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Renewal woes

Everyone is in favour of health insurance. With medical costs going up rapidly, the common man knows that insurance is the only way to get quality treatment without paying a bomb.

Everyone is in favour of health insurance. With medical costs going up rapidly, the common man knows that insurance is the only way to get quality treatment without paying a bomb. Insurance companies know the value of promoting health insurance covers. Hospitals find that medical insurance helps streamline operational processes. So, if everyone loves it, why then is there such a fuss being made about the “problems” of health insurance?

The answer lies in one word: renewals. For an insurance company, you are a good customer as long as you do not file a claim. The minute you raise a claim, the company treats you as a person with more than standard risk. And you can be denied cover if you are seen as a bad risk or as a potential risk. However, the Insurance Regulatory and Development Authority (Irda) has stepped in to ensure that nobody is denied cover, particularly existing customers.

COVER POINT
Renewal cannot be denied, but the insurance company can re-price cover
Policies that need renewal only after 15-20 years may be introduced
Risk-based premium to come into play
Clarity on pre-existing diseases
Long-term insurability to be introduced

What insurance companies now do is to take advantage of a loophole in Irda’s rule. Instead of denying renewal benefits, they simply re-price the cover, often at a good 100-200% above the last paid premium. This is bad news for anyone who has made a claim and wants to renew the policy. But it’s worse for the aged. If you are over 50 and have a good, claim-free record, you will expect some benefits for being a low-risk loyal customer.

But, for the insurance firm, you are likely to become a bad risk, since your chances of making a claim increase with age—especially if you haven’t raised a claim this far. This means that the renewal rate will be so exorbitant that you’d rather forego insurance. The good news is that the General Insurance Council, the representative body of general insurance companies, is working on a set of guidelines that will ensure easy renewal of health insurance policies, no matter at what age.

It is expected that health insurance will become a long-term contract, with the company agreeing to insure an individual for 15-20 years before he needs to renew it. There will also be a limit on escalating the premium on renewal after claims are made. This means that insurance firms can no longer increase premiums on a case-to-case basis. If these guidelines do see the light of day, they should be reason enough for policyholders to celebrate, even in ill health.

— Narayan Krishnamurthy

 

MORE JOBS AHEAD

Employers in India are optimistic about hiring prospects in the January-March 2008 quarter, according to the Manpower Employment Outlook Survey. Manpower, a firm listed on the New York Stock Exchange, is a leading player in the employment services industry. The survey results reflect global trends in job creation.

GROWTH IN ANTICIPATED HIRING
Finance, insurance, real estate42
Manufacturing38
Mining and construction49
Public administration/education38
Services45
Transportation and utilities40
Wholesale and retail trade41
Figures are percentage change in Jan-Mar 2008 over Oct-Dec 2007

Of the 5,163 employers surveyed in India, 43% expect an increase in staffing levels, 1% a decrease and 45% anticipate no change, compared to the October-December 2007 quarter. India’s “net employment outlook” (subtracting the percentage anticipating a decrease from the percentage expecting an increase) stands at +42%.

The strongest outlook was seen in sectors like mining and construction sector (+49%), services (+45%), and finance, insurance and real estate (+42%). Hiring intentions were weaker in the manufacturing, and public administration and education sectors (both +38%).

Globally, Argentina, Costa Rica, Hong Kong, India and Peru expect stronger hiring plans while Ireland is the least optimistic.

 

SCORING RIGHT

You’ll have to start keeping score from now on if you want to get a decent interest rate on your loans. Or if you want to move from one lender to another. We are talking of your credit score, soon to become the best indicator of your credit-worthiness.

The Credit Information Bureau India in association with TransUnion (a global player in credit and information management) has formulated a system to assign a credit score to every borrower on the basis of his loan repayment history, outstanding debt, credit limit used and more.

Depending on your credit history, you will be assigned a score of 300 to 900, the higher the better. “The score will predict the likelihood of a customer becoming a defaulter in more than 91 days on one or more lines of credit, including credit cards and loans,” says Cibil chairman S Santhanakrishnan. Individuals won’t have access to it but if they have any doubts about their score, they can approach Cibil.

— Rakesh Rai

RATES UNDER SCANNER

UNFAIR ADVANTAGE
LenderUsual rates (%)Rates during Sept-Oct (%)
HDFC11.2511
ICICI Bank11.5011
SBI11.2510.75
Bank of Baroda11.5011
The interest rates are for loans above Rs 20 lakh for a period of over 20 years

Finally, some good news for home loan takers. The Monopolies and Restrictive Trade Practices Commission (MRTPC) has brought lending institutions under the scanner for wooing new customers with lower rates of interest while forcing existing customers to pay a higher rate.

The MRTPC’s investigation arm has been charged with the task of finding out how banks arrive at different rates for the same product (see table Unfair Advantage). Since the benchmark rate is fixed for every bank, MRTPC has asked banks to explain the anomaly.

The commission has also taken note of the pre-payment penalties imposed by banks on customers who want to switch over to another lender.

— Priya Kapoor

 

TRIAL ROOM

How often have you wondered if the house you are investing in will actually be all that the brochures promise? Now here is a housing complex that allows you to stay on its premises before making a booking.

Ashiana Builders have kept aside one fully furnished room in Ashiana Utsav, Bhiwadi, Rajasthan, a complex exclusively for the retired, where interested parties can experience all that the place has to offer for a week for just Rs 3,500.

 

QUEUING UP

Mutual funds are back in fashion. In the past year, between October 2006 and October 2007, assets under management of mutual funds in India grew 89% to over Rs 5,00,000 crore.

