Irda Hits out at Finmin Over Broker Fee Paid by Reinsurers

Says ministry doesn't have authority to decide on broker fee; Letter marks fresh twist in Irda stand

The insurance regulator has told the finance ministry that it does not have the authority to decide on commission paid by reinsurers, triggering a turf war with the North Block. 
The Insurance Regulatory and Development Authority of India's missive to the ministry came after the North Block reluctantly allowed national re-insurer General Insurance Company to pay 5% commission to brokers. The ministry has maintained that the reinsurer should not be paying commissions at all as law requires general insurance companies to reinsure 10% of their business with GIC. GIC had been paying commission as high as 20% in certain cases in the past. A senior ministry official said Irda's letter marks a U-turn in the regulator's stand following pressure from private insurers and brokers. Just weeks ago Irda had informed the ministry that any decision on the commission paid by stateowned GIC rests with the management of the company. 
"When we had asked GIC (about the commission), they said the regulator will take a decision. (But) Irda had then said that GIC will decide. Now the regulator has suddenly raised turf issues," he said, requesting anonymity. Irda Chairman J Hari Narayan did not responded to ET's phone calls, but another Irda official said the matter is being discussed with both the government and GIC Re. The government has also issued direction to GIC to stop underwriting loss-making businesses, mainly transport and healthinsurance. 
"Insurers are projecting that this will lead to an increase in premiums. The fact is that only 10% of business is to be reinsured by GIC. Private insurers were pushing all bad business to GIC. We just want to a put a stop to that," said the ministry official. 
The finance ministry has received complaints that private insurers and brokers push bad business to GIC and reinsure the more secured part with foreign reinsures in order to get better margins. "Further some insurers have tie-ups with foreign reinsures. So automatically they give the good business to them," the official said. Earlier, the insurance regulator had said GIC must honour its agreement that it had signed with the companies for the current fiscal. A GIC official, however,said, "We will follow whatever the government tells us. They are the owners and if there are regulatory issues, the owner will resolve it."

Stay liquid, stay mobile

Don't park all your money in illiquid, immovable assets; build a contingency fund; pick up an optimum cover. Financial planner Gaurav Mashruwala has these suggestions for two city couples

