COVER NOTES IN THIS ISSUE. No. 14 February 2012

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1 No. 14 February 2012 COVER NOTES IN THIS ISSUE Domestic News Reinsurance rates up, GIC reduces exposure Insurance policies may be available in demat form soon Finance minister urges IRDA to incentivize insurance e- policies Japanese insurer Mitsui Sumitomo to buy 26% stake in Max New York What right should one exercise as an insurance buyer? S. Hariharan takes over as CEO of LIC pension fund Multiple life insurance policies: policy can be abolished on non- disclosure No April 2012

2 Reinsurance rates up, GIC reduces exposure Domestic News Reinsurance rates up, GIC reduces exposure Finance minister urges IRDA to incentivize insurance e- policies Insurance policies may be available in demat form soon Japanese insurer Mitsui Sumitomo to buy 26% stake in Max New York What right should one exercise as an insurance buyer? S. Hariharan takes over as CEO of LIC pension fund Multiple life insurance policies: policy can be abolished on non- disclosure The Economics Times, Mumbai, April 3, 2012 MUMBAI: Indian companies will have to pay more for renewing their insurance policies as reinsurance companies have raised premium rates by up to 15% after burning their fingers in record number of natural catastrophes last year. General Insurance Corporation of India, which is the designated national reinsurer, has decided to cut its exposure to domestic market, according to industry sources. Regulatory norms require insurance companies to reinsure 10% of their risk with GIC. "Reinsurance rates have gone up 5% to 15% depending on the treaty experience," said KG Krishnamoorthy Rao, managing director and CEO of Future Generali General Insurance. "They have either retained the ceding commission or reduced it by 10%." Ceding commission is the fee paid to the primary insurer by the reinsurer to compensate for underwriting expenses. On obligatory ceding of business, the insurance regulator has directed GIC to pay commission on lines of businesses like oil and energy, motor own damage and third party although other segments like war, marine cargo, fire and engineering, and marine and hull insurers are left to negotiate rates with GIC. GIC has cut down on the treaty size and is insisting on excess of loss cover on proportional treaty, industry sources said. Even global reinsurance companies are imposing a limit on the maximum liability that non- life insurers can claim for a catastrophe. Earlier, for every Rs 1, GIC offered reinsurance of Rs 5 to Rs 10. But now it has rationalised reinsurance to Rs 5. For instance, ICICI Lombard's treaty has been cut by Rs 100 crore, reducing the gross automatic capacity of the Indian insurance company. Liability limits for natural disasters is set at two- three times the treaty limit. The insurer and reinsurer for every reinsurance contract decide the treaty limit. The reinsurer then covers all the insurance policies coming within the scope of that contract. "If we are not satisfied, we are not participating," said a senior executive of GIC. "Reinsurance is a global phenomenon, so even if there is no major catastrophe in the domestic market, rates will go up." Companies who renewed their policy on Monday, or are in the process of renewing, are paying up to 20% higher premium. About 40% of the renewals take place on April 1. According to a report Swiss Re, a leading global reinsurer, the total insured losses have doubled in 2011 compared with the previous year. The insurance industry worldwide took a hit of $108 billion from natural catastrophes and manmade disasters as against $48 billion in Claims from natural catastrophes alone reached $103 billion in 2011 against $43 billion last year. 2

3 Finance minister urges IRDA to incentivize insurance e-policies Myinsuranceclub.com, New Delhi, April 06, 2012 On Wednesday, the Finance Minister Mr. Pranab Mukherjee had a discussion with the board of Insurance and Regulatory Development Authority (IRDA) on various issues like cutthroat competition among the insurers, mis- selling of policies and promotion of online policies. In the private sector, life insurance companies have started selling policies through the internet. A customer can purchase a pure online term insurance policy by visiting the respective insurer s website and pay the premium through debit/credit card or net banking. This online distribution space which had only two players till 2010, now has close to ten private life insurers promoting their online insurance policies. The Finance minister urged the insurance regulator to identify ways to expand the reach of online policies with a special emphasis on targeting the youth of our country. He reiterated the concern of poor insurance penetration in our country and the challenge in replicating the massive agent network of LIC across all the other companies in the life insurance sector. Mr. Mukherjee said, Can we think of a system where in the mass market /OTC vanilla products with low- ticket size are incentivised by having a second level of agents with lesser entry restrictions? He opened up the room for discussing ways to reach semi- urban and rural areas and spreading insurance literacy and awareness. The Finance Minister was extremely happy with the efforts of IRDA to dematerialise insurance accounts and set up a grievance redressal body for customer queries and assistance. After tasting success with one or two online policies, many life insurance companies are in the process of developing online policies across other sub- products in life insurance such Term with Return of Premium (TROP), Pension, ULIPs and Child Plans. The premium rates of online term plans are as low as one- third of the term plans which are available through the branch networks and agents. This low pricing has increased the popularity of online term plans and increased the sales numbers in this category for insurers. Let s hope with the request of the Finance Minister and the efforts of life insurance companies, more online policies are available at lower cost to the Indian consumers. Insurance policies may be available in demat form soon The Hindu, G.Naga Sridhar, Hyderabad, April 14, 2012 Insurance policies will soon carry an option of being available in dematerialised form. Work is currently on and technical verifications on data- repositories will commence soon,'' Mr J. Hari Narayan, Chairman, Insurance Regulatory and Development Authority, told Business Line here. 3

