Insure the fit

It is the age of customisation. Slowdown or not, you want everything tailored to your needs. Investment products have followed this lead for some time and to great investor response (if you overlook the current period of turmoil). It is now the turn of insurers to be allowed to do the same. From 1 January 2009, insurance companies will be able to structure general insurance polices according to what they want. To be able to sell their policies, the insurers want what the customers want. Of course, they will still have to pass the Insurance Regulatory and Development Authority’s (Irda) clearance. But the regulations are set to be far more lenient, giving the insurers much freedom, including that of wording the policy documents on their own. The move will breathe life into the Rs 28,000-crore general insurance business.

For policyholders, this means they will not have to pay for bundled products that they don’t want. The biggest change will be in the way that car, health, house insurance, etc, are priced. New insurance products, which are simpler yet more effective in countering risks, should hit the market next year. The long-term effect for policyholders is also positive. They will have more choices and better say in deciding the policy premiums, customer service and handling claims.

This is the last stage of deregulating the insurance industry. The process started in January 2006 when Irda allowed the insurers to charge their own premiums for non-life policies. Now, the companies can create customised policies. For instance, the insurers will decide your car insurance premium based on factors like the driver’s age and the driving record, the kind of vehicle that is being insured, the period for which it has been used, and so on.

The freedom to word a policy will also make the business brokerdriven. Brokers will play an important role in product development and design. So if research indicates that a certain model in red is usually bought by youngsters who drive fast, the premium on such cars may be higher than for the same car in a different colour.

Product differentiation will also offer considerable scope for insurers to introduce innovative products and value-added features. As each company pursues a different business philosophy, the premiums they offer will also differ, depending on the stage of the insurer’s business, their product mix and reinsurance arrangements.

But do not assume that detariffing automatically means discounts on the existing premium rates. The amount you will have to pay for the customised covers will only be known once the products come out in the market. What you can be sure of is that your specific needs will be met. So, if you are a software professional who spends many hours hunched in front of a computer, you should be able to find a policy that covers the health risks you face: carpal tunnel syndrome, vision impairment and spinal disorders. As you can see, the possibilities of such customisation are limitless.

— Narayan Krishnamurthy

“MINDSET MUST ALTER” Dr. Tobias Farny Re-insurers play a crucial role in protecting insurers. Dr. Tobias Farny, senior executive, Indian sub-continent, of the Munich Re Group, one of the world’s largest re-insurers, talks about the India-specific trends. In the first impact of freedom in wording of insurance policies. Tobias Farny: Insurers operate with different business models, so the price fall will depend on the way they practice risk management. In my experience, price reduction is the first tangible impact, but it must not be at the cost of weak covers. Of course, there will be a certain uniqueness to the products that will come into the market. On the kinds of unique products that should hit the market. Tobias Farny: Retail insurance will now come into focus. This will usher in products that cater to individual needs. They may be in health insurance, motor insurance or in personal accident insurance. But for this to take off, the consumer mindset must change. Most people look at insurance as a way to pay for financial losses. But an important aspect that can reduce the premium is prevention of loss. This should be crucial in an open-market scenario. On the factors to consider before buying a policy. Tobias Farny: Consider the scope of the cover, the premium you pay and the service standard promised by the insurer. Check with the existing policyholders for their experience. Finally, compare the prices across a few insurers.

 

Profit in mismatch

Peak interest rates for existing borrowers
ABN Amro	13%
ICICI Bank	13.5%
HDFC	12.75%
* Tenure: 15-20 years
Lowest interest rates for new customers
Central Bank of India	9%
Indian Bank	9.5%
Punjab National Bank	9.5%
Union Bank of India	9.75%
* Tenure: 5 years for loans below Rs 20 lakh

Are high home loan EMIs stretching your budget? Chances are that you have taken a loan from a private bank and not from the PSU ones which have already reduced the interest rates. This is a oneof-its-kind mis-step among banks who are known to cut/raise interest rates in tandem. But don’t fret if your bank has a high loan rate. Switch to another bank even if it means paying a pre-payment penalty. This is because the interest rate difference between banks is as high as 4% in some cases.

For example, ICICI Bank charges 13.5% from its existing customers who have taken a loan on a floating rate. On the other hand, Indian Bank is offering a minimum interest of 9.5% to its new customers. “If the difference between old and new rates is more than 2.5%, the borrowers can shift banks,” says Harsh Roongta of Apnaloan. PSU banks are giving both the options to customers—to reduce the EMI or the tenure at the same EMI.

“Most new customers are opting for a reduced tenure with some even settling for a higher EMI,” says the managing director of a PSU bank. Experts advise the borrowers with an outstanding loan of Rs 20 lakh to prepay some amount to the bank before transferring their loan account. This is because the loans below Rs 20 lakh get an additional benefit of 0.55% on interest rates.