Tag: insurance

Parliament passes Insurance Bill to hike FDI limit to 74 per cent

Banking & Finance

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Parliament has passed a Bill to raise the Foreign Direct Investment ( FDI) limit in insurance sector to 74 per cent from the current 49 per cent, with the Lok Sabha giving its nod for this legislation on Monday.

Replying to discussions on the Insurance (amendment) Bill 2021 in the Lok Sabha, Finance Minister Nirmala Sitharaman asserted that the FDI limit hike is intended only to strengthen the insurance sector and should not be seen as government selling the family silver.

“By the enhancement in FDI from 49 to 74 per cent, private sector is going to be able to raise resources. We are not talking about the public sector here. Private sector needs to raise money. This will give them window for raising money”, she said.

The Finance Minister highlighted that financial sector (banking, insurance) has been recognised as a “strategic sector” by the government and so the public sector presence will continue.

“It is not right to say this (FDI limit increase) will close down and finish off public sector. Public sector enterprises will continue. The Public sector enterprises policy framed by the government is about right sizing the public sector and unlocking value and investment”, she added.

More resources for private sector

She highlighted that the aspiration of growing India cannot be met if more resources are not made available to private insurers.

“Insurance penetration can be improved only if greater resources are available to insurers. Government alone cannot do it all. We want to cover all Indian population. If we have to do this, then capital must be available and government also has a responsibility to look at the interests of employees working in private sector”, she said.

Sitharaman also asserted that this Bill had nothing to do with Life Insurance Corporation (LIC).

She highlighted that the number of persons working in the private sector stood at 24 lakh (both employees and agents), which is about seven lakh more than 17 lakh in public sector (employees and agents) insurers.

Sitharaman also assured the Lower House that adequate safeguards are in-built in the Bill so as to ensure that Indian policyholders’ funds remained within the country. Even one portion of the profits will have to be kept in India, she added.

Insurance penetration

She said insurance penetration rose to higher levels after 2015, when the FDI limit was earlier raised from 26 to 49 per cent. However, during 2011-14, in the absence of required resources, Indian penetration dropped from 4.1 to 3.3 per cent. “It (insurance penetration) actually comes down when enough liquidity is not available. So we have to open up. Insurance penetration is ratio between Premium and GDP. It can only increase when insurance sector grows at faster rate than GDP growth itself. During 2015-20, it grew at 74 per cent when GDP grew overall 64 per cent. This rapidity in growth has made a difference to insurance sector”, she added.

Sitharaman also noted that BJP had to oppose FDI hike in insurance sector in 2008-09 as no such safeguards — which are now being introduced in the latest Bill — were in that Bill.

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‘Current financial year turning out to be much better in terms of overall investment returns’

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The current fiscal is turning out to be much better than what was expected at the beginning of the year in terms of overall investment returns, believes Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance, adding that bond yields seem to have bottomed out and equity markets have recovered. In an interview with BusinessLine, he said it seems that bond yields have bottomed out. Excerpts:

How is the company doing in terms of investments?

The current financial year is turning out to be much better than what we had expected at the beginning of the year in terms of overall investment returns. The equity markets have recovered very well on the back of strong global liquidity and fiscal stimulus. Most of the economic indicators have started recovering and have come back to almost pre-Covid levels. Corporate earnings growth has also been better than expected. Even the fears of the second wave of Covid are addressed with the launch of vaccination drive globally, which has helped boost market sentiment and risk appetite. So, equity ULIP funds have also registered robust performance over the past year.

Are their concerns over returns, given the volatility in bond yields?

Bond yields have been on a declining trend over the past few years, giving scope for healthy capital gains in debt funds. The fall in yields has been sharp amid the Covid-19 pandemic, helping to boost returns for debt funds. However, this year, we have seen a significant rise in global and domestic bond yields due to rise in prices of commodities and stronger-than-expected revival in economic growth. We feel that rise in bond yields can lead to some volatility in equity markets.

Domestically, in India, we have significant fiscal expansion in 2020-21 and 2021-22. Therefore, it seems that bond yields have bottomed out, and the RBI is at the end of its rate cut cycle. From a fixed income perspective, we are presently positive on the shorter to medium term part of the yield curve.