    Mr and Mrs Prashanth live in Mumbai. Prashanth, an MBA (finance), works for the financial services industry. His wife is an engineer and works in the private sector. 
Cash Flow: The couple's gross yearly income is Rs 15.03 lakh. Their yearly outflow is Rs 8.04 lakh. This includes routine expenses and those incurred to support dependent parents, life and medical insurance premiums, EMI on the home loan and taxes. About 26% of their income is being utilized to service home loans. Net Worth: Total assets are worth Rs 95.04 lakh. This includes a house worth Rs 85 lakh. The outstanding home loan is Rs 33.50 lakh. Liability is about 35% of the assets. 
Health & Life Insurance: 
Health cover for himself and his spouse is Rs 4 lakh. In addition, there is another health insurance cover of Rs 2.50 lakh for his wife. His personal life cover through a term plan is Rs 25 lakh. In addition, a life cover of Rs 15 lakh has been provided by his employers. 
Savings & Investments: The balance in his savings bank account is Rs 41,000, his bank fixed deposit is Rs 30,000, direct equity Rs 2.64 lakh, equity mutual fund Rs 3.04 lakh, debt mutual fund Rs 50,000, EPF and PPF Rs 2.65 lakh and the balance in corporate FD Rs 50,000. 
QUERY: How much should the couple keep aside for contingencies? Is theirinsurance cover sufficient? They want to purchase a car worth Rs 4 lakh in the next few months. How should they fund it? 
FISCAL ANALYSIS: Their inflow is substantially higher than the outflow. This is a big positive. Borrowing is within permissible limits. Both health and life insurance covers are insufficient. Out of overall assets worth Rs 95.04 lakh, the cost of their house is Rs 85 lakh. Assets are skewed in favour of asingle illiquid, self-consumption asset. This is usual as most younger couples would purchase a house as their first asset. However, they should now concentrate on paying back their loan and create more liquid assets. 
WAY AHEAD Contingency Fund: 
Monthly mandatory expenses are in the range of Rs 67,000. Against this, their balance in the savings bank and sweep-in bank fixed deposit combine is Rs 71,000. This is about one month's reserve. It should be enhanced to about Rs 2 lakh; Rs 25,000 should be kept as cash at home and the rest in their savings bank account linked to a sweep-in FD. Health & Life Insurance: Ensure a health cover for self and spouse is Rs 5 lakh each. This could be either purchased directly from an insurance company or provided by the employer. Prashanth should have a life cover of Rs 1 crore for himself in the form of a term plan. 
Car Purchase: The couple is able to save about Rs 7 lakh every year. They only want a car worth Rs 4 lakh. Therefore, in the next 12 months, they should start a SIP of Rs 35,000 in a debt-fund to create the corpus. 
    Mumbai-based Sarath Babu works for a private company while his wife is a housewife. 
Cash Flow: Babu's total monthly income from his salary and rent is Rs 1.12 lakh. Against this, the couple's mandatory outflow is Rs 1.04 lakh. This includes routine household expenses, insurance premium, EMI on home loan, taxes and so on. About 52% of their income is being utilized to pay the EMI. They have two home loans. The EMI on the first is Rs 28,000 and on second one, Rs 30,000. 
Net Worth: They own 'self-consumption' assets in the form of jewellery, a car and real estate. Besides this, they only have an EPF/PPF worth Rs 5 lakh. They do not have any other bank savings. 
Health & Life Insurance: Combined medical insurance for himself, his wife and parents is Rs 3 lakh. The sum assured for the life cover of Sarath Babu is Rs 6 lakh and his wife is Rs 5 lakh. Both these are investment-oriented policies. 
QUERY: How should they get out of home loan debt at the earliest? Both the loans have a 10-year tenure. The first loan is two years into its term. The second loan was taken recently. FISCAL ANALYSIS: The couple's finances are cash-flow positive; they spend less than their earnings. There is absolutely no liquid money for contingencies, though. Their healthinsurance is insufficient and so is the life insurance. Their entire investment portfolio is illiquid. Borrowings are on the higher side. The situation is tougher considering it is a single-income family and has no other assets that can be liquidated to pay back the principal in case of eventualities. 
WAY AHEAD 
Other precautions: Even before repaying the loan, they should: 
    Keep aside funds equivalent to one month's mandatory reserve plus another two months' EMI for contingencies. 
    Enhance health cover for the family to Rs 10 lakh. 
    Cover themselves through a term plan to the extent of their outstanding home loan. 
Recommendations: For the time being, they must continue paying the existing EMI. Any increments, incentives or bonus should be utilized to pay back the home loan. 
    They must curtail the contribution to PPF/EPF to minimum/ mandatory requirements. The EMI must be enhanced to the extent of surplus. 
    Life insurance policies are causing a drain on the cash flow. Premium for the Rs 6 lakh policy is Rs 32,400 per annum and Rs 5 lakh policy is Rs 24,000.00 per annum. Either covert them into a fully paid-up policy or surrender them. Purchase pure term plans. Money saved on the premium should be utilized to enhance the EMI. 
    In case there is an income loss due to some eventualities, then either consider liquidating one of the homes or sell the jewellery. Selling jewellery, though, should be the last option. 
    (To be featured in this 
    fortnightly column, write to 
    moneymakeover@indiatimes.com)

Consumers often face problems in cashless mediclaim

In 2001 when the Insurance Regulatory and Development Authority (IRDA) paved way for the entry of Third Party Administrators (TPAs) as intermediaries in health insurance sector, they were expected to bring substantial qualitative changes in the health insurance service delivery,

particularly  in the area of 'cashless mediclaim' or  cashless system of claim settlement.

But a decade hence, policyholders continue to be victims of inefficiency, insensitivity, and lack of standardisation in the sector, particularly in the processing and settlement of claims. A 'cashless health insurance' policy, for example, must ensure that the policy-holder is free of worry over payment of medical bills in case of any treatment or hospitalisation. However, consumers often complain about long waits involved in getting approvals for cashless treatment from TPAs/insurers.

For example, a reader SM Sarin writes about how despite a health insurance policy for cashless treatment, he had to pay a security deposit of R55,000 to a hospital because the required authorisation did not come in time from the TPA. Even though the pre-authorisation form with all the relevant details was submitted three days prior to the surgery, the authorisation did not come for five days, despite repeated phone calls and reminders, he says. 

