‘Don’t involve docs in insurance claims’

Mumbai: Doctors should not be involved in settling medical insurance claims, the Insurance Regulatory and Development Authority (IRDA) told the Bombay High Court on Thursday. Not only is there a shortage of doctors, but it could increase the cost of insurance business, it added. 

    A division bench of Chief Justice Mohit Shah and Justice Anoop Mohta was hearing a public interest litigation by activist Gaurang Damani on medicalinsurance woes. The PIL, filed last year, highlighted the plight of nearly 7 crore consumers paying Rs 11,000 crore annually as medical insurance after third party administrators (TPAs) stopped offering cashless mediclaim benefits. It also focused on the absence of regulations to govern the medicalinsurance industry. 
    IRDA had published draft regulations in June 2012. Its advocate Paritosh Jaiswal submitted that it was opposed to the petitioner's suggestion to involve doctors rather than administrative staff in the settlement of claims as it was not feasible. He said there was a shortage of doctors. Damani argued that the loss assessor or surveyor should be qualified under the Insurance Act. Jaiswal said TPAs are supposed to process and not settle claims. Damani countered that TPAs are given incentives to reduce claims, violating the Insurance Act. The judges summoned a senior officer of IRDA who will take a decision to its next hearing on January 7, 2013.

Buy Insurance to Cover Risks, Not for Returns

Proper insurance is key part of any good financial planning, but the 'Indian' mindset, fixated on returns, prevents many from seeking the right cover, says Madhu T     Why is it so difficult for Indians to understand the importance of buying a proper life insurance cover, wonders an agitated seasoned financial advisor. He is fuming that one of his favourite clients has just bought a child plan. "He called me and told me he has bought a children's policy. He is really quick to grasp concepts and diligently acts on our advice. I just couldn't believe that he would so something like this," says the advisor. "We must have discussed so many times about the importance of adequate life insurance cover and term plans."  Almost every financial advisor can narrate at least one story where a client bought the wrong insurance product. Unit-linked insurance plans (Ulips) used to top the list of "wrong insurance product" list two years ago. However, after the insurance regulator, Insurance Regulatory and Development Authority (Irda), tightened the screws on Ulips in 2010 with a slew of regulatory changes, conventional products (or endowment plans, in insurance parlance) have become the hot favourite among insurance customers. This is because the insurance companies have cleverly shifted attention to regular endowment plans by offering attractive commissions to their sales force, say advisors.  And the numbers clearly indicate the shift in customer preference. According to the Irda annual report of 2010-11, life insurance companies have underwritten . 1,26,381 crore as first-year premium, a measure of new business secured during the year. The first-year premium was . 1,09,894 crore in 2009-10. Of this, 37.38% of the total premium was underwritten in the linked segment, while 62.62% of the business was in the non-linked segment. The figure was 43.52% and 56.48%, respectively, in 2009-10.  