeting.      Selling insurance products without any commission is not a unique concept. Many of the grandiose schemes announced in the earlier budgets were aimed at covering large sections of the population under schemes administered by state-owned insurance companies. But the schemes were targeted at those at the bottom of the pyramid who had no knowledge of financial services and, therefore, few sought to get enrolled. Some companies have been selling car insurance online where rates are much cheaper than those available with auto dealers, but sales remain modest.      "Buying a third-party insurance cover for a vehicle is a legal requirement. But agents do not want to sell standalone third-party cover, as there is no earning for them. Despite the legal requirement for the cover, the number of motor policies are half the number of registered vehicles," says Kamesh Goyal, CEO, Bajaj Allianz Life Insurance. He adds that insurance penetration of householder policies is low because commissions in these products are very low.      Clearly, what is required is not a demolition of the distribution structure but more competition among the distribution channels. In the developed markets, term insurance cover in life and auto insurance in non-life is available at very cheap rates, thanks to the presence of online aggregators. These online aggregators are websites which get quotes from various companies and allow the customer to choose the most competitive one. The aggregators work for a commission from the insurance companies. In the absence of aggregators, it will be almost impossible to compare quotes across a dozen companies.      Similarly, the one thing that everyone acknowledges in private, but feigns ignorance about in public is the rebating of commission. In many financial services this happens openly. But in the case of insurance, rebating is always in cash because rebating of commission is illegal. This is not the case in developed markets like the UK where the agent can use part of his commission to buy additional benefits for the policyholders. Companies such as Aviva had earlier made a case for legalising rebating of commissions in India. Legalising rebates benefits all. The company gets higher premium, the policyholder gets better returns and the agent can claim the rebate as an expense like in the West.      If the life industry has turned a blind eye to the high acquisition costs, it is largely because topline growth has been its only yardstick of success. In a way, the regulator has also kept the spotlight only on the topline by reporting only premia from sales of new policies without focusing on assets under management or persistency ratios. In the absence of other parameters, the topline numbers have been used by agents to assign fancy valuations to life insurance companies.      One of the positive aspects of the Indian economy is the balance between savings and investment. To a large extent, savings of the salaried have been driven by tax breaks on instruments such as life insurance, provident funds and small savings schemes. The new tax code proposes to reduce the tax breaks and bring down the rate of income tax. If this is the direction of future policy, then there will be very little incentive to save. And if there are no distributors, there will be nobody going out to sell retirement savings products. Globally, there is a debate on whether financial services should be treated as utilities, which should be allowed to function within a narrow operating spread. But in India banks and telephony companies have shown that it is possible to build a pan-Indian distribution network and sell low-margin products.      mayur.shetty@timesgroup.com