Health cover hurdle for elderly

PSU Insurers Cap Commission On Plans Sold To 55-Plus At 5% Mumbai: The elderly will find it hard to buy health insurance with the public sector insurers bringing down agent commissions by more than a third for policies sold to those over 55. Companies with high claims, too, will find it difficult to get agents to service them as group policies where claims exceed premium will not be eligible for commission.      The new commission structure that is effective from this month and is aimed at curbing losses of public sector general insurance companies — National Insurance, New India Assurance, Oriental Insurance and United India Insurance. Under the new guidelines, insurance companies will pay full commission (15%) for policies sold to those below 35 years. For individuals in the 35-55 age group, the commission stands reduced to 10% while for those above 55 the commission has been capped at 5%. Motor insurance commissions have also been capped at 10%.      An industry official said the revised commission structure is aimed at discouraging adverse selection as claims are highest in the 55-plus category and it is this age group that is proactive in buying health cover. Insurers say that while they still make money on policies sold to younger people, the older segment, despite paying more than double the premium of those in 20s, has always been a loss making one.      According to Sanjay Parekh, vice-president, General Insurance Agents Association, some companies have discontinued commissions on policies sold to senior citizens. "Agents will not be able to provide service to policyholders and this will result in lapsation of policies," he said. The directive on commissions strikes a big blow to distributors of financial products, coming close on the heels of the central government's decision to cut commissions on small savings and mutual funds doing away with payments to distributors after Sebi placed curbs on entry loads. Even life insurance agents have been hit with companies reducing commissions after the insurance regulator directed them to bring down charges. Incidentally, both the life industry and the mutual fund business have seen a slowdown after commissions came down.      The agents' association has called for a meeting on September 5 to protest against this move. Agents say that in any case the move may be deferred.  NEW PAYOUTS ON POLICIES SOLD…  To under 35 category: 15% To 35-55 age group: 10% To 55-plus category: 5% Motor policies: 10% Group polices to be hit  There will be no commission on group polices sold to companies where claims exceed premium

RADICAL CALL Abolish CRR, says SBI chief

Kolkata: The chairman of the country's largest lender State Bank of India (SBI), 

Pratip Chaudhuri, has called for either a complete abolition of cash reserve ratio (CRR) for banks or, alternatively, a level playing field by imposing the reserve requirement on insurance and finance companies and debt mutual funds. 
    "CRR does not help any body. It is locked up in the vault and not ploughed back into the economy. It is unfairly applied on banks. If CRR is a liquidity mop-up tool, why not apply it to insurance companies, NBFCs and debt mutual funds, who as well mobilize deposits from the public?" he asked. 
    CRR refers to that portion of deposits that a bank has to mandatorily keep with RBI without earning any interest as part of prudential measures. Along with CRR, banks are required to invest a portion of their deposits in government securities as part of their statutory liquidity ratio (SLR) requirements. 
    Although CRR has come down from its peak level of 15% in 1994 to 4.75% at present, RBI had some years ago ceased to pay interest on CRR. Following liberalization, RBI has also reduced its SLR prescription from a peak 38.5% to 23%. 
    Speaking to reporters on the sidelines of a banking conclave organized by FICCI, Chaudhuri said: "It 
needs to be phased out as it does not earn any interest income and increases pressure to earn more from remaining resources." He added that this in turn translated into a cost increase which benefits none, unlike SLR which funds the government and contributes to the economy. 
    According to Chaudhuri, the bank has already represented this to RBI which has in recent months brought down the reserve requirement by 125 basis points, perhaps in response to the bank's representation. "If the money released (by the CRR cut) goes for production, then production across sectors will increase and bring down prices," he said. 
    After stressing on the need to phase out the CRR, the SBI chief termed the current norms of classification of a non-performing asset (NPA) as "draconian" and "detrimental".

Mamata derails UPA’s reforms plan Adamant On Not Allowing FDI In Retail, Aviation,Insurance And Pension

New Delhi: Political opposition to economic reforms grew as a key ally of the UPA government on Thursday raised the red flag to plans to open up the economy further to foreign investors. The political uncertainty in the aftermath of the national auditor's report on coal block allocations also triggered worries about the fate of the government's reform steps, which economists say are crucial to boost growth and sentiment.      The Trinamool Congress (TMC) chief and West Bengal chief minister Mamata Banerjee, who met finance minister P Chidambaram, said her party was opposed to any plans to allow foreign investment in multi-brand retail,insurance, aviation and pension sectors. "We are not in favour of FDI in retails and all this... insurance and pension. We are not in favour of FDI in aviation also. Always, we are in favour of common people," Banerjee told reporters after her meeting with Chidambaram.      "In our election manifesto what we raised, we will stick to it... Other countries all over the world are also saying if they allow FDI in retail market, then workers will die," Banerjee said. TMC has emerged as a major stumbling block for the government, forcing it backtrack on several reform proposals. More than 30 legislations are pending in Parliament. The move to raise the FDI limit in the insurance sector to 49% from 26% and open up the pension sector has faced political roadblocks for several years now.      The TMC chief had also forced the government to put on hold its decision to allow foreign investment in the multi-brand retail sector until a consensus was reached. The government is also unlikely to hike prices of fuel and fertilizers. "There is no proposal as of now to increase the administered prices of petroleum products and fertilizers," Chidambaram said in a written reply in the Rajya Sabha.      Drought in some parts of the country has also made the government's task of raising diesel and cooking gas prices difficult. The central bank and rating agencies have voiced concerns about the health of public finances due to the impact of unwieldy subsidies.      The Economic Advisory Council to the Prime Minister has said the large petroleum subsidy would greatly strain the fiscal system and would also have a significant adverse impact on the overall economy and eventually on inflation.      It has suggested a suitable increase in diesel prices in one or more steps and a cap on the level of consumption of subsidized cooking gas close to what is being consumed by poorer households, which is four cylinders.      But all is not lost yet for the government. It still has a window of opportunity to unveil some reforms after the Parliament session ends on September 7 and before the elections to some key states are announced. The government is likely to make a fresh bid to implement its decision to allow 51% foreign investment in the multi-brand retail sector, which would enable global retailers such as Walmart, Carrefour, Tesco and others to enter the lucrative Indian retail market. The government is likely to leave it to the states to implement the Cabinet decision to allow foreign investment. Several states have formally backed the moves while others have opposed it, saying it will lead to massive job losses and displace small neighbourhood stores.  TIME IS RUNNING OUT  äEconomists say reforms are crucial to boost growth and sentiment, especially when the fiscal deficit is high  äA poor monsoon means there is no hope of a rise in diesel and LPG prices, which could have cut the subsidy burden  äThe government may make one last bid to at least push through FDI in multi-brand retail after the monsoon session and before the elections to key states are announced