CIRCLE OF LIFE  "The current scene is very similar to the one before the opening up of the insurance industry, when LIC used to mostly sell conventional products. After the opening up of the industry, private insurers initially pushed Ulips aggressively. However, they have started focusing on conventional products after the regulatory changes and the lacklustre performance of Ulips because of the poor stock market," says D Sundararajan, investment consultant, Trendy Investment, a wealth management firm.  "It is quite sad that even today there is a clear lack of education among customers about most insurance products. In fact, most insurance products are sold between January and March. It is clearly sold as a tax-saving and investment product rather than as a tool for long-term protection," he says. Of course, a small segment of the population, especially the young working class, has woken up to the charm of pure life covers, or term plans, in 2012. Term plans got a fresh life during the year after insurance companies started offering cheaper versions online, but experts believe most individuals still don't understand the real purpose of a life insurance cover.  "Most people still fall for the age-old sales pitch of insurance being a tax-saving plus investment instrument. They also fall for false claims of assured returns, especially when the stock market is doing badly," says Amar Pandit, certified financial planner, My Financial Advisor, a wealth management firm.  "Typically, traditional products deduct 35% from the first-year premium, 7.5% from the second and third-year premiums and 5% from the next year's premium. Then you have mortality charges and fund management charges and so on. So, how can they offer 9% or 10% assured returns? Since these products invest mostly in debt, it would be almost impossible," he points out. While these charges vary according to companies and products, most endowment policies are estimated to deliver returns of around 5% to 7%. Also, unlike Ulips, charges deducted from your premium are not disclosed upfront. This means you have no idea of the share of your premium that is actually invested.  INSURING LIFE  The idea behind buying life insurance is simple. If something happens to you,your dependants should be able to maintain their lifestyle from the proceeds from your insurance cover. And the only way most people can buy an adequate cover is through a term cover. If you die during the term of the policy, your dependants will get the insured amount. If you outlive the policy, you would not get any money.  "Most people focus on what they will get on maturity of the plan. I always tell them that is a huge mistake and maturity proceeds shouldn't be the reason to buy an insurance cover. One should always think what if something happens before maturity – only then will you understand the real value of insurance," says Pandit. Naturally, many financial advisors blame insurance companies and their agents for the mess. However, agents blame the "Indian" mindset.  "It is very difficult to convince most people about term insurance. They invariably get disappointed the moment they learn that though it is very cheap, it wouldn't give them anything on maturity," says an insurance agent, who doesn't want to be named. "Most people don't care about the cost factor. They are very happy with products that will give them money on maturity or at regular intervals."  Sundararajan believes it is time individuals take responsibility for their actions. "People should go to an insurance company to buy insurance cover, not investment product. I think everyone should keep this in mind. It will automatically help them stay focused on their insurance needs," says Sundararajan.  madhu.tnair@timesgroup.com

