THE decision by market regulator Sebi to allow investors get into mutual funds (MFs) with variable entry charges has put the spotlight on the life insurance industry.

For years, fund managers in asset management companies (AMCs) have accused the life industry of imposing higher charges on unit-linked insurance plans vis-à-vis mutual funds. Insurance regulator IRDA has also warned the industry to brace for ceiling on charges.

However, life insurers rule out any zero-entry load in the life insurance business. “Most of the business in life insurance comes from individuals, with MFs it is largely institutional money. There are some distribution costs in life insurance which just cannot be avoided,” said Gaurang Shah, MD, Kotak Mahindra Life Insurance. SB Mathur, secretary, the Life Insurance Council, an association of life insurance companies, said the life industry has to mandatorily distribute 18% of its policies in rural areas and also provide cover to the underprivileged. “If there is an attempt to put restrictions on costs, life insurance, too, may end up being an urban business,” said Mr Mathur. He pointed out if charges were reduced, some of the fixed costs such as stamp duty (Rs 40 per Rs 1 lakh) would have to be passed on to the customer.

1. IRDA drafting bancassurance guidelines
India’s insurance industry watchdog, Insurance Regulatory & Development Authority (IRDA), is working on a set of guidelines for bancassurance that will enable insurers to pass on savings achieved through using the bank distribution channel, reports The Economic Times citing a senior official at the regulator 

Confused over buying the right unit-linked policy?

Well you are not the only one. It is really confusing when you have to compare the offerings of the 22-odd life insurance companies in the market.
While insurers pitch unit-linked policies as the hottest and most transparent plans, most policyholders grapple to get acquainted to terminology of plans from different insurance companies.

So much so, the Life Insurance Council has taken up the issue with the Insurance Regulatory and Development Authority (Irda).

“We are looking at standardisation of nomenclature used by insurance companies and also a uniform method of calculating charges by companies,” S B Mathur, ex-LIC chairman and secretary general, Life Insurance Council, told DNA Money.

“Customers get confused to see charges in plans being called by different names. For example, some use the term ‘fund management’ charge, some call it net asset value (NAV) charge, while some others brand it as ‘policy maintenance charge’ or policy administrative charge.

This creates confusion for customers as they compare similar products,” Mathur said. “We are saying, if the charge is for management of funds it should be called fund management charge. The method of calculation should also be standardised. Some calculate these charges on the basis of sum assured, while some on the NAV,” he added.

The council has said that there should be one or two methods so that it makes it easier for the customer to compare the loads.
While the regulator is still to take a decision on these, Irda actuary R Kannan said, “There is a need to enhance transparency in the operation of insurance companies so that policyholders make informed decisions.
Moreover, to consolidate the benefits, we must inculcate and enhance the confidence of both current and prospective policyholders.”

The Life Insurance Council is also working on a host of other issues. “We are dealing with taxation and compliance issues including KYC norms,” Mathur said.

Expensive as they appear, it is sometimes better to go for individual policies for the whole family

Today, there is increased awareness about healthcare costs and how mediclaim insurance helps mitigate the risk of such costs. One question for the first time buyer is whether to take individual insurance polices for each family member or a family floater policy.

Before we look at the pros and cons of the various types of mediclaim policies available, let us quickly look at what each of these policies means.
An individual policy means a separate policy for each of the family members. That means, if in a family of three members, each of the family member is covered for Rs 2 lakh, then eligible hospitalisation expenses incurred up to that limit for that particular individual only would be reimbursed.

In contrast, in a family floater plan, the limit can be utilised by any of the family member. If the same family takes a family floater plan for Rs 4 lakh and say eligible expenses incurred for one of the members was Rs 3 lakh, it will be fully reimbursed. So, in many ways, the family floater plan offers flexibility in terms of utilising the overall insurance coverage among the family as a group.

This would seem to indicate that a floater plan is always more beneficial for a family. However, there are several other considerations that need to be taken into account before taking this decision. We have used some examples to understand this better.

We then tried to find out the value of a family floater policy that they will get for about the same amount of premium. And we found that the older family would be able to get a family floater plan for Rs 4 lakh at almost the same cost (Rs 13,092 as compared with Rs 13,106 for the individual policies). The younger family fares much better with a family floater policy of Rs 5 lakh available at a much lower cost (Rs 6,998 instead of Rs 7,776 for individual policies).

As can be seen, for the older family, for the same amount of premium, the family floater plan doubles the amount available for each family member (Rs 4 lakh from Rs 2 lakh) while halving the overall family cover (Rs 4 lakh from Rs 8 lakh). For the younger family, on the other hand, the flexibility is increased dramatically (Rs 5 lakh from Rs 2 lakh) without a significant impact on the overall family cover (Rs 5 lakh from Rs 6 lakh) and with money saved to boot.

The reason for this is not far to seek. The family floater plans are priced on the basis of the age of the senior most member and as he/ she gets older, the flexibility decreases and/ or the cost increases significantly.

There are other disadvantages to a family floater policy as well. The policy will be renewed only till the senior most member reaches the maximum age of renewability allowed by that company. As it stands today, at that stage, the other family members will need to take a fresh policy without having the benefit of their claim history and pre-existing disease coverage that comes from continuous renewal of the policy.

