Insurance Institute of India

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11th 17th May, 2012

schemes and other measures required in the interest of orderly growth and development of the sector. This will provide much-needed relief to MFIs like SKS Microfinance.

News Categories
Insurance Regulation Life Insurance Health Insurance Survey & Reports IRDA Circulars Global news

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The once-thriving microfinance sector was devastated by a crackdown more than a year ago by rules imposed by Andhra Pradesh. The state rules resulted in a drop-off in loan interest collections and a draught of funding for micro-lenders. With the Coal Regulatory Authority Bill being referred to a GoM, it is likely that despite the stagnation in domestic coal output threatening to derail the growth of coal-fed industries like power and slow the economic growth, the sector could wait for a longer time for the much-needed overhaul. The proposed coal regulator is supposed to have a key role in improving efficiency of coal companies which will also reflect in pricing of coal. It would also expedite resolution of commercial disputes between suppliers and buyers and streamline licensing procedures for coal exploration and production. The regulator is also expected to bring transparency in allocation of captive coal blocks, an area which has invited a lot of controversy due to adverse observations by the CAG and the Supreme Court's judgment in the 2G case. Because of its advisory role on policy formulation relating to the coal sector, the regulator could act as a catalyst in steering pending legislative bills such as Coal Mines (Nationalization) Amendment Bill 2000, which would ultimately lead to opening of the sector for private participation. Its advisory role will also include formulation of policy for promoting competition, attracting investment and introducing new technology, said Dilip Kumar Jena, senior consultant and knowledge manager, PWC.

Insurance Regulation
Insurance FDI hike must wait; Cabinet clears MFI Bill The Financial Express
The government is finding it hard to end a prolonged spell of indecision. On Thursday, the Cabinet Committee on Economic Affairs deferred the Insurance Laws (Amendment) Bill that proposes to raise the foreign direct investment cap in the sector from 26% to 49%. It also could not take a call on the Coal Regulatory Authority Bill which is expected to bring transparency in coal allocation, improve efficiency and discover the rational price of the fuel, and referred the Bill to a group of ministers. The plan was to introduce the Bill in the current session of Parliament. The Cabinet, however, cleared the Micro Financial Sector (Development and Regulation) Bill, 2011, which will make the Reserve Bank the sole regulator of MFIs. As regards the Insurance Bill, the standing committee on finance had earlier recommended retaining the FDI cap at 26%. The standing committee said insurance firms are in no position to raise the necessary funds domestically. The panel also said insurance companies which handle the savings of Indians would do well not to allow foreign players to hold higher stakes. The microfinance bill is now expected to be tabled in the ongoing Budget session. It also proposes to make it mandatory for microfinance institutions to be registered with the Reserve Bank and prescribes minimum net-owned funds of Rs 5 lakh. In addition, a Micro-Finance Development Council will be set up to advise the government on formulation of policies,

Source:

http://www.financialexpress.com/news/insurancefdi-hike-must-wait;-cabinet-clears-mfi-bill-coal-billgoes-to-gom/948039/0 MFIs charging very high rate for microinsurance - The Hindu Business Line
Microfinance institutions are charging very high service charge on the sale of micro-insurance products, according to the Insurance Regulatory and Development Authority. In his message at a national conference here on Tuesday on Financial Inclusion Integrating Insurance into Total Package, Mr J. Hari Narayan, Chairman, IRDA, said microinsurance was generally sold by microfinance institutions as a bundled product with loans. We have noticed in several cases that the entity offering the loan and hence the microinsurance product, tends to charge a very high rate for this service, he said.

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(with or without interest), products in which the initial death benefit is significantly high and reduces subsequently during the currency of the contract and products in which the insurance cover is insufficient/insignificant in relation to the premium i.e. products which are mostly meant for savings. We would not allow such products. It was clearly a marketing gimmick from the insurers, said a senior Irda official. In case of unit-linked policies, the Irda mandates a minimum sum assured guarantee of roughly 10 times of the annual premiums (in case of death). However, for traditional plans, there was no such mandate. The Irda is likely to come out with the final guidelines on product design soon, which would include all such details. It is not approving any products until life insurers design products according to the framework suggested. "Lately more complex products are being designed and filed for F&U (file and use) clearance with the Irda. In the process of clearing these products, the Irda has noticed that features of several products are not in alignment with the best practices and, frequently, lack clarity. The efficiency of product clearance has been constrained by such features, the Irda said in its communication.

Microinsurance should not be seen as an adjunct to microfinance programmes. They must be seen as low-ticket insurance policies, he added.

