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

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

Powered by Twitter Tools.

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.

Welcome to India’s first online Database of Financial Products

• The idea is that you can Search, Filter & View Financial Products in India
  
• Across categories like Mutual Funds, Insurance, Stocks, ETFs, Bonds, etc
• The database is in alpha stage. This means that the skeleton is up and the data is being verified.
• Apologies for being half baked.
• Please let us know: What were you looking for?
• Any suggestions or feedback for the database construction.
• Brickbats, if any.

Mail us your feedback

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.