Private insurers too may axe cashless mediclaim

Private sector general insurers may follow their public sector counterparts in discontinuing the cashless facility to hospitals that do not agree to the package rates proposed by the insurers.Health has been a loss making segment for the industry.

With public sector insurers taking the lead in removing errant hospitals from their preferred provider network (PPN), the private sector players consider this the right time to follow suit.

Public sector insurers have almost 60 per cent share in the health insurance market.

Private players are waiting for the hospitals and the public sector insurers to resolve the issue before evolving an industry-level framework on PPN. “There has always been a need to control the claims payout in health as the loss ratio in the health insurance segment is as high as 120-130 per cent. For Rs 8,000 crore premium collected by the industry, the claim outgo is more than Rs 12,000 crore. We will look to evolve a basic framework at an industry level to restrict the hospital network,” said an official with a private sector company.

Collective guidance

Mr S.L. Mohan, Secretary-General, General Insurance Council, said that once the issue is settled between public sector insurers and hospitals, the council could help the private companies by giving them collective guidance.

“A basic framework could be evolved by the industry that hospitals would have to agree to for being a part of the PPN,” said Mr Mohan.

A senior official from New India Assurance Company said private insurers have shown interest in joining the preferred provider network.

“With our move, the momentum has been built. Other stakeholders are also likely to follow suit,” the official added.

The four public sector players — New India, Oriental, National and United India — had removed some of the leading hospital chains across Mumbai, Bangalore, Delhi and Chennai from the preferred provider network from July 1. This meant that even though customers could go to these hospitals for treatment, they could not avail themselves of the cashless facility. They would have to make payments and later apply to the insurance company for reimbursement.

Inflated bills

Insurance companies removed these hospitals from the list as it was found that they were overcharging customers, thus leading to inflated bills. The PSU insurers wanted these hospitals to fall in line with the rates prescribed to them to check their losses.

Earlier, each third party administrator would have its own network of hospitals. Now with the agreement among the four public sector players, the 20-22 TPAs servicing the four PSUs will have a common list of hospitals in these four cities.

Irda's fiat on insurance agents finds many supporters

Insurance Regulatory and Development Authority’s (Irda) latest proposal to make life insurance agents more responsible while selling policies has elicited mixed reactions from life insurers.

While some are of the opinion that the move is a step in the right direction and will bring in much-needed accountability, others feel the conditions prescribed are too stringent, resulting in many agents winding up their businesses.

The insurance regulator’s proposal, which was placed in the public domain last week, proposes to de-license agents who fail to achieve a persistency ratio of at least 50%. Persistency is defined as the proportion of policies remaining in force at the end of the period, out of the total policies in force at the beginning of the period. It is an indicator of the number of policyholders who have chosen to renew their policies, broadly signifying their satisfaction with the product sold to them.

The move follows widespread complaints of mis-selling by agents who carry out their task with an eye on commissions rather than policyholders’ needs, eventually leading to the latter deserting policies, which typically entail a tenure of more than 10 years, mid-way.

“The move is aimed at ensuring that the agency force acts more responsibly while selling policies. In that direction, we support it. The interests of insurers, distributors and customers have to be aligned, and persistency is a key factor here,” said Max New York Life MD and CEO Rajesh Sud. “The emphasis on persistency will be approved by one and all — agency as well as industry bodies. In our case, we already follow this principle,” added Reliance Life president and executive director Malay Ghosh.

In addition, Irda has put forth certain other recommendations as well. If the draft norms are implemented, an agent will have to sell a minimum of 20 policies every year and bring in a first year premium income of at least Rs 1.5 lakh. Should they fail to fulfil either of the criteria, they will have to achieve proportionately more in either one to make up for the shortfall in the other, states the proposal.

“Agents in India are not full time as most of them enter the agency force as a stop-gap arrangement and the successful ones stay on. After the revision in charge structure, commissions have come down and it has become even more difficult for an individual to earn a living as an agent,” said the CEO of a life company on condition of anonymity.

In India, the commission paid to banks and corporate agents are in many cases higher than the commission paid to individual agent. The proposed

guidelines will leave individuals at the mercy of banks and corporate agents who have a bad track record in terms of mis-selling. The new guidelines will hurt the agency channel,” he added.

“Some of the conditions seem harsh, considering that nearly 30-35% of agents in the country are unable to sell even 12 policies in a year. If these norms come into play, many agents could go out of business,” pointed out GN Agarwal, chief actuary of Future Generali Life Insurance.

Some also feel that since many agents do not meet the requirements at present, the regulator needs to allow a reasonable transition period to enable companies to train agents and boost their productivity. Irda has set July 31 as the deadline for receiving comments and suggestions on the draft norms from the general public, life insurers and other stakeholders.

PNB to decide about entry into life insurance in next 3 mths

Punjab National Bank has set up a committee to evaluate the prospects of entering the life insurance business after its earlier attempt to enter the sector along with US-based Principal fell through.