How do you perceive the government’s borrowing programme for FY22?

The equity markets cheered the Budget. However, the bond markets have reacted negatively. Bond yields rose post Budget due to concerns of demand-supply mismatch on account of the large government borrowing. However, the RBI has reiterated its commitment to ensure availability of ample liquidity to support the nascent economic recovery and manage the high government borrowing program in an orderly and non-disruptive manner, which provides some comfort.

How are insurers managing investments amid the current demand for protection products?

Due to the market volatility and Covid-19 pandemic, we have seen a significant rise in demand for non-par savings or guaranteed return products and term plan products. Insurance companies have been using various instruments, including forward rate agreements, to hedge interest rate risk.

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How your motor insurance comes handy in case of breakdown

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Two neighbours’ daily routine of watering plants leads to an interesting conversation.

Sindu: Hey, you missed the event on plant protection. It was so informative. There are so many simple hacks to grow plants.

Bindu: Oh! I so wanted to come but my car broke down and my entire morning went away in getting someone to bring a mechanic.

Sindu: What? You could have asked your insurer for RSA? Or didn’t you opt for the rider?

Bindu: I don’t even know what RSA is, to start with. So, how do I say whether I have opted for such rider?

Sindu: RSA stands for roadside assistance. It can be of great help, in the event of a breakdown of your car, like it happened yesterday, or in case of an accident. All you need to do is to call your insurer company and inform them about the problem and your location. They either offer help over the phone or send a representative (mechanic) to your location

Bindu: What if the problem isn’t resolved?

Sindu: Then, your insurer/mechanic will arrange for the car to be towed away to a nearby garage for repair. Also, as part of the RSA cover, some insurance companies arrange for your accommodation till the issue with your vehicle is resolved. Alternatively, you can avail of a taxi service to office/house. This facility is, however, provided to only one destination.

Bindu: This is great news! What are all the services that RSA covers?

Sindu: The list of services varies across insurers. But broadly the RSA should provide coverage for mechanical/electrical breakdown, towing the car, fuel delivery (you will have to bear the fuel charges though), flat tyre, minor repair services, spare keys for your car, accommodation, travel/taxi arrangement and cost of legal advisor.

Bindu: Good. If I had known about this, it could have saved me lot of trouble.

Sindu: Hold there. RSA is mostly offered as an add-on cover with your motor insurance. That means, you will have to pay additional premium to avail this rider. So unless you opted for this cover specifically, your policy will not cover you.

Bindu: Killjoy. Oh well, I wouldn’t mind it, if it comes to my rescue during an emergency.

Sindu: True. But think through a few points carefully, before you buy the rider. One, older your car, the higher will be the chances of mechanical problems. So, many insurers will not be willing to offer this cover for such cars. Two, if you use your vehicle to travel long distances frequently, it is advisable to opt for this cover. But some dealers offer RSA for new vehicles too. So, you can go for RSA with an insurer after the expiry of dealers’ services contract.

Bindu: Okay… is there any limit to the number of times I can avail this service?

Sindu: Yes, but Insurers cap the number of times, limit but the cap varies with each insurer. For instance, ICICI Lombard offers RSA for maximum of four claims.

Bindu: So, now that you have told me the positives, what are the exclusions?

Sindu: The general exclusions that apply on your motor cover, apply to this too. But specifically with respect to this rider, you shouldn’t use the vehicle for any illegal activities like motorsports. Your driving should be as per rules and regulations and the insurer should be informed about the breakdown or RSA requirement immediately. If you get repair work done without the insurer’s approval, you claim could get rejected.

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Ettutharayil Group acquires Delhi-based NBFC BKP Commercial India

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Ettutharayil group, the Kayakulam-based financial services firm providing business loans for the past two decades, has acquired New Delhi-based non-banking financial company BKP Commercial India.

With the acquisition, the group which currently operates in savings, insurance and investment sectors, will branch out into vehicle loans and various other secured loans, including loans against property and gold loans.

Priya Anu, Managing Director, BKP Commercial, said in a statement that the company would open new branches within and outside Kerala. At present, Ettutharayil has 14 branches in Kerala, while BKP will open 15 more branches in 2021. Of these, five branches are expected to be functional within three months.

