In order to increase the persistency or continuity of life insurance policies by policyholders, the Insurance Regulatory and Development Authority (IRDA) has suggested agents sell more policies per year.
In an exposure draft on persistency of life insurance policies, the IRDA has suggested a series of measures, including asking them to procure a minimum of 20 polices per year and a minimum first year premium income of Rs.150,000.
Where an agent falls short of achieving either of the above, they would have to achieve proportionately more in either one to make up for the shortfall.
According to the exposure draft, an agent's licence may not be renewed where the persistency ratio (policy renewal ratio) is less than 50 per cent. Further, there shall be a disincentive for lapsation in the form of commission clawback by the insurer, on a proportionate basis.
Alternatively, a part of the first year commission shall be withheld and be paid based on persistency in later years, the draft suggests.
In an attempt to curb dummy agents, the IRDA has also suggested that spouses and close relatives of employees of insurers shall not be engaged as agents by insurers.
Reacting to IRDA's proposals, R Ramakrishnan, a member of the Malhotra Committee on insurance reforms said, "Let the regulator prescribe the persistency ratio of the insurer and not the productivity norms for agents. It is for the insurers to prescribe the productivity norms for their agents."
According to him, IRDA is trying to micromanage the sector which it should not do.
The regulator has called for comments from Life Insurance Council, General Insurance Council, consumer organisations and general public by July 31, 2010 while excluding the agents.
Interestingly the 61 month persistency ratio of individual agency channel for private life insurers for the three year period 2004-05 to 2006-07 is around 50 per cent much higher than that of corporate agents (just below 45 per cent), brokers (less than 40 per cent). The persistency of bancassurance channel (policies sold by banks) is above 50 per cent.
Sunday, July 25, 2010
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 aliving 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.
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%
Thursday, July 15, 2010
Non-life insurers' premium grew 19 pc during April-May period
General insurers grew around 19 per cent by collecting Rs 7,392 crore premium in the first two months of the current fiscal, as compared to the corresponding period last year.
During April-May this year, non-life insurers mopped up Rs 7,392.19 crore against Rs 6,218.42 crore in the previous year, according to data from the Insurance Regulatory and Development Authority.
The four state-run insurers fared better than their private counterparts, with New India Insurance collecting the maximum premium, it added.
New India Insurance mopped up Rs 1,365.83 crore premium during the April-May period, compared to Rs 1,174 crore in the previous year -- growing by 16.34 per cent.
United India Insurance registered a growth of 22.47 per cent by collecting a premium of Rs 1,094.72 crore in the first two months of the current fiscal, as compared to Rs 893.87 crore during the corresponding period in the previous year.
National Insurance collected Rs 979.91 crore premium during the April-May period this year compared to Rs 773.46 crore in the previous year, registering a growth of 26.69 per cent.
Oriental Insurance, on the other hand, grew by 14.16 per cent during the first two months of the current fiscal by mopping up Rs 954.89 crore.
Among private non-life insurers, ICICI Lombard retained the top position. It mopped up Rs 728.91 crore premium during April-May this year as compared to Rs 631.37 crore in the corresponding period of the last fiscal, growing by 15.45 per cent.
Bajaj Allianz mopped up Rs 490.46 crore in the first two months this year, against Rs 424.60 crore last year -- registering a growth of 15.51 per cent.
However, Reliance General registered a negative growth of 28.22 per cent. The insurer managed to collect Rs 276.80 crore during April-May this year, compared to Rs 385.62 crore in the corresponding period last year.
There are over 20 non-life insurance companies operating in the country.
During April-May this year, non-life insurers mopped up Rs 7,392.19 crore against Rs 6,218.42 crore in the previous year, according to data from the Insurance Regulatory and Development Authority.
The four state-run insurers fared better than their private counterparts, with New India Insurance collecting the maximum premium, it added.
New India Insurance mopped up Rs 1,365.83 crore premium during the April-May period, compared to Rs 1,174 crore in the previous year -- growing by 16.34 per cent.
United India Insurance registered a growth of 22.47 per cent by collecting a premium of Rs 1,094.72 crore in the first two months of the current fiscal, as compared to Rs 893.87 crore during the corresponding period in the previous year.
National Insurance collected Rs 979.91 crore premium during the April-May period this year compared to Rs 773.46 crore in the previous year, registering a growth of 26.69 per cent.
Oriental Insurance, on the other hand, grew by 14.16 per cent during the first two months of the current fiscal by mopping up Rs 954.89 crore.
Among private non-life insurers, ICICI Lombard retained the top position. It mopped up Rs 728.91 crore premium during April-May this year as compared to Rs 631.37 crore in the corresponding period of the last fiscal, growing by 15.45 per cent.