Some insurers in auto-only mode

Mumbai: Although monoline motor insurance companies have not made their presence in India even after the sector was opened up a decade ago, slow growth of property insurances has willy-nilly turned a few companies into predominantly auto insurers. According to data published by the life insurance regulator, three companies — Royal Sundaram General Insurance, Bharti Axa General Insurance and Shriram General Insurance — have more than 70% of their business coming from motor insurance, making them close to monoline companies.      Monoline companies are those with a general insurance licence but choose to focus on one line of business. Although there are specialist health insurers, this is a separate licence category. Speaking at a CII insurance summit recently, IRDA regulator J Harinarayan said that going by current trends some insurers might end up becoming monline companies.      Monoline companies are seen as being good for a line of activity since their specialization helps drive innovation. Although bulk of auto insurance in the private sector is still with larger companies such as ICICI Lombard and Bajaj Allianz, the share of motor in their overall business is lower.      According to Amarnath Ananthanarayanan, CEO, Bharti Axa General Insurance, the company did not start out as a predominantly motor business. "The motor business is losing less money than other businesses and is also one line that is growing fast," he said. As of March 2012, over 71% of Bharti Axa's total premium came from motor insurance, followed by health and other businesses.      "The sales of automobiles have maintained a robust growth, in double digits, even when the economic growth is apparently slowing down. Secondly, the third party insurance in automobiles is compulsory and mandated by law. Moreover, in recent years there have been increases in the third party premium. Lastly, post de-tariffication, pricing in property insurances has witnessed steady fall by way of discounting, resulting only in its modest growth," said Ajay Bimbhet, MD, Royal Sundaram Alliance. In the case of private cars, the industry is witnessing a claims ratio of 65-70%. This means that margins are very thin after providing for management costs. However, chances of catastrophic losses are lower and the business is less cyclic.      "Given the continued demand for cars, road transportation of people and goods and growth of automobile sector, motor insurance segment will continue to grow," says Bimbhet. But at the same time, other branches of non-life are expected to do well as prices have started to harden. And health, despite recent setbacks, is still the fastest growing business in the medium term. "What people forget is that non-life industry does not suffer in a downturn because cutting down on protection is the last thing that businesses want to do at times of stress," says Ananthanarayanan.

Comparitive Health Insurance Plan

Insurance:When Group Cover Falls Short, Try Voluntary Top-ups

Preeti Kulkarni & Vidyalaxmi explain how to bridge the gap with some extra health cover when the group insurance offered by your company falls short of requirements     Voluntary top-up covers, which allow employees to add extra health cover to their group insurance policy offered by employers, are fast becoming popular. Many companies, which were forced to trim their group health benefit packages in the past three years due to rising premium costs and a slowdown in the economy, are encouraging their employees to use this route to buy adequate health cover for themselves and their family. And employees, it seems, are happy to pay the additional premium for the add-on cover. Financial experts also approve of it as they believe that the average group cover is inadequate to take care of the hospital bills of most people.  "Almost 66% organisations have made changes to their benefit plan in the past two years to combat the rising cost of medical insurance. This trend is likely to continue. However, considering that a 'benefit cut' does not really lower the employees' risks or needs; organisations have now started offering voluntary topup plans," said Sanjay Kedia, country head and CEO of insurance broking firm Marsh India. "According to our 2011-12 survey, 67% of employees said they would like to buy such top-up plans."  "Top-up schemes linked to group covers are increasingly gaining prominence. We have seen good demand for such offerings and it is a viable proposition for us," said Amit Bhandari, vice-president, health underwriting and product, ICICI Lombard General Insurance.  According to insurance experts, the average cover of . 2-3 lakh offered by group insurance schemes may not be adequate to take care of the medical expenses of employees and their families. This willbecome crucial in future because medical inflation has been growing at 12-18% per year. This would surely mean that most employees won't be able to take care of their future hospital bills if they or their family members have to undergo treatment for any major illness. This apart, group covers could come with sublimits on room rents and treatment of certain ailments. Parental coverage has also been at the receiving end in the last two years. Many companies have either scrapped or scaled down the cover offered to employees' parents. Some companies extend cover to parents only if the employee agrees to fund the premium.  Given the dynamics at play, it is clear that group covers fall short of employees' requirements. This is where top-up covers can be used to bridge the gap, feel experts.  Typically, the size of such add-on covers ranges from . 2 lakh to . 10 lakh. They kick in when the hospitalisation expenses breach the base group policy limit. The premium for the additional cover is usually deducted from the employees' salary. It is eligible for tax deductions under Section 80D. The annual premium for a 40-year-old individual opting for a top-up of . 5-lakh may work out to around . 1,500-2,000. They can enroll for the top-up policy through employers' existing IT infrastructure, say, the intranet platform. Usually, the insurance company provides a link that enables the employees to complete the process online. They can enter the relevant details asked for and buy the top-up cover.  "For an employee, the advantage is that the cost is lower than that of an independent top-up plan. Moreover, they can immediately avail of the pre-existing diseases (PED) cover here, unlike individual policies that prescribe waiting periods for the same," said Bhandari. Also, since these top-ups are offered as part of corporate policies, they will come with a wider range of benefits.  "For specific corporate customers, we may customise the top-up cover so that all benefits that apply in the current policy can be offered on top-up basis, too," said Amarnath Ananthanarayanan, managing director & CEO, Bharti-AXA General Insurance.  Finally, it is always better to have an individual health cover or a family floater plan, as the group health cover ceases the moment you leave the job. Even some topup covers added to the group health cover may lapse if you leave the job. You have to check this aspect with the insurer before buying a top-up cover.  Also, you can consider buying an independent top-up plan if you already have a health insurance cover, instead of holding multiple health insurance policies. Such add-on policies are cheaper than standard hospitalisation policies by almost 40%. "From a customer's perspective, one has to see if he/she is able to get a significant price advantage as compared to individual top-up plans available in the market," said TA Ramalingam, head, underwriting, at Bajaj Allianz General Insurance.  preeti.kulkarni@timesgroup.com