Eventually, even though he was discharged from the hospital at 10am, he had to wait till 3pm for the approval of the medical bill, as the hospital would not let him go without it.  "I wish the insurers would become more sensitive to the suffering of those who are sick and are already nervous about their health and not impose further anxieties on them," said Sarin.

In 2009, a committee constituted by the IRDA to evaluate the performance of TPAs, had recommended steps to improve customer service, including formulation of strict service standards with specific timelines for all services and penalty for their non-adherence. The committee, after detailed consultations with TPAs, insurers, hospitals and policy-holders, had also recommended standardisation of all claim-related procedures, including hospital billing and discharge protocols, so as to bring uniformity in the processes and facilitate faster and efficient pre-authorisation and claim settlement.

Another recommendation was the creation of a health insurance industry body — Health Insurance Development Council with representation from all stakeholders — to spearhead standardisation and quality improvement, besides collection and maintenance of data for efficient delivery of services.

Now that IRDA has issued an order (on Feb 2) constituting such a body — Health Insurance Forum — to create standard processes and definitions in the insurance industry as well as the health sector, hopefully, consumers can look forward to better quality of service.

Ramesh Sharma: I have a mediclaim policy (family fluter) from a public sector insurance company purchased on March 12, 2011. I lodged a claim in April 11. The company rejected it, but settled it after my application to the grievance cell of the TPA. Again, I lodged a claim for the same illness in August, but the company is not making payment. What should I do?

Answer: Without details, it is difficult to answer this question. But I would suggest that you file a complaint with the insurance company and if you don't get a satisfactory response, lodge a complaint with the insurance ombudsman. You can also register your complaint on IRDA portal: the integrated grievance management system www.igms.irda.gov.in. It provides for online registration of policyholders' complaints and helps in tracking the progress of the complaint. The portal also gives you a link to the grievance redress system of insurance companies.

You can get details of the ombudsman scheme and the addresses of the ombudsmen fromwww.irda.gov.in. 

Buying life insurance? Don’t skip the medical test

A detailed health check-up will not only make the claims procedure easy, but also bring down the premium for you

No medical test required', says the advertisement by the insurance company, and it seems just what you wanted to buy. But will it be the right thing to do? Today, many insurers are offering policies that don't insist on putting you through the entire gamut of tests before covering your life. However, be warned that these plans are not as customer-friendly as you might think. Here are the points you should keep in mind before picking up such insurance plans. 