Bajaj Allianz mopped up Rs 490.46 crore in the first two months this year, against Rs 424.60 crore last year -- registering a growth of 15.51 per cent.
However, Reliance General registered a negative growth of 28.22 per cent. The insurer managed to collect Rs 276.80 crore during April-May this year, compared to Rs 385.62 crore in the corresponding period last year.
There are over 20 non-life insurance companies operating in the country.
Public sector insurers to push for a common claims settling agency
The four government-owned non-life insurers - National Insurance, New India Assurance, Oriental Insurance and United India Insurance-- will
soon be taking forward their idea of floating a common third party administrator (TPA) to process the health insurance claims.
"We will be issuing a Request for Proposal (RFP) shortly. Our requirements will be specified in the RFP so that interested parties can submit their proposals," New India Assurance Chairman and Managing Director M. Ramadoss said over phone from Mumbai.
Consulting firm KPMG had given a report on the feasibility of setting up a common TPA by the four companies a year ago.
The four insurers, which together do around Rs.6,000 crore of health insurance business selling several lakhs of polices, are not happy with the manner in which claims are being processed and settled by the existing TPAs.
The earlier expectations of TPAs trying to bring down the treatment costs by hard negotiations with the hospitals have not materialised.
On the other hand, insurers complain about diversion of float funds provided to TPAs to other group ventures rather than using those for settling claims.
With their claims ratio ruling around 115 percent, the four insurers are focusing on ways to minimise the claims outgo.
One such measure that is drawing flak is the delisting some hospitals where the policyholders can avail cashless treatment - hospitals will directly bill the TPAs or the insurers.
The decision was taken after a detailed investigation by the insurers on over charging by many corporate hospitals. "We took the decision after a year-long investigation," said Ramadoss.
"We have documentary proof on hospitals charging differential rates -- higher for those with a policy and lower for others," he said.
Hospitals also charge differential rates for diagnostic tests based on the kind of room a patient opts for. A general ward patient is charged lower (not subsidized rate) while a patient in an air-conditioned room is charged a substantially higher sum.
"The costs for such diagnostic tests remaining the same, how can hospitals have differential rates," wonders Ramadoss.
"Under the Bombay Nursing Home Registration Act, all hospitals have to declare their rate card. But nobody does that," an insurance industry official told IANS.
"We have not scrapped the cashless treatment facility. It is available in around 350 hospitals in the four metros. There are also many hospitals who want to join our network. The panel of hospitals is expandable," said Ramadoss.
According to him, the revised rates that have been negotiated with some of the hospitals do not vary much from their earlier ones.
"It should be remembered that higher the claims ratio, insurers will be forced to hike their premium rates. It is only the policyholders who will suffer and not the hospitals," added another insurance official.
Even the Tamil Nadu government has delisted many hospitals as they were found to be carrying out needless operations, resorting to excess billing and other malpractices under its free insurance scheme.
soon be taking forward their idea of floating a common third party administrator (TPA) to process the health insurance claims.
"We will be issuing a Request for Proposal (RFP) shortly. Our requirements will be specified in the RFP so that interested parties can submit their proposals," New India Assurance Chairman and Managing Director M. Ramadoss said over phone from Mumbai.
Consulting firm KPMG had given a report on the feasibility of setting up a common TPA by the four companies a year ago.
The four insurers, which together do around Rs.6,000 crore of health insurance business selling several lakhs of polices, are not happy with the manner in which claims are being processed and settled by the existing TPAs.
The earlier expectations of TPAs trying to bring down the treatment costs by hard negotiations with the hospitals have not materialised.
On the other hand, insurers complain about diversion of float funds provided to TPAs to other group ventures rather than using those for settling claims.
With their claims ratio ruling around 115 percent, the four insurers are focusing on ways to minimise the claims outgo.
One such measure that is drawing flak is the delisting some hospitals where the policyholders can avail cashless treatment - hospitals will directly bill the TPAs or the insurers.
The decision was taken after a detailed investigation by the insurers on over charging by many corporate hospitals. "We took the decision after a year-long investigation," said Ramadoss.
"We have documentary proof on hospitals charging differential rates -- higher for those with a policy and lower for others," he said.
Hospitals also charge differential rates for diagnostic tests based on the kind of room a patient opts for. A general ward patient is charged lower (not subsidized rate) while a patient in an air-conditioned room is charged a substantially higher sum.
"The costs for such diagnostic tests remaining the same, how can hospitals have differential rates," wonders Ramadoss.