NO TAKERS? 26k cr left unclaimed in bank, PF accounts

New Delhi: Investors have not claimed over Rs 26,000 crore from their provident fund (PF) accounts, insurance companies and bank fixed deposits, data released by the finance ministry revealed. A large part of the funds — over Rs 22,600 crore — is lying unclaimed with the Employees Provident Fund Organization (EPFO). New rules stipulate that those who have not transferred or shut their accounts for three years are not even entitled to receive interest on it. As a result, their benefits are passed on to the other EPFO subscribers.      Minister of state for finance Namo Narain Meena told Parliament that over Rs 3,000 crore was lying with insurance companies. Within this, he did not specify if the amount included what individuals invested in unit-linkedinsurance plans (ULIP). Funds lying unclaimed with insurance companies remain in the policyholder account, which is invested in the market and returns on this are shared with policies that are still in operation in the form of bonuses.      Several insurance companies were, however, flouting the norms and were transferring the Ulip funds into the shareholder account, which benefited the promoters. Meena said the insurance regulator has now advised insurers that unclaimed money would not be appropriated or written back. In case ofinsurance, several policyholders stop paying premium after a few years although the policy term may be 15-20 years.      The government said that in case of banks, at the end of March, 2012, over Rs 425 crore was lying as unclaimed funds in fixed deposits. It, however, did not provide any estimate on the funds that are lying unclaimed in bank savings accounts, which are unclaimed for several years. Typically, an account becomes inoperative if no money is deposited or withdrawn for a specified period.

Insurers’ Entry to Boost Stock Lending Market It could get a . 34,000-cr fillip if Irda’s proposal to let insurers join the sytem is implemented

India's fledgling stock lending and borrowing market could receive a nearly . 34,000-crore shot in the arm if insurance companies are allowed to lend their shareholding to private borrowers. In draft norms published on its website on Friday, the Insurance Regulatory Development Authority, or Irda, said insurers could begin participating in the stock lending and borrowing mechanism (or SLBM) and lend up to 10% of their stock holdings. Insurance companies have 15 days to respond to the guidelines. Insurance companies own shares worth . 3.4 lakh crore in mostly blue-chip companies, and could be enticed by the nearly risk-free interest they can earn from this idle stock. Also, the huge supply of shares into the SLBM may depress interest rates, attracting more borrowers. "Most of our equity assets are held for long periods as insurance policies are meant for long term. Based on the current rates, the interest earned by lending stock would be between 80-200 basis points. That is a decent amount of incremental income for policyholders," said Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance. But, a revival in SLBM may not be easy, analysts said. Approval from trustees and a pick-up in demand for borrowed shares are key for the mechanism to take off. The SLBM market allows stocks to be lent for as long as 12 months. The segment has received a lacklustre response from both borrowers and lenders. In 2012, BSE had an average of about 3,795 stocks traded in SLBM, while NSE had 5.5 lakh. Borrowed shares are mostly used to execute bearish strategies such as shortselling. In this, a trader expecting a stock's price to fall borrows the shares at, say, 1% rate of interest. The trader then sells the shares in the market, and buys them back when the price falls and returns them to the lender, pocketing the profit minus the interest. While the borrower earns from the trade, the lender earns the interest rate. "We would like to lend stocks, but there needs to be an active borrowing need in the system. But, SLB can be used actively in the F&O segment where liquidity is not available or where traders want to capture spreads in reverse arbitrage," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance. "Borrowing interest may also arise from investors who want to execute their longer period short-selling bets. Since life insurers can lend for a longer period, especially in situations when there is poor liquidity in long-term derivatives market, insurance companies can become active players in this market," he said  Mutual funds are allowed to participate in the segment, but their contribution is minimal. Most lending has been limited to high net worth individuals. Recently, the segment saw an uptick after several high HNIs started offering their idle stock holdings. However, borrowers have found the rates high. But, with a huge number of shares in supply, interest rates would fall. "Yes, the rates may halve to 40-100 basis points if insurers start lending. But, even then, insurers may not mind as the interest income continues to be an incremental earning," Kotak's Shanbhag said.  Even with the pros and cons, insurance companies' participation in SLBM may not be immediate, analysts said. For one, incorporating risk strategies and getting board approvals may take time. Similarly, SLBM's revival may take some time as companies may wait for the borrowing to pick up first, while borrowers may wait for supply to pick up.  "It's like a chicken-and-egg situation. I'd imagine insurers to behave like other institutions like mutual funds, which have not been active in SLBM because of issues either with the mandate from their trustees or because they are waiting for an initial pickup in the market," said Vineet Bhatnagar, MD at MF Global. "Also, borrowers will invariably continue to be private investors as institutions are not allowed to borrow shares. If the demand is low, maybe some institutions won't prefer lending less number of shares," he said.  nihar.gokhale@timesgroup.com