MONEYMAKEOVER Build a contingency fund, get more insurance to cover risks

Borrowers with comfortable cash flows should aim to become debt-free at the earliest, advises Gaurav Mashruwala     Few parents allow children to take their own decisions. And of those who do allow, very few of them ensure that the children face the consequences of their decisions. Invariably, if a child makes a wrong move, the parents make good the loss. When such children grow up, they may fear taking decisions because they may not have faced the consequences of making wrong decisions in their childhood.      Nitin Gupta's (35) father, however, allowed him and his siblings to take decisions and face the consequences. It is because of this upbringing perhaps that Nitin stands on his feet today. His father — a banker and a meticulous finance planner — had inculcated a habit of setting priorities. While the family's financial situation was comfortable, children in the Gupta family had to justify their demands. In addition to his father, Nitin also gives credit to his wife Preeti (34) for his progress in life and career as she sacrificed her own career for the sake of the family. The couple has a six-year-old daughter, Akhadha.  What is the couple saving for  •For their daughter's education, the couple needs about Rs 2 lakh every year for the next 12 years  • For her marriage, they would like to spend Rs 20 lakh  • They also want to create an investment pool that can generate regular income for their daughter at a later stage in life  • Finally, they aspire to a foreign vacation at a later date.      All these costs would be revised based on inflation.  Where are they today  Cash flows: Gross inflow of the family per year from all sources is Rs 23 lakh. Against this, annual outflow is Rs 19.45 lakh. This includes mandatory expenses, taxes, insurance premium, regular savings and EMI for home loan. The EMI consumes about 36% of their inflow.  Networth: The total value of all the assets is Rs 1.26 crore. This includes assets for personal consumption — like house, car, jewellery, etc — worth Rs 1.07 crore. The couple's outstanding home loan is Rs 65 lakh, which is about 51% of the assets.  Contingency fund: With a monthly mandatory expense of Rs 1.30 lakh (including EMI), the family has Rs 6 lakh as balance in cash/near-cash assets. This translates into about 4.5 months' reserve.  Health & life insurance: Total health cover by employer is Rs 5 lakh and total life cover is Rs 1.42 crore.  Savings & investments: Apart from the assets for personal consumption, the family has Rs 1.50 lakh in savings account, a bank FD of Rs 2 lakh, Rs 1.50 lakh as liquid fund, Rs 1 lakh in cash, equity mutual funds worth Rs 4.50 lakh and Rs 8 lakh in EPF/PPF.  Fiscal analysis: There are excess funds lying idle in cash/near-cash assets. Health insurance needs enhancement. Life cover is sufficient. Borrowing is slightly on the higher side. Over a period of time, it is important that the couple creates more liquid assets. Currently, liquid assets are insufficient because they have purchased a house and have a loan.  The way ahead  Contingency fund: Keep aside Rs 4 lakh for contingencies. Out of this, keep Rs 25,000 in the form of cash at home and the rest in a savings bank account linked to a fixed deposit.  Health&lifecover:Nitin and Preeti should ensure their total health cover is Rs 5 lakh each and that of Akhadha is Rs 3 lakh. Life cover is sufficient. However, a life cover of about Rs 65 lakh will cease on full repayment of the home loan. Ideally, Nitin should obtain additional cover to ensure the sum assured on his life is approximately Rs 1.50 crore even after the home loan is fully repaid.  Borrowing: Due to a decent inflow, the couple is able to service their EMI comfortably. However, if there is any eventuality with regard to their inflows, they will struggle as their liability is more than 50% of their assets. It is recommended that they aggressively pay off the home loan.  Planning for financial goals  Daughter's education: At present, the couple will be able to fund education requirements from their earnings. However, as a precaution, they should start investing Rs 15,000 every month in a mutual fund scheme that has 15% investment in equity and the rest in debt for about a year. The corpus so created should be earmarked for education and utilized only if there is turbulence in regular income.  Daughter's marriage: A systematic investment of Rs 10,000 every month into a large-cap equity fund is advised. Also, another SIP should be started in a gold fund for Rs 2,500. The amount should be increased by 15% every year.  Corpus to support daughter:  Apart from investing for education and marriage, the couple should start setting aside Rs 5,000 in a mid- to small-cap equity fund every month. The corpus so created can be utilized to support the daughter, if the need arises.  Retirement: While the couple has not stated the creation of a retirement fund as their goal, it is recommended that they start keeping aside some amount for their old age. They can invest in an equity fund as well as a gold fund the maximum possible amount after providing for the goals mentioned earlier to create a retirement corpus. This should be given priority over a foreign vacation.  PLANNER'S EYE      Most young couples who acquire a house earlier in life end up with excessive borrowings and an illiquid asset composition. While this is understandable, it is important that they reduce their liability at the earliest by aggressively paying off the loan. Nitin and Preeti are living within their means — they are aware of their financial goals. With a little more focus on finances, they should aim to be loan free in the next seven-nine years. Nitin Gupta with wife Preeti and daughter Akhadha