Declaration is key 
The exemption from medical tests does not mean you can sweep your health problems under the carpet. You will still be required to make a declaration about your health condition in the application form and the premium rates will be fixed on the basis of your disclosure. If you hide a health condition, it can have severe repercussions on your insurance cover. The strictness of the claim procedure is inversely proportional to the leniency of the underwriting. 
    Usually, a claim is rejected when the company has reason to believe that key facts were suppressed at the time of purchasing the policy. It's not easy to hoodwink insurance companies, especially when the amount at stake runs into lakhs of rupees. In the case of early death (within two years of taking the policy), insurance companies examine the cause in minute detail. The claims department of insurers has a panel of medical experts, who can determine whether a particular illness existed prior to taking the policy. 
    That's not all. "There are agencies that can dig out information by talking to neighbours, colleagues, acquaintances, even family members, of the deceased," says Sanjeev Pujari, appointed actuary of SBI Life. If the company finds evidence of fraud or suppression of facts, the claim is rejected. Roughly 2-3% of claims end up in the trash can on this count every year. 
    Admittedly, not all claims that are rejected due to suppression of facts are fraudulent. In some cases, a lay person may not even be aware of his health condition. For instance, borderline diabetics may not know about their illness till a medical test is conducted. However, an insurance company can reject the claim saying that the mild illness (which was suppressed) had ballooned and caused death. So, even an unintentional mistake can blow away an individual's life insurance cover. 
    But if a buyer goes through a medical test, the responsibility of determining his health condition shifts to the insurance company. When Mumbai-based Paurav Mehta's father died of a heart attack, the insurer denied the claim, saying that he had not disclosed his heart illness at the time of buying the policy. But a court ruled that since the company had subjected the policyholder to medical tests and then fixed the premium, the claim cannot be denied. 
Pay less after medical test 
Stringent medical tests also mean lower premium rates for the buyer. An insurance company fixes the premium based on risk perception. If a medical check-up of two individuals shows that one has normal sugar level, while the other is a borderline case, the normal person will be charged a lower premium for the same cover. 
    However, if the two people apply for a policy that does not require medical tests, both will be charged the same premium. This is because the insurance company will factor in the possibility of the risk for both and will, therefore, hike the premium rates. If you are in good health, there is little reason to pay for somebody else's medical problems. You just have to show your insurance company that you are a low-risk candidate and the best way to do that is to undergo a detailed medical examination. Still, few buyers realise that insurance policies issued without any medical tests charge a higher premium than plans that require health check-ups. They are attracted by the convenience of a no-test policy compared with one that may require them to go to a hospital. "If the premium for a healthy person is 8,000, someone with a health problem would be charged 12,000. But if it does not conduct medical tests, it may charge everyone 10,000 uniformly. So, the healthy person will be charged a higher premium for no fault of his," says Gopal Kumar, principal consultant, Allons Insurance Research & Consultants. 
Cost-cutting by insurers 
If medical tests reduce the risk for insurance companies, why do they push products that don't require screening of customers? "A medical examination can cost up to 3,000-5,000. If they absorb this, their cost of acquiring a customer goes up," says Akshay Mehrotra, chief marketing officer ofPolicybazaar.com. Insurers admit that they save on costs, but deny that this is the purpose of offering such products. "We do it from the customer's point of view, so that they do not have to take the trouble of going to the diagnostic centre," says Subrahmanyam B, vice-president and head, health vertical, commercial lines and risk engineering, Bharti AXA General Insurance. "Non-medical lifeinsurance business is beneficial for the proposer as well as the insurance company. It saves on cost and cuts down the timeline," adds Kamalji Sahay, managing director and CEO, Star Union Dai-ichi LifeInsurance. 
Cover may be inadequate 
The policies that don't require medical tests are usually low-value plans. Even if you are young (below 30 years) and in very good health, no company will offer a cover of more than 5 lakh without a medical test. For buyers in the age bracket of 30-40 years, the threshold is even lower at 2 lakh. In most cases, such low-value plans may not be able to serve a person's life insurance needs. "If someone wants a higher cover, he should look for a pure protection plan, which will require him to undergo medical tests," says Aneesh Khanna, senior vice-president and head of marketing and product management, IDBI Federal Life Insurance. One reason why such policies find so many takers is because they can be issued much faster. A buyer who has to show proof of Section 80C investments to the accounts department of his company the next day may not have that much time. "The basic concern is not the insurance cover or the policy features but the speed with which it can be issued to the buyer so that he can claim tax deduction before the 31 March deadline," says Khanna. 
    Life insurance is a key component of your financial portfolio because it helps safeguard all other investments. It is not something that should be bought in a hurry. "If a person is healthy and can spare the time, he should opt for policies that require a medical test. It will work out cheaper and better for him," says Khanna. Even if you have to spend a few hours—even a day off from work—to get yourself medically tested, it will be well worth the effort. The good news is that severalinsurance companies have now started arranging for medical tests at home. So you don't even have to take the trouble of visiting the doctor's clinic. 
    Besides, there is an unintended benefit that comes your way. A detailed medical examination will tell you how fit you really are. If there is a health problem, you will be able to take corrective steps to nip it in the bud. So go ahead and take that medical test when you buy an insurance policy. 
    —with Babar Zaidi 
Tips for a health check-up 
Planning to undergo a medical test for a life insurance cover? Follow the schedule given below for best results. Mind you, we are not suggesting that you hide facts about your lifestyle or any medical condition. This is only meant to keep you away from habits and foods that could lead to abnormally high readings in some tests. Our objective is to make you give your body a chance to rest before you are subjected to a health check up. 
1 week before the test 
Stick to a healthy balanced diet. Minimise intake of salt. Avoid excessively fatty or spicy foods. 
3 days before the test 
Do not consume alcohol 72 hours before the test. It can cause liver enzyme levels to rise. 
1 day before the test 
Don't consume any caffeine product. It increases the blood pressure. Avoid nasal decongestants and pain killers unless absolutely necessary. Don't do strenuous exercises like jogging, gym training or swimming. 
12 hours before the test 
Get a good night's sleep. It will ensure normal blood pressure. Do not eat or drink anything, except water, 8-10 hours before the test. 
1-2 hours before the test 
Don't use any form of tobacco or engage in strenuous activity. Just sit back and relax.