Tightening the screws

India’s insurance regulator now appears to be following the corporate sector’s credo—tough times are the right time to take difficult decisions.

India’s insurance regulator now appears to be following the corporate sector’s credo—tough times are the right time to take difficult decisions. Unlike the usual warning on mis-selling by agents, this time the Insurance Regulatory and Development Authority (Irda) is also pulling up the insurers who are avoiding issues related to mandatory disclosures.

In order to provide greater transparency and enable policyholders to take more informed decisions, the regulator has asked insurance companies to disclose solvency margins, claim settlement records and loss ratios on a quarterly basis.

Irda cracks the whip...
...on insurers
• Insurance companies to disclose solvency margins, claim settlement records and loss ratios on a quarterly basis.
• Insurers may be required to share Ulip details with investors.
• Premium above Rs 50,000 not to be paid in cash.

...on agents

• Agents may be penalised if life insurance policies are not renewed. Commissions may be retracted from agents and credited to the policyholder’s account.

“Claim settlement will give an idea about the number of claims settled by the insurer, indicating the strength of the company he or she is dealing with,” says R. Kannan, member (actuary), Irda. This will also give the picture of an insurer’s underwriting capacity. The Irda is also drawing up plans to strictly monitor the insurers’ expenses and premiums charged for group and guaranteed return policies.

“We are contemplating asking the insurers to get all the payments made to a company over a threshold limit certified by an external auditor,” adds Kannan. The certificate should also specify the kind of services insurers receive from intermediaries for the payment they make.

The need for such stringent declaration is because the business is commission-driven. Increasing competition is forcing several insurers to make innovative accounting procedures, such as paying huge sums to corporate agents and bancassurance partners (banks that sell insurance policies). Many insurers pay banks and corporate agents a handsome joining premium too. Irda expects the expense certification process to check the loopholes that the insurers have thrived on.

The flurry of capital guaranteed products by insurers is yet another area where the regulator is taking steps to check on the capital adequacy ratios. Market experts agree that promoting such capital-intensive policies, where companies have to provide higher sums for solvency, is a bad business practice and could have disastrous consequences. For instance, imagine a situation where the stock market indices go up and then crash, the way they did a year ago. Capital guarantee will be invoked and can be tough on companies that have not provided for such swings in the market.

For agent distributors, the regulator is finally talking of steps that will impact the commission for agents who don’t service clients any longer, that is the agents who make a sale and vanish. In such cases, if a policyholder complains, the insurer assigns a new agent. However, Irda is looking at ways to do away with the agent’s subsequent commissions with the aim of checking the indiscriminate sale of policies.

The case for policy renewal is also an issue on which details have been sought from insurers as they tend to report new premium income with few details on the renewal premium income. This is important to understand policy delinquency: when moving from one insurer to another, or at the time of a new product launch, agents advise policyholders to move to new plans.

Such moves will be scrutinised and agents punished if found guilty. The issue of mis-selling of policies is a crisis that points to shortcomings in the system. Irda promises to come up with a solution for this problem by trying to put in place a grievance redressal mechanism for policyholders. All these measures are likely to find their way to the insurance bill to be tabled later this year. Until then, Irda will retain its watchdog status.

— By Narayan Krishnamurthy Spoilt for Choice
Monthly cell phone bills could fall, the Internet speed on broadband may improve and you could cherry-pick the channels on TV, if you were to go by the recent Trai and Supreme Court rulings.

Faced with complaints of poor quality broadband, Trai has asked the Internet service providers to ensure that the bandwidth is not congested—not more than 50 users per unit of the Internet bandwidth for home connections and 30 per unit for business users. However, the Internet Service Providers Association of India, which represents standalone ISPs, has said that fixing a contention ratio would place them at a disadvantage.

Through another directive, Trai has slashed termination charges—paid by one operator to another on whose network the call ends—by 33%. Besides, an apex court ruling has said that users of cable and conditional access system will now be able to pick their channels without having to accept bouquets as a whole.

— By Rakesh Rai

 Word’s Worth
“The global economy is on track for the worst recession since the 1930s, with the output likely to shrink by 1-2 per cent this year.”
— Robert Zoellick, President, World Bank

“Gold and equity make for good investment portfolio as historical evidence suggests that the prices of both these never fall simultaneously.”
— R. Raja, Head, Products, UTI MF

“The inflow in mutual fund industry is showing signs of improvement. For a couple of months now, the industry AUM has gone up by 7-8%.”
— A.P. Kurian, Chairman, Amfi

“Continued deleveraging by world financial institutions is depressing domestic demand across the world.”
— Dominique Strauss-Kahn, MD, IMF

Source: Reuters, The Economic Times, Financial Chronicle

Blue Lagoon

Blue-chip stocks have always had an edge even when the markets have traded low. Now, some of them could also be your ticket to a dream vacation—you can benefit by trading your shares (at a 10 per cent premium on the share price on the day of signing the deal) for holiday packages. Mumbai-based Lifestyle Holidays has introduced an Equity Scheme that offers holiday packages in exchange for equity shares.

“We have selected 72 key companies, whose shares we will buy from people who wish to sell them, and in return, we shall offer a holiday package. It’s the first time that any company has come up with such an idea,” said Nikhil Dalal, director, Lifestyle Holidays.

So far, Lifestyle has received confirmation from nearly 16 people. In case you do not have enough shares to trade for a vacation, the company provides the option of part-financing the holiday with cash.

The 72 A-group companies selected for the offer include Aban Offshore, Axis Bank, Asian Paints, Bombay Dyeing, Bharat Petroleum Corporation, Colgate-Palmolive, HDFC Bank, Hero Honda Motors, HUL, Indian Hotels, Infosys Technologies, Jet Airways, Reliance Industries, Reliance Capital, Tata Motors, Tata Consultancy Services and Wipro, among others. The brokerage fee, stamp duty and service tax will be applicable and the procedure for transferring the shares is likely to take nearly two days.