LEARNING WITH THE TIMES How to demat insurance policies

With the Insurance Regulatory and Development Authority (IRDA) set to issue final certificate of registration to five entities, policyholders have the option of maintaining policies in demat form, similar to how equity shares can be maintained in depositories. A look at how the new system will work.  What is an insurance  repository?  An insurance repository is a company recognized by the insurance regulator for maintaining a data of insurance policies (life, health, motor and group covers ) in electronic form on the behalf of insurers, including the history of transactions during the term of policy. They are similar to depositories that hold equity shares in demat form. IRDA has approved five repositories promoted by NSDL, CDSL, SHCIL, Cams and Karvy for setting up insurance repositories and has indicated that final certificate of registration would soon be granted.  Why have a repository?  The objective is to bring about efficiency, transparency and cost reduction in the issuance and maintenance of insurance policies. Also, policyholders will not be required to go through KYC procedure every time when they buy insurance cover. Since the repository will consolidate all policies under a single account, the family will immediately come to know of the policies purchased by an individual in an emergency. This development will definitely boost the web assurance/internet Insurance market in India. With such infrastructure in place, authentication of the insured and even the insurability can be verified easily by insurers, and consumers can have easier and faster process in purchasing the policies online.  What is an electronic insurance account and who can open it?  An eIA account (electronic insurance account) is the portfolio of insurance policies of a policyholder held in electronic form with an insurance repository. Anyone — existing policyholders or prospective ones — can open an e-insurance account. There is no additional cost for opting for electronic policies. Existing policies can also be dematerialized. A policy holder can avail the benefits of services like financial or non-financial alteration/endorsements under the single e-insurance account. The account can be opened by filling a form and submitting the KYC documents at any insurance repository branch or at the insurance company where the policyholder has his life or non-life insurance policy or the authorized approved person appointed by the insurance repository.  Who bears the cost?  The eIA opening is free of cost wherein all the incidental expenses will be borne by the insurance repository. Policy creation, dematerialization and servicing thereafter would be paid by the respective insurers on behalf of their policyholders.  What is the basic requirement to be completed for  opening an eIA account?  An eIA form needs to filled up and submitted along with photo ID and address proof to any nearest office of insurance repository branch or to the insurance company where the policyholder has his life or non-life insurance policy or the authorized approved person (AP) appointed by the insurance repository.

FIRST TO OFFER INSURANCE TO ALL UNORGANISED WORKERS Health Cover For All in Chhattisgarh From Oct

 Chhattisgarh is set to become the first state to extend health insurance cover to all its unorganised sector workers, a step that will not only make healthcare accessible to all but also set a model for other states to follow. 

The state has offered to pay the insurance premium from October 1 for all those not covered under the Centre's flagship health insurance scheme—the Rashtriya Swasthya Bima Yojna (RSBY). The labour ministry, which implements the scheme across the country, has accepted the proposal. 
Launched in April 2008, RSBY aims to provide annual health insurance cover of . 30,000 each to below poverty line (BPL) families and some categories of unorganised sector workers. 
Chhattisgarh government's decision will ensure that the poor and needy, who do not have BPL cards or are not covered under the Employees State Insurance Act, are not ignored by RSBY. The state is also pioneering the use of RSBY smart cards to deliver ration through the public distribution system. 
"This is the first time that a state has taken such a decision," said Anil Swarup, director general of Labour Welfare and the architect of the scheme. "A few other states, like Kerala, have used the RSBY platform to extend it to a larger section of the population, but they have not universalised the scheme." 
Swarup said RSBY will be available for all in Chhattisgarh. 
"All clearances are in place and an insurance company also has been selected," he said. "We have also doubled the capacity of the new cards so that all information related to PDS can also be stored." 
In a country where expenditure on health is one of the main causes of indebtedness, the Centre is banking on the success of RSBY. It wants to more than double the scheme's coverage to 70 million families by the end of the 12th Five-Year Plan. At present, there are 32.2 million families holding the RSBY smart card and there have been more than 4 million claims. The finance ministry has stepped up allocation for the scheme to . 1,500 for 2012-13, from . 360 crore in the previous year. 
The premium for households covered under the scheme ranges between . 500 and . 700, a third of which is borne by the Centre, while the states bear one-fourth of the cost. 
Chhattisgarh government, however, will have to pay for all the additional beneficiaries. "The labour ministry is of the view that the RSBY platform can be allowed to be used for all such unorganised workers who are not eligible for cover under the ESI Act," Labour Minister Mallikarjun Kharge said in a letter to Chhattisgarh CM Raman Singh.