4 The regulator has already short- listed five data repositories including National Securities Depository Ltd and Karvy for the purpose. Insurance repositories will maintain electronic data pertaining to insurance policies and allow easy access to them with the click of a mouse. The actual launching of demat policies might happen in about five months from now. OPTIONAL The regulator, however, does not have any plans to make demat policies compulsory. We want to give an option to policyholders to go for dematerialised policies because of legal and operational aspects,'' he said. The basic contract documents of the policy will continue to be available in physical form, he added. The Life Insurance Council has also discussed the issues arising out of demat policies with the insurers. There are many advantages with demat policies. There will be no question of losing the policy document. You can also have a constant update on policy account instantly,'' Mr Hari Narayan said. The demat option is thus expected to make a big difference to policyholders, according to the regulator. As of February 2012, the total number of policies stood at a little over crore, according to IRDA data. Japanese insurer Mitsui Sumitomo to buy 26% stake in Max New York InsuringIndia News, April 13, 2012 On Thursday, US- based insurer, New York Life announced its exit from Indian life insurance business venture Max New York Life by selling its 26% stake to Japanese insurer Mitsui Sumitomo Insurance at Rs. 2,731 crore. The company is planning to focus on its core markets of the US and Mexico. It is the second- biggest foreign direct investment in India's insurance sector after Reliance Life sold its 26% stake to another Japanese insurer Nippon Life at about Rs. 3,062 crore last year. As per the current regulation, a foreign partner can hold only up to 26% stake in an insurance joint venture. After the transaction, Max India's majority stake will remain unchanged at 70 % but the company will be rebranded as Max Life Insurance Company (Max LIC). 4

5 What rights should one exercise as an insurance buyer? The Economic Times New Delhi, April 11, 2012 Following rights should one exercise as an insurance buyer: 1. No doubt the insurance company fixes the premiums, but that doesn't mean it can do that arbitrarily. The company has to adhere to the premium structure mentioned in the product details filed with IRDA."This can be easily obtained from the insurer's website or its office". 2. Premiums go up on renewal with the policyholder's advancing age, claims made in the previous year and revision in the insurance company's premium chart. Now, if the insurer has stated that the rise is due to your age, he can easily verify it with the help of the premium chart. 3. If the company has specified that the renewal will cease at a particular age of, say, 65 or 70, there is little scope for recourse. If policy wordings are silent on this issue, though, renewal cannot be denied. 4. Usually, health insurers insist that one must submit the claim document, along with the bills, within days, depending on their policies. If one's claim sanction is delayed even after following all these steps and complying with all document- related formalities, one can take his insurer to task. 5. Policyholders have the right to claim interest if the pay- out is delayed beyond 30 days after the acceptance of the claim. 6. There are various other issues about which the insured should be vigilant, such as: the timeframe for processing and settlement of claims; the financial limits of a surveyor (there are cases when a surveyor is appointed for claims which are higher than his eligibility limit). S. Hariharan takes over as CEO of LIC Pension Fund Ltd. InsuringIndia News, April 10, 2012 Mr. S. Hariharan has taken charge as Chief Executive Officer of LIC Pension Fund Ltd with effect from 2nd April, He takes over from Mr. V. Manickam who retired on 31st March, LIC Pension Fund Ltd is a public limited company approved by Pension Fund Regulatory and Development Authority (PFRDA) for managing funds of Central and State Government employees (excluding Armed Forces). 5

6 Mr. S. Hariharan holds a Bachelor's Degree in Commerce and is a Chartered Accountant by qualification. He started his career with Life Insurance Corporation of India in year 1983 and held various prestigious positions in Life Insurance Corporation of India. Mr. Hariharan is a well experienced professional in insurance sector and has served various top level management positions in insurance marketing & finance. Prior to this appointment, Mr. S. Hariharan was Executive Director in charge of Investment, Monitoring & Accounting of Life Insurance Corporation of India. Multiple life insurance policies: policy can be abolished on non-disclosure InsuringIndia News, April 3, 2012 Delivering the judgment of a case, the National Consumer Disputes Redressal Forum (NCDRF) said that if a person has taken several life insurance policies from the same insurer, each at the different stages of life, payment against the first policy on the death of the life insured does not mean the other policies too should be honored without any question. The insured had taken three policies. The first two policies not being vitiated by non- disclosure of the insured. But the third policy was vitiated as after the first two policies were taken and before the third, the insured got serious head injuries in an accident which he did not disclose while insuring for the third time. The National Consumer Disputes Redressal Forum (NCDRF) overturned the decision of the State forum in which the insurance company was ordered to pay up the sum insured under all three policies. The nominee of the life insured received the insured amount only under first two policies. 6

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