Source

http://www.thehindubusinessline.com/industryand-economy/banking/article3421728.ece

Life Insurance
Irda bans products with highest NAV guaranteed - Business Standard
The Insurance Regulatory and Development Authority (Irda) has asked life insurers to stop selling highest net asset value (NAV)-guaranteed products. In a recent communication to all life insurers, the regulator has said, The marketing of products labelled as highest NAV product shall not be allowed. These products contribute almost 20 per cent to the total premium collection of life insurers. Irda, in the past eight months, had informally expressed its discomfiture with such products at several fora. The regulators argument was that such products led to systemic risks associated with the way funds were managed and posed the risk of a heavy sell-off in equities when stock markets fell. Highest NAV-guaranteed products are those that promise to pay the highest value the fund achieves during a certain period, say, five or seven years. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively. That could lead to undue risks. These products had become the largest selling unit-linked life insurance policies (Ulips), after the new guidelines on Ulips came in September 2010. In another move, the Irda has mandated a minimum death benefit of at least 10 times of the annualized premiums in case of traditional products, as there were some products offering a limited death benefit. The regulator has also discouraged the use of single premium or limited premium payment term polices as these could impact the cash flow management of companies. Accordingly, Irda has proposed all polices have a regular payment option equivalent to the term of the policy. Single-premium polices might be issued only under special categories. In most of these products, customers are being lured with the promise of a decent maturity benefit, but in case of claims (in the event of death), the benefits or the amounts are sometimes lower than the premiums. The basic underlying principle of a life insurance policy is it should have sufficient life risk cover, said an Irda official. The regulator has expressed reservations on policies offering low or insignificant life risk covers. Irda has pointed out three types of traditional plans on such grounds -- products where the death benefit is defined as the return of premiums

Source

http://www.businessstandard.com/india/news/irda-bansproductshighest-nav-guaranteed/474272/

Health Insurance
Twin health covers need not ensure double protection - The Economic Times
Many individuals these days do not hesitate to buy a separate health cover even if they have an employers' group health cover. This is a wise move because a standalone health cover may prove invaluable when one is between jobs or has lost the job. This is because the cover of group scheme stops the moment you leave your job. voluntary or otherwise. Needless to say, a medical emergency is the last thing you are prepared for -- both mentally and financially -- when you are without a job, and the spiralling healthcare costs can topple your entire financial plan. However, don't be under the illusion that covered under two policies - a group and an individual cover- mean that you are doubly covered. It is very important to know the procedure for filing claims when you have two health insurance policies. Suppose you have two health insurance covers of, say, Rs 2 lakh and Rs 1 lakh, and you want to make a claim of Rs 1 lakh. Here, you cannot expect both the policies to disburse a claim of Rs 1 lakh each. Also, you cannot choose to lodge the claim under any one policy. The contribution clause in an insurance contract stipulates that a claim should be split between two policies as per the ratio of the sum insured. Put simply, the Rs 2 lakh policy will pay you the claim of Rs 67,000, and the other policy will pay the balance. Likewise, if your claim amounts to Rs 3 lakh, the two policies will sanction a claim of Rs 2 lakh and Rs 1 lakh respectively. However, this clause will not come into the picture if one of your policies operates on the fixed benefit principle. Such

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policies,which promises to pay a pre-defined sum, are typically issued by life insurance companies. Lastly, don't forget to disclose it to the insurers If you have two health insurance policies. It will help you avoid claim rejection on the ground of suppression of facts in future. Unit-holders of domestic insurance firms' equity products have gained more or lost lesser than investors in mutual funds and foreign institutions in the past three years, according to an ET study. The investment strategy of buying in a weak market and selling when stocks are rising has helped insurance fund managers perform better than other institutional investors, said money managers at insurers and mutual funds. The value of equity investments of insurance companies rose 23.28% in 2010-11 and 7.82% in 2011-12. Mutual funds' stock investment value grew 22.91% in 2010-11 and 0.45% in 201112. So far in 2012-13, insurers' stock investment value has dropped 5.9% while that of mutual funds declined 6.4%, according to the ET study of all BSE-listed companies. The calculation is based on the number of shares held by institutions multiplied by the value at the end of each fiscal after deducting fresh inflows in 2010-11 and 2011-12. "We do sell whenever valuations go up. This is the prime reason why equity portfolios of insurance companies outperform the broader market," said Abhijit Gulanikar, CIO, SBI Life Insurance. When the Sensex rose 10.94% in 2010-11, insurance companies bought stocks worth 3,138 crore while foreign investors poured 1.14-lakh crore into the Indian market. In 2011-12, when the Sensex dipped 10.5%, insurance companies sold stocks worth 9,652 crore while foreigners bought equities to the tune of 40,000 crore. Insurers have bought shares worth 1,625 crore so far in 2012-13 against foreign institutions' selling of nearly 2,000 crore. The Sensex has dropped 6.8% from March 31 till date. Insurance companies are able to sell on rise and buy on declines in the stock market, because of the steady flow of premium money into their equity products. "Unlike mutual funds or FIIs, we are getting funds on a regular basis and we are waiting for the right opportunity to enter," said the chief investment officer of an insurance company. "The opportunity could be the situation where there are only sellers and no buyers. On the other side, an FII or a mutual fund gets money only when there is a positive sentiment in the market," he said. Insurers' investments have been limited to a few sectors. While insurers invested in nearly 640 listed companies, 68% of their investments were spread across companies belonging to five sectors, including banks, oil & gas, consumer goods, software and auto. In banks, a majority of the investments came from LIC, which helped several state-run banks meet their capital requirements. Punjab National Bank, Axis Bank, Syndicate Bank, United Bank of India, Development Credit Bank and UCO Bank were among top picks of insurance companies.

