Non life insurance policies are set to take the ‘customisation’ path. The financial security covers will soon come with add-on services, of course, by paying extra premium.

The Insurance Regulatory and Development Authority (IRDA) has approved the customisation of policies for extra premium that insurers for new products from January 2009. So when you buy a motor insurance policy, you may get options like a temporary replacement of a car in case it breaks down, or even complete reimbursement of damages even if the vehicle is over fiveyears-old, by paying extra premium on the insurance cover.

Similarly, you may be able to pay a low premium for your household and factory insurance cover if you are willing to share the claim with the insurance firm. ‘‘Insurer will be permitted to add on covers above the tariff in the case of fire, engineering, and motor insurance with appropriate additional premiums,” a senior IRDA official said.

The idea, he said, was to give more flexibility to insurers so that they, as well as policy holders, benefit from this new agreement. IRDA has also permitted variation in deductibles in fire and motor insurance policies. ‘‘This effectively means insurance products can be provided for lower premium if the policy holder is willing to share the claims in case of damages,” said Rahul Agarwal CEO, Optima Insurance Brokers said.

Insurers and brokers see this as one more step towards full detariffing of the insurance sector. ‘‘IRDA has now decided to relax the terms and conditions of coverage. This will give a lot of felixibilty and firms will now showcase innovative products,” said Swaraj Krishnan, CEO, Bajaj Allianz General Insurance said. Mukesh Thakker, development officer state-run New India Assurance Company said, ‘‘Since insurers are now free to design policies of their own, there will be a wider choice for customers, who has already benefited by de-tariffing as tariffs have come down by substantially.”

Have you ever applied for a life insurance policy and had your proposal turned down by the insurance company?

Incredible as it may sound to some, particularly given the aggressive sales pitch adopted by many players in recent times, insurance companies do reject applications they think are too risky.

And how do insurers decide who gets a cover and who doesn’t? Well, based on a process called risk-classification or underwriting.

An insurance company’s performance is judged among other things by its claim ratio — the lower the ratio, the better is the performance. To achieve this, the companies follow a stringent underwriting process.

The insurer’s underwriters identify and calculate the risk of loss from policyholders, establish appropriate premium rates, and write policies that cover this risk.

In life insurance, this decision process sometimes requires medical evidence of the applicants. The applicant may be required to provide the following information (for life insurance) to enable underwriters assess mortality risks and determine appropriate premiums:
l Age
l Gender
l Height and weight
l Health history (often family health history)
l The purpose of the insurance (estate planning, business or family protection, etc)
l Marital status and number of dependants such as children
l The amount of insurance the applicant already has, and any additional cover he proposes to buy
l Occupation (some are hazardous, and increase the risk)
l Income (to determine suitability)
l Smoking or tobacco use (smokers typically have shorter lives)
l Alcohol (excessive drinking reduces life expectancy, too)
Each insurer sets its own underwriting standards of what is acceptable, insurable risk. Then each application for insurance is reviewed to determine if the individual meets those standards.
There are four common categories:

Preferred: If you are a better-than-average risk (i.e. in good health, with no dangerous occupation or health history) you may be charged the preferred or lowest rate.

Standard: If you are considered an average or typical risk, you will be charged the standard rate.

Rated: If you pose an above-average risk (say you have high blood pressure, smoke, or engage in skydiving every weekend), you may be classified as an increased risk and charged a higher premium.

Declined: If you are rated as uninsurable (perhaps due to a serious illness), you may be denied coverage entirely.

Health insurance is poised to record a massive growth in India. Half of the country’s population is expected to come under the health insurance umbrella in the next seven years, according to an Ernst & Young study. A mere 12% of the population is currently covered by healthcare.

The health insurance premium income is likely to touch Rs 30,000 crore in 2015 from the existing Rs 4,000 crore, according to the study. The premium was Rs 670 crore in FY02. Experts say the government’s proposal to scale up the foreign direct investment (FDI) in the insurance sector from 26% to 49% will boost the healthcare business. Ernst & Young National Leader-Financial Services, Ashvin Parekh says, “The health insurance report is yet to be tabled, but increased FDI investment will help the sector.

The committee on health insurance has submitted its report recommending a reduction in capital, transformation of health providers into stakeholders in health insurance companies to prevent over-treatment and encouragement of regional health insurance companies vis-a-vis pan-Indian ones.”

Ideally, three years of health reforms should give rise to 16 regional health insurance companies. “It is important to create a pool of resources at the grassroots level and cover communities instead of individuals. Moreover, abuse needs to be checked, given the importance of data,” Mr Parekh said.

With rising income levels, changing lifestyles and dietary patterns, the healthcare consumption in India has increased by 8% in the past 20 years, compared to the overall consumption growth of 4.7%. The health expenditure across the country was Rs 180,000 crore last year. Given the escalating healthcare costs, rising demand for healthcare services and limited access of the low-income group to quality healthcare, health insurance is emerging as an alternative mechanism for financing healthcare. And with merely 12% of the population being covered, companies are looking at the health insurance space as a lucrative segment.

The state-owned companies constitute nearly 70% of the health insurance market and private companies account for the remaining 30% As the out-of-pocket expenditure on healthcare is pegged at more than 70%, private insurers are treating this as an important target market. ICICI Prudential has started a division catering to health insurance, while Bupa-Max is awaiting the IRDA’s approval to launch health insurance schemes. LIC recently unveiled its health insurance scheme to compete with players such as Apollo, Star and Bajaj Allianz.

