Tag: life insurance

How ‘Human Life Value’ is calculated

Personal Finance

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Balaji is buying his first life insurance policy and comes across the term, ‘human life value’ while doing online search. He approaches his colleague, Vishwa who just purchased a life insurance policy to understand what the term means.

Balaji: Hey Vishwa, can you pull up your chair and help me with this term, ‘human life value’ or HLV and why it matters in insurance.

Vishwa: Yes sure. I was also boggled by the term, initially. But far from being a concept in high art, it is a widely applied tool in the drab field of life insurance. See, in the same way that you insure your car or home only to the extent of its value, HLV is a metric that estimates the value of the asset to be insured – in this case the value of your life, in economic terms. This is done to estimate the economic value needed as a replacement to ensure that your family is able to sustain its current standard of living, even after you pass away.

Balaji: So, it is about objectively valuing my income to replace it if the need arises?

Vishwa: Close, but accurately stated many more factors go into the approximation. Income-based estimation for instance, uses your occupation, age, benefits and income to arrive at your earnings potential from which your expenses are netted. These are then combined with your net worth which include financial assets, again net of liabilities. You can also compare it with output of the needs-based approach, where you simply estimate the funds that will be required to meet your needs and goals.

Balaji: With so many moving parts, estimating the right amount needed seems difficult.

Vishwa: It is not about a correct number, but about addressing all your assets, liabilities and net earnings and in estimating an amount which can economically replace it. Also, these are not stationary factors. As one moves along in life, all the factors, personal and macro-economic, too will change. So more often that not, a person would be required to increase the estimate later and hence increase the amount covered in life insurance. For instance, once an earning member takes a loan for a property purchase, his liabilities will increase significantly which will need to be covered with an additional life cover.

Balaji: Wouldn’t it be beneficial to just buy a cover high enough that addresses all needs and not be bothered about specifics?

Vishwa: If you can spare the extra premium amount, sure go for it. But if you ask me, I would rather pay a premium for a sum assured, that is most relevant to my current situation and not purchase a policy which is beyond my means for a sum assured that is way above my current life style.

Balaji: Ahh yes, no free lunch I suppose, always a catch. So how exactly did you go about estimating the HLA when buying your insurance?

Vishwa: I did indeed rely on ready-to-use interfaces that most life insurance portals now have. But since I know the mechanism of the calculations and the purpose of the estimation, I weighed my inputs accordingly. My wife’s parents have kept aside a fund for my kids’ education, so I was able to adjust for those obligations. This little piece of information lowered my sum assured and hence my yearly premium amount.

Balaji: Well, part of becoming an adult is to quantify your actions for better planning and control.

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Tata AIA Life Insurance bets on 40% growth over next 3 years

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Tata AIA Life Insurance expects a 30-40 per cent growth in business over the next three years backed by a strong push to protection and pension plans, ramping up of distribution network and with renewed emphasis on branding.

According to Naveen Tahilyani, MD and Chief Executive Officer, Tata AIA Life Insurance, pension as a category is currently a small part of their total portfolio. But the company plans to launch new products starting this month to tap into the potential growth in the segment.

The company will also continue its focus on protection plans, which currently accounts for nearly 25 per cent of its product mix.

“We grew by nearly 30 per cent in H1 and in Q2 of this fiscal. Our growth has been close to 40 per cent. We have had strong numbers in November. We are hopeful of 30-40 per cent growth over the next three years,” Tahilyani told BusinessLine.

In FY21, the total premium income grew by 34 per cent to ₹11,105 crore, compared with ₹8,308 crore in FY-20. The total renewal premium income also witnessed a 37 per cent growth at ₹6,961 crore (₹5,066 crore). Its 13th month persistency remained at 88.28 per cent despite the adverse impact of Covid-19 pandemic while the claim settlement ratio stands at around 98.05 per cent. The company claims to have registered 35 per cent CAGR in the retail protection business over the last two years.