Source -

http://articles.economictimes.indiatimes.com/201205-12/news/31690485_1_health-insurance-policiesclaim-rejection-standalone-health

Survey & Reports

Brand, not price, drives general insurance purchases: E&Y The Economic Times
Consumers prefer the brand of the service provider, customer service and convenience over price while buying general insurance products, an Ernst & Young (E&Y) survey has found. "Pricing is not the most important criterion for consumers when purchasing an insurance product. Brand of the provider, customer service and convenience hold greater importance compared to price," the survey said here today. The E&Y survey, which covered over 24,000 life and non-life insurance customers across 23 countries about their buying practices with over 1,000 consumers in the country, however, said price sensitivity varies by segments and type of product. The report also pointed out that consumers are increasingly using online mode for research and buying a product. "Consumers are increasingly moving online, (with) 31 percent of respondents use a range of online channels for research," it said, adding, however, sales activity lags research with only 11 percent customers actually making the purchase. It also said despite higher use of the online channel, personal contact still remains important in purchase of insurance products. "Customers are willing to purchase additional products from the same insurer as 69 percent of the respondents saying they will do so, with convenience and better service being the primary drivers," the report said. It, however, noted that with portability provisions, more number of customers are likely to switch providers in the near future.

Source

http://articles.economictimes.indiatimes.com/201205-11/news/31669140_1_insurance-productsgeneral-insurance-purchase Insurance firms stay ahead of mutual funds & FIs in equity returns in past 3 years - The Economic Times

Source

http://articles.economictimes.indiatimes.com/201205-15/news/31711676_1_mutual-funds-insurancecompanies-abhijit-gulanikar Page 3

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IRDA Circulars
11.05.2012 - The Insurance Regulatory and Development Authority of India (IRDA) has published List of Insurance Brokers updated as on 30th April, 2012 vide its circular dated 11th May, 2012.

Disclaimer: Newsletter is for Private Circulation only intended to bring weekly updates of insurance related information published in various media like newspapers, magazines, e-journals etc. to the attention of Members of Insurance Institute of India registered for its various examinations. Sources of all Cited Information (CI) are duly acknowledged and Members are advised to read, refer, research and quote content from the original source only, even if the actual content is reproduced. CI selection does not reflect quality judgment, prejudice or bias by III Library or Insurance Institute of India. Selection is based on relevance of content to Members, readability/ brevity/ space constraints/ availability of CI solely in the opinion of III Library. Newsletter is a free email service from III Library to III Members and does not contain any advertisement, promotional material or content having any specific commercial value. In case of any complaint whatsoever relating Newsletter, please send an email to Mr. P.K. Rath, Director, College of Insurance,at rath@iii.org.in. To stop receiving this newsletter, please send email to library@iii.org.in.

Source

http://www.irda.gov.in/ADMINCMS/cms/NormalDa ta_Layout.aspx?page=PageNo1323
14.05.2012 The IRDA (Insurance Regulatory and Development Authority of India) has published updated List of Life Insurers from India vide their circular dated 14th May, 2012

Source

http://www.irda.gov.in/ADMINCMS/cms/NormalDa ta_Layout.aspx?page=PageNo129

Global News
Asia
China eases investment restrictions for insurers
China's insurance regulator will allow insurers to invest in a wider range of corporate bonds and relax limits on equity and real estate investment, granting them greater freedom to seek higher returns and play a stronger role in the financial system. Insurers can now buy unsecured corporate bonds via an underwriters' book-building process, according to a notice issued on the website of the China Insurance Regulatory Commission late on Monday. Previously, insurers were restricted to purchasing unsecured bonds issued via open auction. The notice also indicated a relaxation of rules governing equity and real estate investment by insurers, allowing them to draw on funds from different subsidiaries for such investments. The rules clarify the approval process for the issuance of new insurance products based on investments such as infrastructure bonds and real estate. China's financial regulators have been working in recent years to diversify the country's financial system away from reliance on bank lending to de-concentrate risk and improve capital allocation by developing a broader base of institutional investors.

Source

http://finance.yahoo.com/news/china-easesinvestment-restrictions-insurers-022739811.html

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