"The board of the bank has set up a board committee to decide on the (life insurance) business... We are now free to go ahead... once the board committee decides, which may take another 2-3 months," Punjab National Bank Executive Director M V Tanksale told.

"We will come out with document thereafter. We will have a definite business plan what way we should drive our insurance business," he said, adding that the board would take a comprehensive look at the various opportunities in the sector.

Last month, the bank decided to part ways with two of its partners in a planned life insurance joint venture. It was decided that PNB will buy the entire 26 per cent stake held by Principal Financial Group and 32 percent participating interest of domestic firm UK (Berger) Paints in Principal PNB Life Insurance Company Ltd.

PNB's stake currently stands at 30 per cent in the proposed joint venture, while the remaining 12 percent is with Vijaya Bank.

Post-regulatory approval, the stake of PNB in the venture would go up to 88 percent.

Principal PNB Life Insurance was incorporated in 2005 with an authorised capital of Rs 110 crore to commence the life insurance business.

The paid-up capital of the company stood at Rs 2 crore and PNB's stake is Rs 0.6 crore. For picking up the 58 per cent stake held by Principal and Berger, PNB will have to shell out 1.16 crore. Meanwhile, PNB posted a 28 percent jump in net profit to Rs 1,068 crore for the June quarter compared to Rs 832 crore in the same quarter of the previous fiscal. Total income during the quarter grew by 11 percent to Rs 6,863.38 crore against Rs 6,177.59 crore in the same period previous fiscal.

The NII of the bank rose by 45.4 percent to Rs 2,618.5 crore. At the same time, net interest margin (NIM) improved to 3.94 percent from 3.24 percent.

However, treasury income declined to Rs 121.11 crore from Rs 358.47 crore in the same quarter of the previous fiscal.

Total business crossed Rs 4.52 lakh crore at the end of June. At the same time, deposits rose by 16.6 percent to Rs 2,18,960 crore, while advances jumped by 24.6 percent to Rs 1,57,979 crore.

L&T General Insurance gets regulatory nod to start businress

L&T General Insurance Company has received final approval from the insurance regulator to commence business. The company is promoted by the $9.8-billion engineering company, L&T, which controls 100% equity in the non-life company.

The company, which will be headed by CEO Joydeep Roy, already has 100 employees on board and plans to increase its headcount to 300 by the end of the financial year. Mr Roy, who was formerly with Tata AIG Life Insurance, said the company will launch standard non-life products in the next 60-80 days. The company has already designed 20 products, which it will soon lodge with Irda for approval.

Mr Roy said the company will commence operations with a paid-up capital of Rs 175 crore against the statutory requirement of Rs 100 crore. Most of the additional capital will be invested in building up an information technology backbone. The company would use technology to lower its cost of operations. “We are starting our operations with 10 branches and will gradually extend our network to tier-II and tier-III centres, added Mr Roy.

He said health would be a major focus area for the company and L&T Insurance would eventually have its own health claim management team. For the short-term, however, it would outsource claims management to third-party administrators until its own infrastructure was in place.

L&T has a presence in the financial services sector through its three wholly-owned subsidiaries — L&T Finance (LTF), L&T Infrastructure Finance (LTIF) and L&T Mutual Fund, which was acquired from Cholamandalam. “Given the size and the opportunity, L&T considers financial services as an important business in its portfolio. We are very confident of building a world class insurance business in India,” said YM Deosthalee, whole-time director & chief financial officer, L&T.

Mr Deoshthalee said the non-life company would tap into the ‘entire L&T ecosystem’ to generate new business. This would include selling covers to corporate customers of L&T, borrowers of L&T finance and investors in L&T Mutual Fund. He said L&T, at present, had no plans to get into the life insurance business because it required a distribution reach that was not available with the group.

L&T was earlier in discussion with US insurer Travellers for a partnership. However, the talks fell through and L&T decided to go ahead with the venture on its own. Responding to a query on whether L&T would seek a partner, Mr Deosthalee said joint ventures with multinationals were constrained by the product design and overall strategy of the insurance partner. He pointed out that among present joint ventures, in many cases the foreign partner had a major say in running the business despite having a minority stake of only 26%.