The company’s first branch in Kerala was inaugurated by Kochi Mayor M Anilkumar. BKP Commercial targets to disburse loans worth around ₹60-70 crore in 2021-22.

Anu said that BKP would focus on technology-based loan instruments catering to customer requirements. Given the sluggish market conditions prevailing in the Covid-19 pandemic situation, BKP has launched doorstep gold loans for senior citizens and working women. Another product launched is online gold loan that provides customers the safety of keeping their unused gold ornaments in BKP’s lockers with insurance cover and avail loans as and when required for up to 75 per cent LTV.

BKP has also launched Salary Bridge Loan in association with employers having 10 or more employees. The Digi Passbook Business Loan targets small and medium traders offering short-term loans for business purposes based on the volume of their digital transactions.

She added that the company has recently concluded a rights issue and is currently raising part of their fund requirements through an NCD issue.

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CashRich acquires WealthApp’s mutual fund distribution biz

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Wealth-tech firm CashRich has acquired WealthApp’s mutual fund distribution business in an all-cash deal for which it raised funding from three UK-based investors. The financial terms of the deal were not disclosed.

This deal is expected to strengthen CashRich’s position as a prominent investment app in India. Following the acquisition, CashRich’s user base will double to about two lakh, the company said in a statement.

“We are continuously improving our technology to help our users build and preserve their long-term wealth. The fintech ecosystem in India is thriving because of the collaborative efforts of several stakeholders,” Sougata Basu, Founder at CashRich, said.

CashRich is an app where individuals can invest in mutual funds and buy insurance products easily.

“Our mission at CashRich is to revolutionise the investment experience through top-notch technology and personalised investor care. We are exploring more such partnerships with other mutual fund distributors,” said Hiren Dharamshi, Managing Director at CashRich.

CashRich is planning to expand into other financial products and increase distribution via partnerships.

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Post Covid insurance landscape: When life insurers pivot to guaranteed income products

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In the post Covid-19 world, life insurers are now looking to ride on changed consumer preference to guaranteed income products. They have now realised that the masses, especially in interior India, have turned risk averse and want to be shielded from market and interest rate volatility, thereby favouring products that assure guaranteed income, according to industry players.

For instance, Canara HSBC Oriental Bank of Commerce Life Insurance, whose new business from guaranteed products for FY 19-20 and April-December 2020 stood at healthy 35 per cent for both years, has recently rolled out its fifth guaranteed product, Guaranteed Income4Life.

It is a non-linked, non-par individual life insurance savings-cum-protection plan which not only offers an individual the opportunity to secure his/her life but also allows one to have regular income to take care of both long-term and short-term financial goals, said Akshay Dhand, Appointed Actuary, Canara HSBC Oriental Bank of Commerce Life Insurance.

“Guaranteed Income4Life has been specially designed to offer life insurance coverage and benefits of a savings product under one umbrella. Over the last few years, customers have favoured guaranteed products. As insurers expand to tier-2 and tier-3 cities, there is a movement to guaranteed products and therefore insurers are now moving to such products,” Dhand said.

For life insurers, providing guaranteed products is the most risky one and despite this they are ready to manage this risk and offer these products to customers, he said.

Most of the earlier variants of guaranteed products that Canara HSBC Oriental Bank of Commerce Life Insurance were giving lump sum benefits (endowment or annual income). “Our latest Guaranteed Income4Life focusses on income benefit much more and allows you to take income for short term, medium term or even life long. So the key pitch is this is typical income product where you can get income up to 99 years. The product has lot of flexibility too,” he said.

Sameer Joshi, Chief Agency Officer, Bajaj Allianz Life Insurance Council Co Ltd, said: “Guaranteed income products from life insurance companies bring in a financial certainty in terms of returns as they are not dependent on market movements. They are suitable for risk-averse individuals who are looking for a guaranteed fixed rate of return throughout their investment tenure, irrespective of pandemics like Covid-19 or volatility in markets. With these products, individuals can receive a fixed and assured regular income to continue with the same lifestyle. At the same time, they can also provide a back-up for their family’s life goals through the life insurance cover available under the plan.”