What to Do When Your Insurer Sets Caps on Group Health Plan

Preeti Kulkarni & Vidyalaxmi offer some solutions to employees when insurers and cos shrink their group cover benefits All good things, it is said, comes to an end. And the rule may hold true for group health policies, too. Soon, employees covered under these schemes could see their benefits shrink when their corporate policy comes up for renewal. For instance, there is talk about public sector insurers hiking premiums or bringing in a co-pay clause, where the policyholder has to share the burden with the company. This is due to the pressure from the finance ministry to stem losses in their group health portfolio. Industry-watchers say that the entire group space — including private sector insurers — is moving in this direction. Irrespective of whether your group cover is subjected to new terms or not, you would do well to treat the development as a wake-up call. "For instance, while deciding the sum insured, corporates normally offer same coverage for a certain scale or grade of employees as they try to limit their premium outgo per employee. As a result, the sum insured could be grossly insufficient," points out Divya Gandhi, head, general insurance and principal officer, Emkay Insurance Brokers. "Or, they could even have ailment-wise sub-limits or capping." Parental coverage is another key benefit that has taken a hit over the last couple of years. Many companies have withdrawn or scaled down the cover offered to employees' parents.  This means you need to proactively work towards ensuring comprehensive protection for yourself and your family.  BUY AN INDEPENDENT HEALTH COVER  The best remedy for lack of group cover or its inadequacy is, undoubtedly, buying a standalone health cover. In addition to acting as a back-up, this arrangement has other benefits too. For instance, most group schemes coverpre-existing diseases (PED) right from inception, whereas independent covers usually prescribe a waiting period of 1-4 years. Therefore, being simultaneously covered under group and standalone policies will ensure continuous coverage for pre-existing illnesses.  For your family's health expenses, family floaters can be considered, as they are cost-effective. However, in case your parents have crossed the age of 65 years and have adverse health history, it would be wise to buy a separate policy for them. You can also look at purchasing a fixed benefit policy – offered by life insurers – to supplement your group cover.  Fixed benefit policies undertake to disburse the pre-defined amount even if you have already made a claim under an indemnity-based policy (like group covers, or individual policies, where expenses actually incurred are reimbursed). "The key advantage of benefit policies is that policyholders do not have to worry about claim settlement as they know beforehand the amount that would be disbursed. Also, the documentation procedure is simpler," says Gaurav Garg, CEO and MD, Tata-AIG General Insurance. You can use the lump sum pay-out under defined benefit policies to take care of your recuperation expenses.  SETTLE FOR A TOP-UP COVER  The second-best option is to go for a top-up cover, as they are cheaper than individual policies. As the name suggests, it gets triggered when your base policy – in this case, your group cover – falls short of your requirement. "Some top-ups restrict their coverage to major ailments listed in the policy. Besides, they could specify that claims would be entertained only if the single claim is larger than your individual or family sum insured offered by the base policy," says Gandhi of Emkay Insurance Brokers. Therefore, read the policy brochure carefully while signing up for a top-up scheme.  SIGN UP FOR TOP-UP OPTIONS  WITHIN GROUP COVER  "Several organisations are teaming up with their group insurance providers to offer their employees the choice to opt for a higher sum insured (top-up) covers which addresses the need for higher medical costs. The arrangement requires the employee to bear the premium for the additional sum insured," informs Sanjay Kedia, CEO, Marsh India, an insurance broking firm. These add-ons score over independent top-ups in terms of the nature of benefits. Since group covers are customised offerings, their utility value tends to be higher. Don't forget to keep an eye on the terms and conditions, though. While some schemes cease to exist once the employee quits the organisation, others continue to be in force, regardless of the employment status.  PAY FOR PARENTS' PREMIUM IN GROUP POLICIES  Increasingly, companies are leaving out employees' parents from the group policy's scope of coverage. However, some employers extend the cover to parents, provided the employee shells out the relevant premium cost. If your employer falls in this category, you should not hesitate to opt for the cover even if it means dipping into your pocket to fund the premium. For, not only do corporate policies cover pre-existing illnesses even in the initial years, but also, usually, offer additional benefits as they are customised for the organisation. Besides, the claim settlement process is also likely to be smoother.  OPT FOR LINKED STANDALONE  COVER AFTER RETIREMENT  Some general insurers are promoting schemes where the insured employee can move to an individual policy upon retirement or job switch. The key benefit is that it eliminates the need to serve the waiting period for PED (pre-existing diseases) cover all over again. Remember, even if the insurer providing your group cover does not market the scheme actively, you can always enquire about the same. As per the portability guidelines released by the Insurance and Regulatory Development Authority (Irda), porting from group to individual policies is permissible. So, you can convert your group cover into an independent policy while retaining all the continuity benefits. However, at the time of making the initial switch, you will have to stick to the existing insurer. Thereafter, you will be at liberty to shift to any other insurer.

More tax sops for insurance buyers?

The government is looking at more tax sops for insurance policies and MFs to wean away investors from gold. While insurance policies will provide the government with long-term resources as bulk of the funds are invested in government securities, MFs will generate resources for stock markets as well as in debt instruments. The Life Insurance Council has sought Rs 1 lakh exemption for life and medical covers, Aviva Life chief executive officer T R Ramachandran said

Insurance: IRDA unveils reforms, okays demat policies

Mumbai: Big bang reforms are set to take place in the insurance industry with the regulator's final nod to 'insurance repositories' — that will facilitate demat policies —coupled with major relaxations in investment guidelines for life companies. 