The same applies to children who reach the maximum age (normally 25 years in most cases) after which they will need to buy a separate policy for themselves without the benefit of the earlier continuous coverage that they have got under the family floater policy. Most policies also make no specific provision for continuing cover of the surviving members in case of the unfortunate death of the senior most member.

All in all, since continuous coverage and claim history is critical in this category and currently there does not seem to be any stated basis for taking these with you when you are forced out of a family floater plan, we would strongly recommend taking individual policies for the whole family.

The writer is CEO, ApnaInsurance.

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The insurance companies should provide proper understanding of the product at the time of selling a policy to avoid mis-selling, according to Mr J. Hari Narayan, Chairman, Insurance Regulatory and Development Authority (IRDA).

“Mis-selling has been a major area of complaint from a consumer point of view. In many cases, there seems to be no clarity on how to interpret a policy and its implications,” Mr Narayan said in his keynote address at a workshop on consumer grievance management in the insurance industry, organised by IRDA, here on Friday.

On an average, two-three lakh complaints are registered in the country per annum while the industry is selling about five crore policies a year, he said.

Out of this, over one lakh complaints are on mis-selling and the remaining pertain to claim settlement and other issues, he added.

The industry, especially, private insurers, should set up benchmark time-frames for addressing various sets of complaints from the consumers, the regulator said.

The institution of ombudsman, which was introduced prior to the formation of IRDA, would also be brought under the purview of IRDA “sooner or later”, Mr Narayan said adding that further streamlining of the ombudsman system could be taken up later.

IRDA will be introducing an integrated online grievance redressal system to help the policyholders, he said.

The proposed software would integrate existing system of insurance ombudsman, the insurers, consumers and the IRDA.

Mr K. Rangabhashyam, Insurance Ombudsman, Kolkata, said complaints of mis-selling accounted for more than half of the total complaints.

“On an average, the 12 offices of ombudsman across the country receive 12,000 complaints per annum out of which 50 per cent are non-entertainable. In the remaining, mis-selling of policies is a major issue,” he added.

In a move that can impact the premium rates of the unit-linked insurance products, the Insurance Regulatory and Development Authority (IRDA) has said second year premiums should not be less than 75 per cent of the initial year’s premium.

“IRDA has noticed that the first-year premium payment is very high compared with very low premium paid by the policyholders from second year onwards,” the insurance regulator observed in a circular sent to the life insurance companies on Monday.

The insurers who had offered more than 25 per cent reduction in premium over the first year’s premium should treat the difference in premium as a single premium, the circular said.

The tightening of the premium norms would prevent companies from bringing down premium significantly from the second year onwards, said an official of IRDA.

Getting ready to kickoff the New Pension Scheme for private citizens in another five weeks, the Pension Fund Regulator and Development Authority has approved 23 points of presence that would collect pension contributions and also sell pension products.

The country’s largest public sector bank—State Bank of India and the biggest life insurer—Life Insurance Corporation of India have been appointed as points of presence for the new pension scheme that is scheduled to be launched from April 1 this year.

All in all 17 banks have been chosen, including SBI and its six associates.

THE finance ministry has decided to make a permanent account number (PAN) card mandatory for buying all insurance policies that have an element of investment in the capital market and the premium exceeds Rs 1 lakh per year.

The ministry along with the insurance regulator, Insurance Regulatory and Development Authority (Irda), is working to make the use of PAN mandatory for buying such insurance policies. Insurance products with investment element means all unit-linked insurance policies (Ulips) would come under the new provision.

“Making use of PAN card compulsory will really help. This way, the government can keep track of all financial transactions. It will be useful even for security purposes. These days by tracking financial transactions one can solve many cases,” said Tarun Bajaj, joint secretary, insurance, ministry of finance.

Irda has already started working on the initiative and say they will notify it soon to ensure compliance. Insurance companies say making a PAN card mandatory will affect their business only initially. A senior official of Bharti AXA Life Insurance, who did not wished to be named, said, “The PAN is now an integral component of any financial transaction - from opening a savings bank account to purchasing a house or applying for a credit card. Thus, the urban Indian consumer is now fairly accustomed to the use of PAN cards in buying financial solutions. For these customers buying Ulips, mandatory declaration of the PAN may be a new development that they would need to be accustomed to.

It may take some time for PAN declaration at the time of buying an Ulip to become a practice.” Last year, former finance minister P Chidambaram had announced in the budget that that the PAN would be made mandatory for all financial transactions. However, now the finance ministry has put a floor of Rs 1 lakh of premium per year.

Last year in his budget speech, Chidambaram had proposed “to extend the requirement of PAN to all transactions in the financial market subject to suitable threshold exemption limits.” However, the action taken report presented in the Parliament on Monday says, “It is proposed to mandate PAN for such insurance products that have an investment element in them, with exemption granted in cases where the contracted premium payable on such insurance policy does not exceed Rs 1 lakh.”

Initially, there was talk of the PAN becoming mandatory for insurance policies, post office savings accounts or its savings certificates which did not require record of the 10digit alphanumeric taxpayer identification number.