IRDA to raise lock-in period for ULIPs to 5 years

Press Trust of India

Friday, September 11, 2009 (New Delhi)
In a bid to check mis-selling of Unit Linked Insurance Policies (ULIPs), insurance regulator IRDA on Friday
said it would increase the lock-in period from three to five years.

ULIPs are investment cum insurance products, which invest in equity and debt market depending on the
choice of the policyholders.

“We are going to increase the lock-in period for ULIP products from 3 years to 5 years," IRDA Member
Actuary R Kannan told PTI.

The circular in this regard is likely to be issued in the next 10 days, he said.

The new norm would be applicable to all the ULIPs filed on or after October 1, he said.

Currently, the minimum tenure for ULIPs is 5 years, however, partial withdrawal is allowed after 3 years.     

Last month, the regulator had directed all life insurance companies not to levy surrender charge for policies
surrendered from the fifth policy year.

LIC's market share rises to 64%; private cos do poorly

Press Trust of India
Wednesday, September 02, 2009 (New Delhi)

The market share of the state-run Life Insurance Corp (LIC) has gone up to 64 per cent in the first four
months of FY10, even as the private sector insurance firms continue to bleed, IRDA said.

LIC's first year premium collection on insurance policies during first four months of the current fiscal rose by
32 per cent to Rs 14,265 crore, according to the monthly figures revealed by insurance regulator IRDA.

This suggests that the LIC has managed to significantly improved its client base.

On the other hand, private sector life insurer major ICICI Prudential posted a degrowth of 45 per cent with its
first premium collection dipping to Rs 1,200 crore against Rs 2,192 crore mopped up during the first four
months of fiscal 2009.

Overall, the 22 life insurers managed to collect Rs 21,996 crore during the first four months of this fiscal
against Rs 20,178 crore during April-July 2008, a growth of 9 per cent.

LIC had increased its market share to 62 per cent among life insurers in the first quarter the current fiscal,
thereby growing by about 20 per cent, compared to same period last year.

The 21 private insurers managed to collect Rs 7,730 crore during the first four months of the current fiscal
against Rs 9,380 crore in the previous year, registering a fall of more than 17 per cent.
The country's largest private life insurer, SBI Life, has registered a degrowth of 4 per cent during the
reviewed period. It has collected Rs 1,398 crore first year premium during the period against Rs 1,457 crore
mopped up during April-July 2008.

Moreover, Bajaj Allianz Life Insurance first year premium collection declined by 30 per cent to Rs 841 crore
during the first four months.

Meanwhile, the first year premium collection of 17 non- life insurance firms grew by 6.8 per cent in the first
four months of the current fiscal.

These companies collected Rs 11,682 crore during the first four months this fiscal against Rs 10,938 crore
during April-July 2008.

The four public general insurers mopped up Rs 6,920 crore during the period against Rs 6,367 crore
collected in the same period last fiscal, registering a growth of 8.68 per cent.

Among public non-life insurers, New India's premium collection grew by 9.08 per cent to Rs 2,158 crore,
while United India mopped up premium of Rs 1,650 crore, growing by 14.97 per cent in the first four months.

On the other hand, private non-life insurers premium collection grew by 4.18 per cent during April-July 2009.

The 13 private general insurers mopped up Rs 4,761 crore during the first four months of current fiscal
against Rs 4,570 crore during April-July 2008.

Elders need emergency kitty to back insurance

Buying a cover at a late age is expensive; the benefits, too, are limited

Senior citizens have more reasons to feel happy now. Recently, the Insurance Regulatory and Development
Authority (Irda) has come up with a slew of measures that will give them more access to medical insurance.

For instance, if an insurance company denies cover to a senior citizen, it will have to give the reasons. Also,
the companies will have to explain any hike in premiums.

The new circular says any new product launched from July 1 has to allow entry till the age of 65. Sanjay
Datta, head (customer services, health & accident), ICICI Lombard, notes, “Any rise in the entry age will lead
to a higher renewal age as well.”

However, while the regulator is making efforts to make insurance more “senior citizen-friendly”, the big
question is how much sense it makes to buy an insurance policy once you become a senior citizen.