    IRDA chairman J Harinarayan announced on Monday the draft investment guidelines that allow insurance companies to buy credit protection through derivatives, lend up to 10% of their shares and carry out short-term repo transaction in bonds. The regulator is also set to ease investment limits that will give Life Insurance Corporation of India more leeway to invest in companies. 
    Speaking on the sidelines of the 15th insurance summit organized by the Confederation of Indian Industry, Harinarayan said dematerialized life insurance policies will soon become a reality with the insurance regulator set to grant certificate of registration to five entities for setting up insurance repositories. Demat policies will enable consumers to get their policies serviced anywhere and, more importantly, allow a one-time 'know your customer' process that will be valid for all insurance purchases across companies. 
    The six companies that have received IRDA approval for setting up insurance repositories are: NSDL, CDSL, Karvy, CAMS and STCI. According to Cams Repository Services CEO S V Ramanan, demat policies will benefit policyholders as they will not have to worry about losing the document which has to be preserved for 20-30 years and it will also do away with the need to transfer their policies if they shift their home. Repository services will also conduct basic policy servicing on behalf of insurance companies. 
    Harinarayan said that the regulator will also come out with a whistleblower policy on the lines of Reserve Bank of India. Addressing the insurance summit, Harinarayan flagged off the absence of annuities in the product portfolio of private companies, high level of attrition among insurance employees, and the complex languages in insurance contracts as a matter of concern.

Old wine (different policies with similar objectives) in new bottle does not make a good drink 
J Harinarayan | IRDA CHAIRMAN

Insurance mis-sellers are back

Insurance agents have stopped selling Ulips and are pushing low-yield traditional plans to earn fatter commissions. Find out how to deal with their gameplan

    When Maria Amin deposited her first paycheque in April, her insurance agent had a few words of advice. The Noida-based school teacher could earn tax-free assured returns of 10% by investing in an endowment insurance plan. "He showed me a brochure, which stated that the returns were guaranteed. It was also mentioned on a website," she says. 
    However, her delight turned into disappointment when she checked on the insurance company's website. The brochure that the agent had shown was not official material authorised by the company. The website too was run by an insurance brokerage firm. On the official website of the LIC, the benefit illustration of the Jeevan Saral plan clearly mentioned that the returns were not guaranteed. 
What is being mis-sold? 
A few years ago, insurance agents were mis-selling high-cost Ulips to gullible buyers because they earned heavy commissions. The came down after the 2010 guidelines capped the charges on Ulips. But agents are now pushing low-yield traditional plans by projecting them as assured return options. "The returns from traditional plans are measly and rarely exceed 5%," says Jayant Pai, head of marketing, Parag Parikh Financial Advisory Services. Before the new guidelines kicked in, Ulips accounted for almost 75% of the new policies sold by insurance companies. Now, 85% of the new business comes from traditional plans (see graphic). 
    Distributors earn 30-40% commission from selling traditional policies compared with 8-12% from a Ulip. "The only person who loses out is the buyer. He doesn't know what he's getting into when he buys a traditional plan," says HDFC Life CEO and MD Amitabh Chaudhry. 
    One such buyer is Pune-based Chintan Purohit (see picture). The 25-year-old software professional has two endowment plans for 10 years each and a pension plan that matures when he is 30. Given his life stage, Purohit didn't need these plans at all. Pankaaj Maalde, head of financial planning at Apnapaisa.com, says Purohit's insurance policies do not serve any meaningful purpose in his financial planning and should be discarded. 
Who buys low-yield plans? 
The biggest draw for buyers is the tax benefit on insurance policies. They are particularly popular with high net worth individuals, who are not as concerned about the low returns as they are about the taxability of the income. Tax deduction under Section 80C is another important reason for buying these plans. However, this year's budget has proposed that an insurance plan will be eligible for tax deduction and the income will be taxfree only if it covers the policyholder for 10 times the annual premium. Experts say the net return from an endowment plan has fallen by almost 40-50 basis points to 4.1%. 
Lured by bonus 
Although announced every year, the bonus is usually paid on maturity of the plan. The problem is that it does not get compounded. So even though your policy might have got a big bonus this year, you will get it only after 15-20 years. The cash bonus is the only one that is paid to the policyholder in the year it is ann o u n c e d . "Each plan is structured differently. Ask the agent or company to clearly explain what you will receive at the end of the tenure," says Pai. 
    The good news is that Irda is now planning to crack the whip on mis selling. Earlier this year, it proposed that before a customer is sold a pol icy, the insurance company should study his needs in detail. A 6-page form with details of income, risk ap petite, even the monthly household expenses, will have to be filled up by the buyer and countersigned by the agent. The Irda wants insurers to as sess whether the buyer can afford the policy he is buying. 
Changes in the offing 
Irda has drafted new guidelines for such plans, which could change the insurance landscape once again. The most significant alteration proposed is the capping of the commissions payable on traditional plans. The longer the premium-paying tenure of the plan, the higher the ceiling. This is an incentive to push buyers to go for long-term plans, which can deliver better returns. Maalde agrees. "The returns from a 5-year or 10-year policy may not exceed 4-4.5%," he says. "Go for plans with terms of at least 20-25 years. Even so, the returns will not be higher than 5-5.5%." 
    Irda has also proposed that the minimum premium-paying term be five annual premiums. "These guidelines will ensure that insurance companies become answerable for what they offer the customer," says Suresh Agarwal, executive vice-president and head of distribution and strategic initiatives, Kotak Life Insurance.