Agents trip health cover porting

STICKING WITH ONE

Hesitate To Woo Customers In Absence Of Commissions

Mumbai: Health insurance portability, which has been in force for a year, has not resulted in any major churn among policyholders. Insurers say that one of the reasons could be that agents are reluctant to hand-hold customers as regulations bar commissions on ported policies. 
    Most non-life insurance companies have reported a couple of thousands of customers who have moved out while standalone health companies were the ones to have recorded a net inflow because of portability. A public sector company said that it received a little over 4,000 proposals to shift but ultimately only half the number actually moved. One advantage with standalone companies is that they do not have to license their own agents as existing insurance agents are allowed to sell products of health companies. 
    "Our main distribution channel is our agency force. Since there is no commission paid to the intermediary in the year of porting, there is no incentive for the agent," said K G Krishnamoorthy Rao, MD & CEO, Future Generali India Insurance. According to Sanjay Datta, head of underwriting and claims at ICICI Lombard, the experience of health insurance portability is comparable with telecom where the ratio of customers opting to port is not high. "Health cover customers are stickier compared to mobile customers as ininsurance they have multiple policies with the same company." 
    Manasije Mishra, CEO (designate), Max Bupa Health, said, "Customers are porting in through various channels, agents are also bringing in portability proposals because they know that if they keep their customers' best interests in mind, they will get their commission in subsequent years also. We are discovering that some of the older policies are for a low value and the portability benefits are available only on the original sum insured. The customer finds it prudent to buy a family floater with a larger sum insured." 
    In September last year, IRDA issued its guidelines on portability of healthinsurance. The objective of the guidelines was to allow customers to shift from one company to another without losing their 'no claim' track record or running the risk of claims being rejected under pre-existing conditions.Insurance norms do not allow companies to use the 'pre-existing' defence if an insured has been with the company for four years. 
    The conditions for portability were that the shift could happen only at the time of renewal and both companies are given sufficient notice. Commissions were not allowed on ported policies to discourage agents from needlessly churning policies and also it was expected to be initiated by the policyholder. 
    According to an intermediary, one of the issues with portability is that insurers can willy-nilly be selective about proposals to shift by not having any customer touch points for portability. "At the same time, it is not fair to force insurers to accept policies which might have been shoddily underwritten by others," he adds.

OPENING UP Higher insurance FDI may fetch $5bn

Mumbai: Increase in foreign investment limits in insurance could bring in $5.25 billion of foreign capital — almost thrice the money that has come in from foreign insurers in the decade since the sector was opened up. But if the relaxation is in the form of allowing investment by foreign institutional investors (FIIs), most companies may choose to list their subsidiaries rather than offer strategic stakes. 
    According to a report by Goldman Sachs on the Indian insurance sector, the total market valuation of private insurance companies was Rs 1.26 lakh crore. The total equity investment by foreign insurers till date was Rs 8,744 crore, or $1.7 billion. If one were to include the recent deal by Mitsui Sumitomo to buy out the 26% stake of New York Life in Max Life Insurance, the total foreign direct investment (FDI) amounts to $1.9 billion. 
    "A 23% FDI/FII investment could potentially lead to foreign inflows of $5.3 billion based on FY14E valuations for insurers we cover and applying similar assumptions for the non-covered universe," said the report. 
    The cabinet in October had cleared foreign direct investment of up to 49% in insurance companies up from the present 26%. The bill to amend theInsurance Act includes the proposal to hike FDI to 49%. Yashwant Sinha, head of the standing committee on finance, indicated that the panel was in favour of keeping the FDI limit in insurance capped at 26% but was open to allowing FII/ overseas corporate bodies to invest another 23%. 
    Incidentally, the insurance sector was opened up by Sinha in 1999. Sinha had rolled back a proposal to have aseparate 23% foreign investment limit for FIIs and NRIs over and above the 26% FDI limit. However, opposition from the Congress and Left parties compelled him to cap the overall limit at 26%. 
    "In the event the FIIs are permitted to buy, private insurers could list theirinsurance ventures for two reasons: One, unlock value for existing owners, and two, listing could provide employees a chance to monetize their ESOPs."

HDFC Life ends pension plan drought

Mumbai: The two-year drought in pension plans among private companies has ended with HDFC Standard Life being the first to launch pension plans under the latest guidelines on the unit-linked platform.      Unit-linked pension plans, which until 2010 accounted for almost a third of sales for several insurers, had all but disappeared from the market after theInsurance Regulatory and Development Authority (IRDA) said that pension products should guarantee a return of 4.5%. These guidelines resulted in insurers withdrawing from the pension space as it was difficult to assure returns over the long term. The re-revised guidelines allow insurers to sell policies without the 4.5% return subject to the condition that they guarantee a positive return.      The two products are HDFC Life Single Premium Pension Super and HDFC Life Pension Super Plus. Both the plans offer assured benefit on death and vesting. HDFC Life Pension Super Plus offers assured death benefit of total premiums paid to date accumulated at a guaranteed rate of 6% per annum and an assured vesting benefit of 101% of total premiums paid.