For, the problem is inadequate cover and high premiums. For example, Star Health and Allied Insurance’s
Senior Citizen Red Carpet gives only two options for sum insured (Rs 1 lakh and Rs 2 lakh).

National Health Insurance’s Varistha Mediclaim has a hospitalisation cover of only Rs 1 lakh, though the
customer can take an additional critical illness cover of Rs 2 lakh.
The premiums are also high. If a 65-year old buys Bajaj Allianz’s Silver Health policy, he will need to pay an
annual premium of Rs 15,446 for a cover of Rs 3 lakh. The premium for United India Insurance’s Senior
Citizen Policy is Rs 11,273 (sum insured Rs 3 lakh) for a person above the age of 65. Star Health and Allied
charges Rs 9,500 (sum insured Rs 2 lakh).

There are other conditions as well. Bajaj Allianz’s Silver Health pays for 50 per cent expenditure arising out
of any pre-existing condition from only the second year. Star Allied’s policy is slightly better as it covers pre-
existing diseases after one year. But it pays 50 per cent of the expenses. And United India Insurance’s is the
only senior citizen policy that does not cover a pre-existing disease until four renewals.

Beyond this, every policy has its own restriction, depending on the company’s risk perception. Bajaj Allianz’s
Silver Health does not pay for joint replacement surgeries. Star Allied asks for 30 per cent co-payment for
every claim.

Experts say senior citizens should have an insurance policy but also have a significant corpus. “Senior
citizens will now have an insurance company to share the risk. However, the policy alone will not suffice,”
said Suresh Sadagopan, a certified financial planner.

And importantly, keep a part of your retirement corpus in a fixed deposit or even cash for emergencies.

IRDA mulls allowing life insurers to invest in derivatives

The Insurance Regulatory and Development Authority (IRDA) is considering allowing life insurers to invest
part of policy holders' money in equity derivatives, a move that would allow these firms to hedge the risks
emanating from cash markets.

are considering to allow life insurers to invest their equity portfolio in futures and options. The matter is being
examined," IRDA Chairman J Harinarayan told PTI.

Equity derivative is a financial contract whose value is derived from the estimated future price of stocks or
stock indices and is generally used as a hedge or insurance against the risks associated with the underlying
instrument.

When asked what percentage of the equity portfolio would be invested in derivatives market, Harinarayan
said, "We have not reached to any conclusion on it. We are just examining the matter and the guideline has
not been issued."

Insurance companies will be able to hedge their equity exposure and protect returns of policyholders if these
firms are allowed to invest in equity derivatives.

Life insurers, at present, are allowed to invest 50 per cent of their funds in government securities, 15 per
cent in infrastructure-related projects, and the balance 35 per cent in other-than-approved instruments for
traditional policies.

These other-than-approved instruments consist equities, mutual funds and other money
market instruments.
'Sasta' Ulips: Low on charges, low on cover

After the Insurance Regulatory Development Authority (Irda) capped charges on unit-linked insurance plans
(Ulip), insurers have started trying their hand at low-cost products. Aegon Religare, for example, is
advertising its Invest Maximiser Plan as ‘Sabse Sasta Ulip’. And, Reliance Life Insurance has come up with
Premier Life.

These products do live up to the advertisements, for they have reduced the biggest expense for investors in
Ulips — the premium allocation charge (PAC). Invest Maximiser charges 5 per cent PAC in the first year, 2
per cent in the next three years and zero from fifth year onwards. Reliance Premier Life charges a PAC of 6
per cent just in the first year.

This is in contrast to what insurance companies do. Insurers keep allocation charges high in the first year.
Or, if the first year charges are low, the PAC continues for the full policy term.

Both the policies have all other features of Ulips. In Aegon Religare’s policy, the investor has the choice of
four funds. These include two debt funds, a balanced fund and a pure equity fund. The minimum yearly
investment is Rs 12,000 and if the person opts for monthly payment, the amount is Rs 2,000. The PAC is Rs
40 per month.