Ramping up distribution

The company is looking to ramp up its distribution network both by opening new branches and entering into partnerships with health tech and fintech companies for ramping up sales.

As on March 2021, the company had around 215 branches. It has already added 100 branches so far this year and plans to add another 100 over the next six months taking the total to around 415 by June 2022.

The company has a strong presence in Maharashtra, Gujarat, West Bengal, Delhi NCR, Punjab and Haryana. It plans to ramp up presence in the southern markets by setting up new branches.

Distribution through agency network accounts for nearly 30 per cent of its total sales, while the remaining 70 per cent comes from non-agency network including bancassurance, broking partners and new age digital companies.

Branding and marketing

Tata AIA Life Insurance has on-boarded Olympic gold medallist Neeraj Chopra as its brand ambassador in a multi-year deal with a focus on enhancing its brand image. The move would help promote health and wellness among policyholders and penetrate deeper into the Tier-II and Tier-III markets.

“So far, we have been reasonably quiet on branding front. Now, we think it is time to invest in branding. The Neeraj Chopra campaign would be initially rolled out on the digital platform,” Tahilyani said.

The company plans to lay emphasis on the omni-channel network with the digital channel serving more as a feeder to the physical network.

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Bharti AXA Life new business premium up 33% in H1

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Bharti AXA Life Insurance, a private life insurer, on Monday said that the company’s weighted new business premium grew 33 per cent in the first half this fiscal to ₹285 crore (₹214 crore).

The company recorded 8 per cent growth in its renewal premium to ₹645 crore (₹594 crore).

Total premium income grew moderately to ₹1,024 crore in the April-September 2021 period from ₹912 crore in the first six months of the last financial year.

The company recorded growth of 53 per cent in weighted new business premium in the month of September 2021 and outperformed the private sector by 1.5X.

Parag Raja, Managing Director and Chief Executive Officer, Bharti AXA Life Insurance, said in a statement, “We have registered steady performance on many parameters and achieved one of the highest industry growth for our new business premium collection in the first six months of the current financial year. Further, our asset under management saw a strong growth of 28 per cent and has doubled over the past three years”.

Surge in business

The improvement in the Covid pandemic situation since August 2021, buoyant consumer sentiment towards the need for life insurance and the company’s investments in digital platforms to enhance customer experience and facilitate seamless services along with the suite of customer-centric products gives “us confidence about achieving our business targets and growth in the coming months.”

The 13th month persistency ratio for Bharti AXA Life insurance improved to 64.4 per cent in H1-FY22, up from 60.7 per cent for the same period last year.

The Company’s solvency ratio stood at 188 per cent on September 30, 2021, well above the regulatory requirement of 150 per cent. The company recorded a surge of 28 per cent in its asset under management at ₹10,256 crore as on September 30, 2021 against ₹7,987 crore in the corresponding period of the last fiscal.

The company has disbursed ₹106 crore in Covid related claims for the first half of the financial year 2022.

Bharti AXA Life Insurance has 254 branches and33,266 advisors as on September 30, 2021.

“We have already witnessed a strong start with our new bancassurance partners — Fincare Small Finance Bank, Shivalik Bank and Utkarsh Small Finance Bank, and are actively pursuing opportunities for strategic tie-ups and alliances to ensure sustained business growth over the next few years,” Raja said.

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How much life insurance cover does one need?

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Morgan Housel’s book ‘Psychology of Money’ does a great job of explaining the power of money – it can give you control over your own time. That in a nutshell is the function of life insurance. It enables financial continuity for your dependents and avoids a drain of your existing resources. So, it is quite irrefutable that adequate life cover is critical. Here, we revisit the factors that can help people determine how much life cover they need.

Most Indians continue to perceive life insurance as a savings vehicle and believe that the insurance benefit attached to such products is adequate. So, let’s clarify one thing – every earning individual with financial dependents must buy term insurance.