Casparus Kromhout, MD & CEO, Shriram Life Insurance, said: “Non-linked non-par individual life insurance plans have the dual benefit of life cover combined with savings. These traditional endowment plans provide a guaranteed return to the customer at the end of the policy term; thus making them well suited for risk-free financial planning for specific future goals. The combined life cover further helps secure the savings for the family. Thus, these plans have a good uptake especially amongst customers who prefer to be risk averse.”

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LIC to sell stake in IDBI Bank to ease process of disinvestment

Banking & Finance

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Life Insurance Corporation of India (LIC) has agreed to shed its shareholding in IDBI Bank, a move which will give a boost to the government to completely exit from the IDBI Bank and also ease the process of its strategic disinvestment.

However, it is for LIC to decide on the quantum of stake it would like to part with to aid this process.

As on December 30, 2020, LIC holds 49.24 per cent of stake in LIC while 45.48 per cent is with the Central Government.

A senior official told BusinessLine that LIC is ready to sell shares. The government intends to complete the process in FY21-22. Keeping that in mind, amendments have been proposed in the Finance Bill 2021. The Finance Bill will be taken up for consideration and passage during second leg of the Budget Session, starting Monday.

LIC was brought in when IDBI Bank was in trouble, but now the government thinks that phase is over. Accordingly, they now want LIC to offload its holding. Initially, LIC was hesitant, as it believed that the government had to ask the insurance major to sell stakes.

Special relaxation

Clauses 152, 153, of the Finance Bill seek to amend the Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003. Once amendments are approved, The Industrial Development Bank of India Limited shall be deemed to have obtained a (Banking) license under Section 22 of Banking Regulation Act, which will be a condition precedent to disinvestment of government’s stake in the Bank resulting in receipts to government.

In an interview to BusinessLine, Financial Services Secretary Debashish Panda had said, “as a board-run organisation, LIC has its own principles to decide about investment and sale. Whatever they do, they will do it in the interest of policy holders. So, when they are going to off load their stake, it is in their realm … I think LIC would also sense that while government is also disinvesting, it also has a mandate from the insurance regulator to bring down its holding in IDBI Bank to 15 per cent over a period of time. Now, if the government is disinvesting, this means a sizeable, strategic chunk will be available to a potential investor. It could be an attractive proposition and may fetch a better price.”

LIC taking over IDBI was made possible on account of special relaxation provided by the insurance regulator, The Insurance Regulatory and Development Authority of India (IRDAI). The regulations restrict insurer’s holding at 15 per cent stake in a single firm. Also, an insurer cannot have ownership in any non-insurance company. The Reserve Bank of India does not allow non-banking entities to have more than 10 per cent stake in a bank.

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SBI General Insurance, IOB sign bancassurance pact

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SBI General Insurance and Indian Overseas Bank have signed a bancassurance agreement for distribution of non-life offerings.

“Through the alliance, SBI General will offer a range of general insurance solutions and innovative products to IOB customers,” said a statement on Monday.

“IOB’s extensive reach in Tamil Nadu region will help in wide distribution of products to customers in the region…The partnership will improve penetration in urban, Tier II, and Tier III markets and will also help create awareness about personal lines of insurance,” said PC Kandpal, Managing Director and CEO, SBI General Insurance.

IOB operates from Chennai with over 3,200 branches across the country.

“This tie-up will help expand our bouquet of Insurance product to our consumers,” said Partha Pratim Sengupta, Managing Director and CEO, Indian Overseas Bank.

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Insurance is the most preferred financial product to protect family post-Covid: Survey

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Insurance has become the most-preferred financial product to protect the family against health emergencies post the Covid-19 pandemic with more people inclined to invest in insurance products in the next six months, according to a survey from Tata AIA Life Insurance.

According to a consumer confidence survey on the impact of Covid-19 commissioned by research agency Nielsen, life insurance turned out to be the most preferred financial tool driven by the need to secure family’s future financially and the concern around medical emergencies.

 

The survey also found that most consumers would like to buy life insurance in the next six months as part of their investment plans.