— By Rakesh Rai
House Rules

Housing Index
- Based on newly built residential units in cities.
- To factor in availability of housing stock.
- Reflect increase in property prices across cities.
- To be compiled quarterly.

Have real estate prices come down in your city? If you have always looked for indicators to answer this question, there is help at hand. The Reserve Bank of India has decided to come up with a housing start-up (HSU) index, which will reflect the availability of housing stocks and real estate prices across the country.

The HSU aims to measure the changes in activity levels in the housing sector and identify growth and recessionary tendencies. “At present, the government is not aware of what is really happening in the housing sector,” says Sunil Jindal, CEO, SVP Builders.

While individual buyers will be able to get an estimate of the demand and price movements, the housing finance industry can use the index to assess likely demand. It will also provide data across variables like owners’ income level, occupational and social groups and sources of finance.

Ministry sources said that it was premature to assume how such data would be collated as there was a lot of illegal construction. Still, the index is poised to become an important indicator to monitor the housing sector.

— By Rakesh Rai

Plan Potential
If you are looking for a cheap, plain vanilla term cover or a guranteed return Ulip, try the options from Aviva and SBI Life

LifeShield Plus Stats
Entry age: 18–55 years
Maturity age: 28–65 years
Premium payment: Single premium or a regular premium
Policy tenure: 10–30 years
Sum assured: Minimum of Rs 10 lakh

Pure Protection
Are you looking to buy a pure protection insurance plan with no return on investment? LifeShield Plus from Aviva promises to be the cheapest term insurance plan in its category. After Young Scholar, Aviva’s new insurance product is not only reasonably priced, but also offers the option to add two riders that increase the scope and span of the cover (dreaded disease rider and accident death benefit rider).

“This is a simple, low-cost term insurance plan to meet the customer’s need for protection,” says Aviva Life Insurance India CEO and managing director T.R. Ramachandran.

Though term life policies offer the least costly insurance cover, they also come with limitations. For instance, policies such as these don’t cover the risk to your life beyond the policy tenure. However, as they are simple, they can be easily compared on the basis of price. This has led to a very competitive market in which term life policies are rapidly becoming a commodity. For instance, a 35-year-old buyer looking for a Rs 10-lakh cover for a 25-year tenure will pay as less as Rs 2,680 annually.

There is also a rebate on premiums if the sum assured is above Rs 25 lakh, with women paying a lower premium compared with men for the same amount of cover and tenure.

SBI Life Stats
Entry age: 8-60 years
Maturity age:
Maximum 70 years
Premium payment: 3 or 5 years
Minimum annual premium: Rs 50,000
Fund option: Flexi protect and money market fund
Partial withdrawal: From 6th yea

Assured Return
Guaranteed products in insurance plans are the flavour of the season, the latest being SBI Life insurance plan. Its highlight: maturity value based on guaranteed highest NAV. Says SBI Life managing director and CEO U.S. Roy: “The security of a guaranteed NAV with a short term of premium payment will help the customer.”

Though traditionally Ulip plans do not offer guaranteed returns, this plan is different because of the feature guaranteeing maturity benefit based on highest NAV of 168 fortnights during the first seven years or NAV at maturity. This means that if the NAV is down at maturity because of market conditions, the policyholder enjoys the higher NAV that the Ulip fund may have earned during the first seven years.

With a minimum Rs 50,000 annual premium payment, the policy is worth considering. As far as fund investment is concerned, the plan works with flexi protect fund and money market fund. In case of death of the insured during the policy term, the nominee receives the higher of the fund value or the sum assured.

— By Narayan KrishnamurthyBank on Cell

With feature-powered mobile phones being the norm, it is natural for service providers to offer facilities that can be pulled by the subscribers and pushed by service providers. Taking a cue from this, Citibank has launched Citi Mobile, its mobile banking solution that offers on-the-go banking. With this facility, customers can check their account balances, transfer money, issue drafts, pay bills, make credit card payments, register for services like e-statements, request for a cheque book, stop payments, and much more.

To get started, one needs to download the application on the phone. Besides this, one requires a Citibank Banking/Credit Card account, an active Internet PIN, a mobile number that is registered with the bank and a Java-enabled mobile phone with a GPRS connection. With this move, customers will be able to bank as fast and effortlessly as they do on the Net.

— By Narayan Krishnamurthy

All in the Family

Advantages of a family business
Internal support was regarded as the most important aspect of a family-run set-up.
Family support network
Family values & ethos 
Ability to think long term
Ability to take quick decisions 
Local community support 
Focus on future generations 
High level of staff loyalty 

Family businesses in India are often equated with poor corporate governance. However, Family Business: In Safe Hands?, a new report by Barclays Wealth, says that the family business model, with its mix of stability and agility, gives businesses the edge to better endure an economic downturn because it allows a long-term strategic view.

Around 90% of the respondents from family-run businesses—of the total 2,229 surveyed from both family-run and non-family businesses— based in India and overseas said that they had no plans to sell or exit their businesses; 67% considered ensuring financial security for dependants an important motivation to create a business.

“These findings reflect strong family values among Asians, especially Indians, who perceive their businesses as assets to be passed down to the next generation, rather than just a source of personal wealth,” says Satya Bansal, chief executive, Barclays India.

Family business members placed generating regular income (64% responding as important or very important) among the highest of priorities, while only 53 per cent of non-family business members held this view, which suggests shorter-term priorities.

“Familyowned businesses are the cornerstone of the global economy, and while common perceptions of the model are that of dysfunction plagued with structural issues, it remains a stalwart model,” says the report.

— By Rakesh Rai