India:Only Serious MF Players should Get Entry

The asset management industry has been hoping for a reversal of policy ever since UK Sinha, a former chief of UTI AMC, took over as chairman of Sebi over 18 months ago. But in his role as a regulator, he has chosen to look at structural issues of the industry rather than just band-aid solutions. Excerpts from an interview with Shaji Vikraman and Reena Zachariah There is growing unease about the 'export' of Indian capital markets, as reflected in the trading of Nifty futures in Singapore and listing of Indian firms there, which are issuing foreign currency convertible bonds. How do you plan to address this challenge?  It is not correct to assume that capitalraising in Indian markets is inefficient. If anybody is making that case, I would advise him to make a comparison with where we were five or ten years ago. There is a lot of improvement in the efficiency of our markets both with regard to timelines and cost efficiency. It is true that certain products are traded outside India, but the issues to be tackled in those specific products are mostly related to tax or forex regulations. People perhaps find it easier to trade outside because of these restrictions. The concerned authorities are aware of these things and my belief is that as and when we are a bit more comfortable with our foreign exchange management, there will be efforts on the part of all of us together to bring back the market to India, and make our market more attractive in comparison with foreign markets. There is now a growing feeling that business is coming back to India. I don't think right now anybody can expect the foreign exchange regulator in the country to make any major changes. But as and when things stabilize, the general consensus is that we should try and bring the market back. We should try and make our own market more attractive. Another aspect of it is the cost. If you look at the total cost, a very high percentage of it is statutory duties and taxes. This makes a case for us to reduce some taxes. In the budget this year, STT was slightly reduced. But even after this, in Sebi's view, there is need and scope for further reduction because if the volumes are going down then the tax realisation by way of STT is also going down. Sebi's view is that the tax structure should be such that it encourages long-term investment versus an investment that is purely speculative. We should seriously look at whether the tax structure for those who are buying in the cash segment is high. In our opinion it is high today.  Have you made any recommendations on changing the tax structure?  We had sent our proposals to the government at the time of Budget, basically highlighting these two broad policy considerations: one, compared to the rest of the world our market should be more attractive and two, we should encourage long-term investments versus pure speculative intraday transactions. My case is that the current cost structure for differentiated products is driving investment behaviour. For example, in option trading, till the time STT was being calculated on the value of the trade, it did not develop. Volumes were very low, while there were high volumes in the futures market, especially in single stock futures. But when the tax calculations were changed, volumes shifted to options. I am only trying to buttress my argument that how tax changes drive investment behaviour. The next thing is that while there were such taxes on the securities market there was none on the commodities side. So what is happening is that investment is now going more and more towards commodities. Even if there is a need to have caution and not provide any disincentive to agricultural products, I would argue that this is not the case with non-agricultural commodities .So at least for non-agricultural commodities there is a very strong case for having a tax similar to the securities transaction tax. Then investor behaviour will not be substantially guided by tax. People will come to the Indian market and they will get into longterm products. Then your worry that whether we are driving the market out of India can be partly addressed.  What is your view on GAAR. Is it a major deterrent to foreign fund flow as it has been made out to be. Does it worry you?  It is a question of source-based or residence-based taxation. On a long-term basis, I think the tax authorities have to address that question and because we are not able to address that question a lot of problems are coming up. All I can say is that we have received a number of representations from a number of FIIs and private equity players and we have been able to arrange discussions between them and the tax authorities. Sebi is happy that a high-powered committee is looking =into the matter. I'm hopeful that some solution will come through so that the legitimate concerns of the FIIs are addressed.  The Prime Minister had recently expressed concern relating to the state of the mutual fund industry. There have been calls for introduction of the entry load again. Sebi's MF advisory committee has also given its recommendations. How do you plan to address this?  I would request that we look at the matter in its entirety. Let us have a comprehensive look at the market rather than a small segment. And what is that? The number of IPOs has come down substantially. Secondary market volumes have also come down. Despite the Indian market giving positive returns of about 10% from January this year , very few companies are raising money from the primary or secondary market. Net mobilisation by mutual funds, especially ETF schemes, have been modest. In some months it is marginally positive and in some it is marginally negative. If you look at 2010-11, net sales was around . 13,000 crore negative in equity. Compared with that 2011-12 was marginally positive at . 150-200 crore. So when you compare it with 2010-11, it is a big improvement. Coming to the current year, net sales are marginally positive. Mutual fund sales are not happening … yes it is a matter of worry, but the larger picture is that even primary or secondary markets are not seeing large numbers. Secondly, even in the US and Europe, net sales in equity mutual funds is negative. Or the total mobilisation is vastly less than in previous years. The point I am making is, this is also a global trend. India is not alone in that sense. So now the question is what can we do about this. And since it is a larger and deeper problem, the response also has to be structural rather than only aimed at enhancing the revenue stream for AMCs. And to make a structural change, Sebi is contemplating that there should be a mutual fund policy of the government. And that policy should envisage, for example, the tax treatment. The policy should envisage the investor protection measures and the sales practices. And also, how to ensure that genuinely serious players come into the market. Right now, for example, the capital requirement for entry into the segment for an AMC is, in my view, very small. Whereas in businesses like banking and insurance it is high to start with and goes up based on the size of the business. The argument here is that an AMC is a passthrough, so where is the requirement for capital? But Sebi or the government has to worry that by allowing those who come with such insignificant capital, aren't we putting investors money in jeopardy? And you are aware that during the crisis in 2008, one or two AMCs actually had difficulties. They were rescued by either sponsors or by others. But for quite some time there was a worry whether the interest of the investors are being protected or not. But in addition to this aspect of capital, Sebi also has to go into its long-term desire to spread the growth of mutual funds in remote areas. If that is a stated goal, then the mutual fund policy should also put some obligation on the AMCs about spreading out.  Are you saying that it will be mandatory for fund houses to operate in the hinterland like banks or insurance firms?  