The survey conducted on 1,369 respondents across nine centres revealed that during the pandemic, 51 per cent of the respondents invested in life insurance, while 48 per cent invested in health-related insurance solutions, which is higher than other financial asset classes.

More than half of the respondents said their views towards life insurance have changed positively due to the pandemic and 49 per cent want to invest in buying a life cover in the next six months and 40 per cent intends to invest in health insurance.

The survey said 30 per cent of the people invested in life insurance for the first time during the pandemic, while 26 per cent invested in health-related insurance solutions for the first time.

Financial security against medical emergencies and expenses has become the topmost priority, with as many as 62 per cent mentioning about it and a majority of 84 per cent saying they are still concerned about self and family due to coronavirus. 61 per cent were worried about themselves/family and their top concern is the economic slowdown.

“Of the respondents concerned about self and family, 50 per cent are worried about mental health due to increased workload due to Covid-19 pandemic. Among female respondents, 55 per cent said they are concerned about the mental health due to the increased workload during the pandemic.

“41 per cent people are buying financial products online more often than before Covid-19 pandemic,” the survey said.

Among the other asset classes, one-third of the respondents said they invested in bank or company fixed deposits, and 30 per cent invested in mutual funds, while 24 per cent invested in stocks, 17 per cent invested in gold/digital gold.

“Life insurance has clearly emerged as the preferred financial asset as per our Covid sentiment study. There is a distinct shift towards considering life insurance as the primary source of future financial protection, followed by health and wellness solutions.

“The survey findings have helped capture and unravel the transition in customer usage and attitude towards life insurance,” said Venky Iyer, CDO and Head marketing, Tata AIA Life Insurance.

The survey reveals that with changing money needs and priorities, consumers’ monthly allocation towards insurance, savings and investment, has increased. With less discretionary spends and more focus towards essentials spending, consumers are motivated to save, and invest more in life insurance than they were pre-Covid, he observed.

Tata AIA Life said the motive behind doing the survey was to get a comprehensive understanding about consumers’ usage and attitude pre and post Covid-19 pandemic towards financial instruments and type of life insurance policies.

The survey was conducted on salaried, business and self-employed male and female in the age-group of 25-55 years through computer-aided web interview.

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Insurers have paid ₹7,500 crore so far towards Covid claims

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General and health insurers have so far paid Covid-19-related claims worth ₹7,500 crore. There has been a slowdown in the demand for corona-specific cover these days while at the same time the health insurance segment is also witnessing a greater demand for regular health insurance, according to industry experts.

“The industry saw high demand for corona-specific policies in September-November period but now people are looking beyond Covid cover,” Sanjay Datta, Chief-Underwriting, Claims and Reinsurance, ICICI Lombard GIC, told BusinessLine.

In June last year, the Insurance Regulatory and Development Authority (IRDAI) had asked general and health insurers to offer a standard corona cover policy, Corona Kavach, with the sum assured ranging from ₹50,000 to ₹5 lakh. The policy period is from three-and-a-half months to nine-and-a-half months.

Citing industry estimates, Datta said the total claims that have been paid so far on account of corona cover policies were to the tune of ₹7,500 crore. “For this financial year, it could be ₹8,000-9,000 crore out of which ₹7,500 crore has already been paid,” he said.

While the corona-specific policies were short-term policies, they had created a greater awareness on the need for long-term and regular health insurance, Datta said, adding: “Overall, they have created large-scale awareness among general public.”

Prasun Sikdar, MD and CEO, Manipal Cigna Health Insurance Company Ltd, said given the gravity of the Covid pandemic and the panic surrounding it, more than ever before, people are now concerned about their health and that of their families.

“In the hierarchy of needs, health today has claimed primary position and the role of insurance has moved from priority to necessity,” he said.

Post the pandemic, the conversation on insurance has finally changed from “do I need health insurance” to “how much do I need”, Sikdar observed.

Profit or loss?

What will be the final impact of corona on the bottom line of insurers? It may take more time to answer this question.

According to the CEO of a major non-life insurance company, an understanding of the net impact of Covid on the business of general insurers may differ from company to company.

“As of now, we can say that health insurance business has certainly got a boost and it has overtaken motor segment. But the real picture will only come out with full-year numbers,” he added.

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