Pvt life insurers may do away with renewal commissions to agents

Insurance agents are perturbed that some private life insurance companies have decided to discontinue payment of renewal commission after five years in the case of select categories of policies.According to them, under pressure to meet the cap on charges on unit-linked products, some life insurance companies have restructured products in a manner which offer no renewal commissions to agents and distributors after the completion of the first five years of the policy term. They fear this ‘unhealthy practice' could result in more policies getting lapsed.Most insurance companies have reduced renewal commissions. Earlier, distributors used to get an average commission of 2.5-4 per cent for the whole policy term. Now, it has been reduced to 1-2 per cent.“Companies like Aviva and ICICI Prudential have gone ahead and removed renewal commissions after five years,” said Mr Sanjiv Bajaj, Joint Managing Director, Bajaj Capital, a distributor of insurance products.This practice will lead to more policies getting lapsed as distributors will not have any incentive to persuade policy holders to pay renewal premiums on time. This will benefit companies as they have to pay the guaranteed yield only if the customers continue with the policy for the full policy term, said Mr Bajaj.However, Aviva Life in an e-mail response said: “While the renewal commission structure varies from product to product (it is beyond 5 years in some cases), what is uniform across all products is guaranteed Loyalty Additions and Maturity Additions to reward customers for staying invested over long term.”According to ICICI Prudential Life Insurance, the company has brought down renewal commissions by around 1 per cent for some products but has not completely removed renewal commissions paid to agents after five years.” We do not have any product where we do not pay renewal commission after the fifth year. We pay commission right from the first to the tenth year of the policy. After the products are reworked to meet the cap on ULIP charges, we have optimally rationalised the return to the customer and the commission to the agents, under renewal premiums,” said Mr Pranav Mishra, Senior Vice-President and Head-Products, ICICI Prudential Life.Earlier also companies used to cap commissions due to their aggressive pricing tactics. But it was only for low-cost products, such as products for high net worth individuals where acquisition costs are low. But after the cap on charges, they have extended it to most of their unit-linked products, said Mr Rahul Aggarwal, CEO, Optima Insurance Brokers.The concept of acquisition and servicing of clients has changed. Nowadays, some companies use agents only to acquire customers and then use technology to follow up with customers for renewals. Be it via SMS or emails, companies are exploring cost-effective channels to keep in touch with their customers, said Mr Aggarwal. However, even though these channels can be used effectively in the urban markets, they will have to rely on agents and distributors in the rural markets if they want to prevent policies from lapsing.

Pvt life insurers post improved results on better market conditions, cost controls

Cost controls and better capital market conditions helped private life insurance companies post improved performances on the profitability front in 2009-10.
Insurance companies were able to reduce costs as they focused on improving the productivity of their branches and agents rather than indiscriminately opening new branches. There was also less strain of new business on profitability as insurers went slow on growing their business, said industry officials.
Bajaj Allianz Life Insurance reported the highest net profit among life insurers that have declared their results till now. Its net profit soared to Rs 427 crore in 2009-10 from Rs 41 crore in the year ago period. The company's new business premium growth was flat at Rs 4,451 crore (Rs 4,491 crore).
“We were able to control our expenses. We focused on improving the productivity of the distribution network. The focus will be on growing the business without increasing the branch network,” said Mr Kamesh Goyal, Country Manager, Allianz and CEO, Bajaj Allianz Life Insurance.
The company's expense ratio came down to 16.5 per cent (19.2 per cent).
SBI Life Insurance was back in the black posting a net profit of Rs 276 crore, against a loss of Rs 26 crore. The company had one of the lowest expense to gross written premium (GWP) ratio of 6.5 per cent.
ICICI Prudential Life Insurance achieved accounting profitability for the first time since its inception. It reported a net profit of Rs 258 crore, against a loss of Rs 780 crore in the year ago period. However, the company's new business growth shrunk by seven per cent to Rs 6,334 crore.
Kotak Life Insurance's net was higher at Rs 69 crore (Rs 14 crore).
Companies such as HDFC Standard Life, Birla Sun Life and Reliance Life were able to bring down their losses.
Along with cost controls, improved capital market performance due to favourable investment climate also helped boost the net of companies, said Mr Gaurang Shah, Managing Director, Kotak Life Insurance.
Most of the players were able to increase their assets under management.
SBI Life's AUM grew 96 per cent to Rs 28,551 crore. ICICI Prudential increased its AUM by 75 per cent to Rs 57,319 crore. Bajaj Allianz Life's investments grew by 95 per cent to Rs 33,422 crore.

Life insurers to abide by IRDA's directions, says Council
Life insurance industry association Council on Sunday said insurers will abide by IRDA's direction and would continue business as usual. The 14 life insurers would abide by the IRDA's direction to continue business as usual," Life Insurance Council Secretary General S B Mathur said when asked if the insurance companies would continue to sell ULIP policies following the regulator IRDA's directions. Market regulator SEBI on Friday last week banned 14 life insurance companies from raising funds through unit-linked insurance policies, which invest the money collected into equity and debt markets. Insurance sector regulators IRDA, however, yesterday rejected the SEBI ban and asked the insurance companies to do business as usual. Unit-linked equity products (ULIPs) are insurance plans sold by life insurers where the money collected from consumers is invested into equity and debt markets and returns are linked to the same. Regulation of ULIPs has become a bone of contention between the two regulators. The turf war concerns the nature of ULIPs which account for over 50 per cent of the total life insurance business in the country. As on March 31, 2009, total funds under the management of life insurance sector stood at over Rs 9 lakh crore of assets, according to the Life Insurance Council's figure. The life insurance companies against whom SEBI passed the order are SBI Life, ICICI Prudential, Tata AIG, Aegon Religare Life, Aviva Life, Bajaj Allianz, Bharti AXA, Birla Sunlife, HDFC Standard Life, ING Vysya Life, Kotak Mahindra Old Mutual Life, Max New York Life, Metlife India and Reliance Life.