Reliance’s Premier Life is offering eight funds. These include two equity funds, a corporate bond fund, a
money market fund, a gilt fund, an infrastructure fund, an energy fund and a mid-cap fund. The minimum
annual payment in Premier Life is Rs 6,000. The PAC is Rs 80 per month.

In Invest Maximiser, the sum assured is five times the annual premium. But the person may need to go
through medical tests if the sum assured crosses Rs 12.5 lakh. This will depend on the insured’s age. A 35-
year-old male needs to go through the tests if the sum assured crosses Rs 30 lakh. A 45-year male will have
to go through the tests if the amount is more than Rs 20 lakh.

Lower charges have generated a lot of interest among investors. “Premiums from this policy contributed
around 19 per cent of our product portfolio,” said Yateesh Srivastava, chief marketing officer of AEGON
Religare Life Insurance Company.

These policies do have cheaper costs compared to other Ulips but financial planners said due to the lower
sum assured, these might not be feasible for a large number of buyers. Most financial planners advise
against mixing insurance and investments. They said mutual funds combined with a term plan was always a
better option, especially after as entry load on mutual funds has been abolished.

Even if an investor finds value in the product for a longer term, the sum assured can act as a hindrance.
“The sum assured is just five times the premium. This means it may not be able to provide adequate risk
cover to a person’s goals over the long term,” said a certified financial planner.

For a small investor, PAC may be a big deterrent. In Reliance Premier Life, policy charges are Rs 80 per
month. If a person is annually paying Rs 12,000 premium, administration charges will be around 8 per cent
of the annual premium paid. This is essentially high as PAC covers insurance companies’ back-office costs.
Huge potential for Indian life insurance market amid challenges’

25 Oct 2009, 1539 hrs IST, ET Bureau

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CHENNAI: With the uptick in the economy, the Indian life insurance market has

regained the positive growth in terms of new business premium ( NBP)

this year. While India remains the most promising market due to its inherent advantages
over China, it is not without challenges.

Bharti Axa Life Insurance company Chief Financial officer, V Srinivasan said in the
first six months of this year, NBP grew 17% against the negative growth of 6% in 2008-
09 reported on top of the 23% positive growth in the previous year.

The industry size in terms of premium touched Rs 2 lakh crore last year clocking a
robust 27% between 2004-05 and 2008-09. Despite the down turn in the economy,
private life insurers continued go gain market share ( 59%) in terms of weighted
collected premium.

Speaking at an ET in Campus event on ‘ Life insurance growth steady in a weak

economic scenario", at the Department of management studies, IIT, Madras on Friday,
Srinivasan said the life market is set attract two more players to the existing 21. Reliance
Life will be the first player to go public in the New Year.

Quoting Mckinsey report, he said the market is forecast to grow by 17% per annum and
reach a size of Rs 3,435 Billion- Rs 4 122 Billion by 2012. The private players’ growth
is driven by significant capital infusion to build distribution scale. Since 2000, the level
playing field has allowed them to compete effectively against the public sector LIC.

While these players have opportunities to increase share, key challenges facing them are
retention of talent ( high churn of employees), no benchmarks available for costing and
outdated risk tables ( more than a decade old). Like at the global level, there are other
challenges like climate change, terrorism, regulatory intervention, inflation, legal risks
etc.,

" Insurance is every body’s need. But, nobody’s want. That is why life insurance is
never bought but sold. Every one thinks, he or she is safe and has no risks in life. This
poses challenges in selling products with cover well as promising high return on the
investment", he explained.

Luckily, India scores high over China when it comes to demographic profile ( young
population) , premium growth rate, penetration level ( 4% of GDP) and as an investment
destination. " India is among the fastest growing markets and its share has been growing
rapidly over the years except the marginal decline in 2008" Srinivasan told the
management students.

Rising affluence is expected to increase the insurable population significantly by 2015.

By then, 100 million people are estimated to be added to the working population.

Talking of Bharti-Axa Life Insurance, Srinivasan said both are strong national brands
backed by their large client base, financial strength and distribution reach. " We want to
be an aggressive player to achieve a top five market position by 2012 through a multi-
distribution, multi product platform", he said.