Take for example Arun, a 35-year-old married person with one kid and a second one on the way. He is looking to buy a term insurance and decides to rely on the general thumb rule – a life cover must be 10 times your annual income. Considering Arun earns ₹10 lakh per annum, the thumb rule would suggest his ideal life cover is ₹1 crore.

While this is a good thumb rule to determine the minimum cover required, an individual often needs more than 10 times his / her income. In other words, it is highly likely that Arun is inadequately covered. So, how can he determine his multiplier?

The DIME method is a holistic tool for assessing one’s current state of finances and future needs. So, here’s what Arun needs to know:

Debt: Your liabilities survive you and therefore provisioning for recurring debt is very important. Let’s assume Arun has an outstanding student debt of ₹2 lakh.

Income: Consider the number of years you want to provide an income replacement for your family and multiply your current income by that number. Assuming Arun wants to create income replacement for 5 years, he will need a corpus of at least ₹50 lakh.

Mortgage: The next step is accounting for a home loan, which can derail your family’s monetary stability in your absence. Let’s assume, Arun has an outstanding home loan of ₹50 lakh.

Education Expense: Considering Arun is a father, he will need to create a financial corpus to support his daughter until she turns 25 years of age (typically when kids start earning). With education cost constantly on the rise, Arun will need an estimated ₹35 lakh until graduation of his child. With another baby on the way, he wants to make an additional provision of ₹50 lakh for the upbringing and education of his second child.

All these factors summed up show Arun’s future requirement, which is ₹1.87 crore. But there is one missing ingredient – it doesn’t account for his existing assets. Assuming he has assets worth ₹20 lakh in the form of fixed deposits and mutual funds, Arun’s final financial requirement is ₹1.67 crore. Assuming Arun passes away after 10 years, then at a 4 per cent inflation rate per annum, he will need a life cover of ₹2.47 crore (nearly 25 times his current annual income).

Personal finance advisors can support you in this process. One key factor to always remember is that life insurance is not a one-time purchase. You must review your protection requirements at regular intervals, especially as you progress through various life stages.

The writer is Chief Distribution Officer, Edelweiss Tokio Life Insurance

(This is a free article from the BusinessLine premium Portfolio segment. For more such content, please subscribe to The Hindu BusinessLine online.)

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ICICI Prudential Life to launch new campaign with Lovlina Borgohain, BFSI News, ET BFSI

Banking & Finance

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ICICI Prudential Life Insurance will launch a new digital campaign ‘Agar taiyaari sahi ho, toh jeet pakki hai’ – If you’ve prepared right then victory is definite – featuring Olympic medallist Lovlina Borgohain.

She clinched the bronze medal in the women’s boxing (69kg), and received the Arjuna Award in August this year.
The brand has set up a microsite displaying snippets that narrate the story of Borgohain’s preparedness to win a medal for the country at the Tokyo Olympics 2020. The microsite also allows users to click an augmented reality selfie with the Olympic medallist.

“For each long-term financial goal to achieve fruition, there is a need for astute planning, appropriate product selection and commitment to stay invested,” said Manish Dubey, chief marketing officer of the company.

The campaign has been rolled out digitally and across various social media platforms, to drive reach, visibility and engagement with customers.

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How you can enhance insurance with add-ons

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Term insurance has a simple premise amongst various insurance products — providing life cover against death with sum insured (SI) in return for yearly premiums. Premiums for ₹1 crore SI are relatively low at ₹10,000-12,000 annually for a non-smoking male of 30 years. The basic cover of term insurance can be enhanced with 7-8 different add-ons, significantly enhancing its utility for everyone. Add-ons grouped into family-related ones, the ones supplementing basic health insurance and insuring against unforeseen events, can be considered on a case-by-case basis.

Family related add-ons

Securing a cover for your spouse and creating an additional cover for your child’s needs are beyond the scope of SI and can be achieved with add-ons. Term insurance for one’s spouse need not be a separate policy. For an additional premium which ranges from 50-75 per cent of the original premium, a similar cover for one’s spouse can be created.