Yet another product that defies the basic principle of not mixing insurance with investment.

Most insurance buyers forget one simple thing – they should be buying only life, health or any other cover from insurance companies. Instead they lose their focus and buy products, which are completely different in nature. Here we give you one such example.

Take for instance, HDFC Savings Assurance Policy. The marketing material of this policy reads something like this: “You need to plan today to ensure a bright future for your child, build your dream home and fulfil all your other aspirations. To help you realise your dreams, we present HDFC Savings Assurance Plan.” Interestingly, in spite of being an insurance policy, there is absolutely no mention of life insurance cover at all.

So what does this policy do? Read the full post

Source: Business Standard

The decline in the sales of unit-linked insurance plans (Ulips) policy has prompted the Insurance Regulatory Development Authority (IRDA) to consider making life insurers sell a minimum amount of traditional policies for business stability.

This would mean prescribing a minimum share of business from traditional policies in the overall portfolio of life insurance companies. Currently, these companies have full freedom to sell Ulips or traditional policies or a mix of both. Traditional policies are oriented towards protection and have participatory products that are eligible for bonus. Ulips, on the other hand, are seen as long-term saving instruments.

Any stipulation by IRDA on the proportion of traditional policies to be sold as part of the overall portfolio would effectively mean de-risking the life insurance business. It could help insurers to have a stable business and to continue servicing claims of policy-holders, especially when the markets are turbulent.

But IRDA may have to weigh the pros and cons of any such move as any “directed portfolio” could be perceived as an anti-reform measure. “Internationally, countries give flexibility to insurers to sell any policy. There is no stipulation on the business mix, between traditional policies and Ulips. But given the composition of Indian policy-holders, who are predominantly from rural and semi-urban areas, we could consider prescribing a minimum share of business from traditional policies in the overall portfolio of insurers

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Sensex down 1132 to 8640. Nifty (worst fall ever) down 386 to 2557.

In a nation of 100-crore people, you would think the growing economy would make private insurers in a liberalised industry hit it big.

But, with losses mounting, some of the hottest expansion plans are running for, well, cover Capital is scarce, and the current global mood of a financial meltdown is bound to add to the woes. Cost-cutting, productivity and consolidation are the order of the day ICICI Prudential Life Insurance, the largest private life insurer with the highest capital base of Rs 4,580 crore, has decided not to make significant additions to branches and also slowed hiring of agents. The company has 2.78 lakh agents and had opened 1,050 branches in 2007/08.

That is also true for Bajaj Allianz Life insurance. Says Kamesh Goyal, CEO of Bajaj Allianz Life.

“Since last one year: we have not expanded by increasing branches and are focusing on controlling costs.” Eight years after the state-dominated sector was liberalised, only one new player, SBI Life Insurance, has managed to break even.

Private life insurance companies which were registering close to 100 per cent growth last year on the stock market boom that made Unit Linked Insurance Plans hot have seen their growth slowing down to 50 to 75 per cent this year “We are looking at profitability for shareholders and managing costs as we go along,” said Paresh Parasnis, general manager, HDFC Standard Life. “This year we are deepening our presence in the existing markets and will have a total of 610 branches against the current 572.”

Explains Gaurang Shah, managing director, Kotak Life Insurance, “Now, availability of capital will not be that easy and shareholders will begin asking questions.” According to Life Insurance Council data (a self regulatory body of life insurers), in 2007/08, some 18 insurers infused Rs. 16,235 crore between them in capital.

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Last week, India’s financial market regulators took stock of the country’s preparedness to deal with the global financial meltdown. The turmoil has hurt American and European banks and driven down stockmarkets the world over. The meeting of the high level coordination committee on financial markets was held just two days after prime minister Manmohan Singh acknowledged that India cannot remain insulated from the global financial crisis. So regulators are trying to ensure that the impact is minimal besides assuring investors that their money is safe. The insurance regulator Irda took the lead, saying all was well with two insurance ventures of Tata-AIG, after US insurer AIG accessed Fed Reserve’s borrowing window. A few days later, the RBI confirmed the financial stability of ICICI Bank.

Unlike banks, domestic insurance companies do not have any exposure overseas. Irda’s investment regulation debars insurers from investing funds abroad. The pension sector may also be largely insulated from the turmoil at this stage as pension funds cannot be invested overseas. Besides, no foreign pension funds managers have been allowed to manage pension funds here, says PFRDA Chairman D Swarup. Policy conservatism in the insurance sector has helped. Policyholders funds are intact now. But domestic insurers will have to be allowed to invest in derivative instruments overseas to diversify their risks and improve returns in future.

The government has also proposed a hike in FDI cap in insurance from 26% to 49% to help companies bring in more capital. Changes in existing JVs and new ventures have to be approved by the Irda. But the regulator is not privy to the joint venture agreement, though it is empowered to call for documents from insurers, says a senior official. There are no worries on this count just yet as the regulator reckons that foreign joint venture partners are unlikely to exit Indian operations.

Most of them see huge potential for growth in India. Insurers furnish quarterly data of solvency margins to Irda, which makes an assessment of the financial health of the company based on this data. But given the vulnerability of the global financial markets, there is a case for Irda to seek details of insurance JVs to help insurers evolve contingency plans at the time of crisis. Globally, the International Association of Insurance Supervisors (IAIS) and supervisors are also working prudential norms for group supervision to contain the impact of a global turmoil on such entities. The suggestions of the IAIS will be timely for Indian regulators as well.