The latest to join the bandwagon is DLF Pramerica Asset Managers, the joint venture between DLF and Prudential Financial of the US. The new company plans to jump into the business with a total investment of $50 million (about Rs 200 crore).

Currently there are 32 AMCs doing business in India, with a growing list of global asset management firms lining up to enter the fray, from Nikko to Goldman Sachs. As many as 16 fund houses are waiting to set up shop in India. For fund investors, it’s going to be well worth the wait.

— Sameer Bhardwaj

 

AND THE WINNER IS...

Talk about experiential learning. In May 2007, MONEY TODAY, in association with eBay India, ran a business challenge contest inviting online business plans with a prize of Rs 1 lakh for the winner.

Frankly, we were overwhelmed by the response that the contest generated—150 respondents buzzing with business ideas, of which about 90 were plans in the format that we had solicited. Though practically everybody dreams of building a successful business these days, ideas and imagination made the contest entries stand out. The participants were serious and clear on how to go about their business plans. The bottom line: the web is fast becoming an important way to start and expand one’s business.

Two final-year undergraduate students at IIT Bombay, Sunmay Shivadekar and Bharat B Mudgal, are the winners of the contest. Their idea: profiling registered web users on concept sites to get better results on personalised search. The concept has the potential to be replicated across verticals. More on that when the duo get their idea patented.

A business plan contest fulfils the first requirement of succeeding in the start-up world—getting validation from the real world if your idea is worthy of being funded. The idea behind the award was to enable the winner to get started with the prize money.

The duo say the mentoring, access to eBay as a partner and the possibility of a hands-on experience are what they are most looking forward to. While not all business plan contest winners end up creating the next big thing, more and more students are building their entrepreneurial IQ through such experiences. The winners of our contest claim it wasn’t just the money that made the contest interesting, but also the amount of professionalism drilled into them when working on their idea.

THINK MOBILE

Here’s good news for those wanting to check their investments on the move. Fidelity Anywhere (http://www.fidelityany-where.co.in/), a mobile-friendly site launched by Fidelity International, provides the latest NAVs of their funds and allows one to request application forms and investor guides.

Even those without GPRS-enabled phones can get the NAVs as SMS. This free service is offered across all telecom operators. In future, one may even be able to transact through this interface.

 

'HOPE' FOR THE AGED

Until recently, security in old age was provided on the basis of reciprocal generosity: parents had children, supported them and educated them. In return, children supported their elderly parents with money, housing and health care. But over the years, that’s changed, and children are no longer as able and willing to support elderly parents.

POLICY SNAPSHOT
Entry age60 years
Sum assuredRs 1-5 lakh
Compulsory cut-off20% of claim amount
TPA serviceAvailable with a Rs 1 lakh limit
Ailments coveredRestricted to 10 listed diseases
Premium rangeRs 4,500-29,000

But there’s hope for the elderly now. Oriental Insurance Company has introduced a new health insurance plan for the aged. The policy, called Hope, covers health ailments under 10 specified heads and what will be reimbursed. So, for an accident related injury, one gets 100% of the claim, whereas for a chronic renal failure the reimbursement is a flat 50% when a claim is raised.

The list of diseases covers most illnesses associated with age. The cover can be for Rs 1-5 lakh and the insured person has to compulsorily bear 20% of the claim amount. So, on a claim of say Rs 10,000, the policyholder bears Rs 2,000 and the rest is paid by the insurer. The insured has the option to increase the cut-off up to 50%, which will accordingly reduce the premium payable.

— Narayan Krishnamurthy

 

WORD'S WORTH

"If I come across an instance of a PSU banker using these rough measures to make a loan recovery, I will sack him the very next day"

— Finance Minister P Chidambaram on banks hiring goons to recover loans

"Till the rupee situation gets better (till upward pressure on the rupee eases), there should be control on what money comes in"

— Rahul Bajaj, chairman, Bajaj Auto, concerned that the rupee has appreciated too fast

"We are only tightening P-note regulations, not banning P-notes"

— M Damodaran, Sebi chairman, explaining that Sebi’s intention is to encourage registration

"In view of the expected high demand, pressure on real estate prices may continue. This can easily generate a bubble"

— Rakesh Mohan, deputy governor, Reserve Bank of India

 

TELLING FIGURES

Numbers speak louder than words. MONEY TODAY highlights some figures that have immediate or long-term personal finance implications.

10% is the average delinquency rate among non-banking finance companies. Spiralling credit losses are forcing most firms to review their retail portfolios

5.1% is the average difference between the interest rate that banks charge on loans and the rate offered on deposits.This is among the highest in the world and is one reason why the cost of borrowing is so high in India

78% is the dependence of lowincome households in India on moneylenders.The interest rates charged by moneylenders range from 18% to 36% per annum, against 10-18% by banks

12% is the advance made by the rupee vis-a-vis the dollar this year. In fact, the rupee has been gaining against 14 of the world’s 17 major currencies

RANDOM NUGGETS OF WISDOM
If women had a cash windfall of $2 million and could only choose one thing to do with the money, this is what they pick:
 Asia (%)North America (%)Europe (%)Middle East and Africa (%)
Pay off debts2.407.83.7
Invest in property (not personal use)19.525.710.411.1
Invest in private company2.42.911.711.1
Invest in stock market2.417.110.414.8
Invest/save in savings products17.117.15.214.8
Add to pension9.81.415.614.8
Others46.425.839.029.6
Source: Economist Intelligence Unit / Barclays Wealth