I am only giving you the broad contours which a policy should have. But it will not be fair for me to tell you what the policy is going to be because I am only coming out with the idea that we need a policy. What could be the broad contours I can have some views. But unless that policy is decided, it will be wrong for me to give the impression that this will be contained in the policy. But so far as the broad contours are concerned, I think everybody will agree that the mutual fund industry should spread to other parts of the country rather than being confined to 5 or 10 cities. As a policy objective, a mutual fund policy should address this. If you agree that this point has to be addressed, I think it will flow that there has to be some obligations on the part of the mutual funds to spread to new areas and mobilise a certain amount of business from those areas. It is there in the insurance sector and in the banking industry. Some people are saying that no, we are only a pass through vehicle, why do you put this. I would rather argue that the time has come that we should put some of these obligations. To what extent, how many and how far it is practical, those  are things to be considered. Also I would strongly argue that whatever Sebi does or the govt does should not be disruptive for existing players. So we should provide a good mechanism so they don't feel threatened. But going forward, these things have to be brought in, that is my view. Now if you agree that there has to be a broad policy and Sebi is going to start that practice, the second aspect is what are the tax benefits that will be provided. The draft DTC paper created certain amount of uncertainty that whether ELSS schemes qualify for tax breaks or not. Subsequently we were assured that all products with a lockin requirement and all long-term products will be treated similarly. But that has to be stated clearly because what has happened is that after the discussion paper on DTC, the net accretion in ELSS schemes has started turning negative. People are worried that for FY 12-13 it is there, but maybe from 13-14 it will not be there, or from 14-15. So the government has to give a clear-cut direction about what is going to be the tax treatment of mutual funds. Again, I will come back to the point that we need a longterm mutual fund policy. These things could be a part of it. I have also highlighted my views that it makes sense that if a mutual fund is floating a pension product it should be really permissible. There are two fund houses, which have today pension products – UTI and Franklin Templeton. The beauty is that in both cases there have been specific notifications by Sebi allowing investment in these products and they qualify for tax exemption. My case is that the mutual funds industry, which has a track record of a good amount of quality fund management, I hold this view, that they have a good track record, then why deprive them from this benefit? If they have to give pension products, Sebi should sanction it, allow it, and tax authorities should permit their treatment. This should be part of the larger picture. Coming to the short measures, certain representations have been received by Sebi. The MF advisory committee has also come out with certain suggestions. The Sebi board will be discussing those issues. We will be guided by two or three main considerations, on how to ensure that incentives for churning are removed. So we will be guided by that consideration and we will also be guided by the consideration that what can Sebi do to encourage or incentivise raising money from beyond top 5, 10 or 15 cities. If you are bringing more money from those cities, how does Sebi incentivise. So we will be guided by these considerations. We have received certain suggestions and guided by that we will decide. If data shows that 85-90% of investment is coming from main cities, then it is time for us to act.  But aren't you setting yourself up for another regulatory turf war with the pension and insurance regulator on this ?  My position is that the mutual fund industry has already been permitted and allowed to launch pension products. My second position is that they have done a good job of it. And a pension product where there is a lockin is possible under Sebi regulations. So if more and more companies come to Sebi with this request, we will find it difficult to say no. On what grounds can Sebi say no? If tomorrow, I receive ten product requests then we are going to have a product with a 3- or 5-year lock-in and our asset mix will be such that it will meet general requirements of long-term old age savings, I doubt how Sebi can say no. Second part is even if Sebi says yes, will tax authorities provide it. I am arguing that tax authorities should consider similar products in a similar manner. That's all I am saying. Now, which regulator is happy or unhappy, that I leave to you.  We have seen many companies drop their IPO plans over the past year or so. There has hardly been any issuance to comply with the public holding norms. Will these norms be eased again?  Sebi has moved away from the old practice which was called merit-based pricing, to disclosure-based regime. Sebi is not going to move away from this. So disclosurebased pricing will be there. But Sebi has identified certain lacunae or shortcoming in the operation of this scheme. So what we have already implemented in the last 8-9months is that the due diligence record has to be kept by merchant bankers and Sebi inspectors can go and review that. Secondly we found that track record of merchant bankers in past issues was not known to people. If one has come out with 10 issues, for example, and 9/10 issue prices have fallen much more from the index versus some other banker where only 2 or 3 out of 10 have gone down, this information should be known to the public. Sebi feels that providing this information will make investors make better choices. The other issue was about volatility on opening day. So Sebi has, in the past six months, already put in place a system called pre-market call auction on the opening day. Four issues have come out after that and you will discover that volatility has vastly reduced. Basically, all three measures we have taken amount to very high degree of due diligence and care in pricing. This does not mean that Sebi is prescribing the pricing; it only says that if you have not been careful as a merchant banker about pricing, then tomorrow if you come out with a second issue, let that issue be known to the public. Going forward, what we are looking at is how to have the spread of IPOs across the country. How to take advantage of the existing mechanism in the market such that forms are available all over the country than in one place. Then we are looking at how to make ASBA more widespread. What Sebi has done in the past 4-5 months is that earlier limited options were available. We have been enhancing those options. Our effort would be to provide in a transparent way more and more options to facilitate this. But in spite of this ,if people refuse to comply, then they are taking a conscious call; that's all I can say at this stage.  Isn't there a case for tighter norms for GDR after a recent regulatory probe showed that many mid-cap firms were misusing this route  The GDR regulations are administered by the government. Based on our experience we have already given our suggestions to the government for making certain changes in the GDR regulations.  Sebi has been criticised for micromanagement of stock exchanges. Is this criticism valid ?  Unlike other normal for profit companies, which a stock exchange is, it also has a large regulatory role and in order to avoid that conflict the Bimal Jalan committee, for example, had come out with very serious prescriptions on how much profit they can make to put a cap on that and had prescribed a cap on the remuneration also. All Sebi is saying that follow a due process and that process should be substantially removed from an influence of the beneficiaries of that remuneration. If you are the chief executive officer or the managing director and you are also party to your own remuneration then there is a conflict. Sebi has said form a committee of independent directors and let them decide. Sebi has also said that it is very important for an institution like a stock exchange not to take risks for short term gains. UK SINHA CHAIRMAN, SEBI