"Under the Bombay Nursing Home Registration Act, all hospitals have to declare their rate card. But nobody does that," an insurance industry official told IANS.
"We have not scrapped the cashless treatment facility. It is available in around 350 hospitals in the four metros. There are also many hospitals who want to join our network. The panel of hospitals is expandable," said Ramadoss.
According to him, the revised rates that have been negotiated with some of the hospitals do not vary much from their earlier ones.
"It should be remembered that higher the claims ratio, insurers will be forced to hike their premium rates. It is only the policyholders who will suffer and not the hospitals," added another insurance official.
Even the Tamil Nadu government has delisted many hospitals as they were found to be carrying out needless operations, resorting to excess billing and other malpractices under its free insurance scheme.
Insurers may raise limits on healthcare costs to end row
The four government-owned general insurance companies that have limited the availability of cashless hospitalisation to those hospitals that agree to their rates would now look at raising their cap on treatment cost to bring in more hospitals under the new system.
In a meeting on Tuesday, members of the CII National Committee on Healthcare that include top private hospitals met chiefs of the four companies (New India Assurance, Oriental Insurance, United India Insurance and National Insurance Company) to discuss the preferred provider network project of the insurers that has categorised and graded hospitals and capped the rates for 43 odd surgeries in Delhi, Mumbai, Bangalore and Chennai.
Meanwhile, the Insurance Regulatory & Development Authority (Irda) has written to the four companies asking them as to why cashless has been stopped for retail policyholders and not for corporate policyholder. Insurers have been asked to submit a report in the next 48 hours explaining the basis of launching the preferred provider network project.
Financial Chronicle on July 5 was the first to report that the four government owned non-life insurance companies have graded hospitals and fixed the treatment cost for various 45 surgeries. Hospitals that have agreed to the new rates would be able to provide cashless facility to the policyholders.
A senior official of one of the four insurers who attended the meeting said, “There could be some reconsideration of rates so that there could be a better representation of corporate hospitals on the panel. In the next 90 days we would look at addressing all areas of concern.”
Vishal Bali, CEO of Fortis Hospitals, told Financial Chronicle, “We had three agendas to discuss. One, to grow the preferred provider network by adding more hospitals, relook at the categorisation and pricing of treatments. Insurers have said that they will ask their respective third party administrators (TPAs) to hold discussions with hospitals and try to bring in more hospitals in the network.”
“We have also suggested that instead of setting price bands for various treatment based on the categorisation of a hospital, a better solution would be to introduce a system of co-payment if the policyholder wants to be treated in top hospital. Thus, the onus of using the cover is equally shared by all including the policyholder,” said Bali. Co-payment is a system where an amount of the claim is borne by the policyholder.
“Insurance companies have said that they are willing to look at the price band of treatments at high end hospitals,” said Bali.
In a meeting on Tuesday, members of the CII National Committee on Healthcare that include top private hospitals met chiefs of the four companies (New India Assurance, Oriental Insurance, United India Insurance and National Insurance Company) to discuss the preferred provider network project of the insurers that has categorised and graded hospitals and capped the rates for 43 odd surgeries in Delhi, Mumbai, Bangalore and Chennai.
Meanwhile, the Insurance Regulatory & Development Authority (Irda) has written to the four companies asking them as to why cashless has been stopped for retail policyholders and not for corporate policyholder. Insurers have been asked to submit a report in the next 48 hours explaining the basis of launching the preferred provider network project.
Financial Chronicle on July 5 was the first to report that the four government owned non-life insurance companies have graded hospitals and fixed the treatment cost for various 45 surgeries. Hospitals that have agreed to the new rates would be able to provide cashless facility to the policyholders.
A senior official of one of the four insurers who attended the meeting said, “There could be some reconsideration of rates so that there could be a better representation of corporate hospitals on the panel. In the next 90 days we would look at addressing all areas of concern.”
Vishal Bali, CEO of Fortis Hospitals, told Financial Chronicle, “We had three agendas to discuss. One, to grow the preferred provider network by adding more hospitals, relook at the categorisation and pricing of treatments. Insurers have said that they will ask their respective third party administrators (TPAs) to hold discussions with hospitals and try to bring in more hospitals in the network.”
“We have also suggested that instead of setting price bands for various treatment based on the categorisation of a hospital, a better solution would be to introduce a system of co-payment if the policyholder wants to be treated in top hospital. Thus, the onus of using the cover is equally shared by all including the policyholder,” said Bali. Co-payment is a system where an amount of the claim is borne by the policyholder.
“Insurance companies have said that they are willing to look at the price band of treatments at high end hospitals,” said Bali.
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