Bajaj Allianz’s term plan has a Joint Life Rider add-on which adds 75 per cent to the primary premium and provides term insurance to the spouse. A similar add-on from PNB Metlife costs less than 50 per cent of the primary premium. The latter also waives off all future premiums on death/disability or critical illness to the primary life insured, compared to the former that waives premiums only on death.

On the other hand, Edelweiss Tokio provides an extra 50 per cent cover for the spouse starting at just ₹58 for the add-on.

For child benefit option, these three insurers and another one, Canara HSBC OBC, provide a child support benefit (CSB) add-on. Upon termination of the policy on death of the primary life insured, an additional CSB-related SI will be paid alongside the basic SI. The add-on costs 25 per cent more with term insurance from Canara HSBC, 5 per cent with PNB Metlife, 10 per cent with Bajaj Allianz and 6 per cent with Edelweiss Tokio.

The SI in this segment is different from that for the life insured and is dependent on each individual policy, and hence the different pricing.

Critical illness covers

Term insurance is largely not triggered upon diagnosis of a critical illness (CI). This is seen as one of its shortcomings compared to health insurance. Most insurance providers have hence added a CI rider which provides an amount on diagnosis of an illness which falls under their CI definition.

For instance, HDFC Life provides ₹5 lakh on the policyholder being diagnosed with any one of 19 critical illness with an add-on which costs 15 per cent more, while term insurance from Max Life costs 25 per cent more to cover 64 illnesses and providing the same amount.

Edelweiss Tokio, on the other hand, provides ₹10 lakh to cover against 36 CIs with its rider which costs 62 per cent more than the basic premium. PNB Metlife has the most comprehensive package in this regard.

An accelerated payout add-on which costs 75 per cent more,, provides 25 per cent of the SI upon diagnosis of any of the covered 50 CIs.

Few other insurers including Max Life, Tata AIA and Aditya Birla Sun Life provide early payout of SI on diagnosis of a terminal illness (different from critical illness) as a no cost option.

An existing health insurance makes this add-on an incremental cover for critical illness, but the need for a comprehensive health insurance cannot be served by term insurance even with this add-on.

Accident disability, death

In case of permanent disability, term insurance premium can be waived off either as a no cost feature (ICICI Prudential) or as an add-on which costs in the range of ₹500-800 for most other providers. Some providers also tag critical illness condition with the waiver of premium add-on, considering a policyholder’s inability to meet yearly premiums in both cases.

Meeting hospital expenses in case of an accidental death or even disability can place significant financial burden on one’s family, essentially negating the benefit of term insurance payout (in case of death).

Extra payout, in case of accidental death, is a popular add-on featured by most insurance providers. For an additional sum of ₹500-1,000 most providers ensure additional ₹10 lakh in case of accidental death. HDFC Life’s term plan provides an additional ₹1 crore payout in case of accidental death but the add-on would increase premium by 35 per cent. A similar add-on to cover for accidental disability is also available with costs in the range of ₹200-500 to provide an additional sum insured of around ₹10 lakh.

Based on one’s needs and circumstances, the utility of term insurance can be enhanced by purchasing the right add-on to complement the basic life cover.

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HDFC Life expects muted third wave, says reserves should suffice for future claims, BFSI News, ET BFSI

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HDFC Life Insurance‘s reserves will be sufficient for future claims as the intensity of any subsequent COVID wave will be muted, said Vibha Padalkar, managing director and chief executive officer of HDFC Life Insurance, at the quarterly results‘ press conference.

The insurer is bullish on the impact of COVID, as the number of vaccinations have the crossed 1-billion mark. ” In addition, the recent macroeconomic data augurs well for the economy and is indicative of swifter recovery trends. Consumer sentiment remains buoyant and we are optimistic about sustained increase in business in the coming few months,” the company said in a filing.

The life insurer on Friday announced a 15.9% fall in its consolidated net profit to Rs 274.16 crore in Jul-Sep, as against Rs 326.09 crore a year ago.

Padalkar is optimistic about the second half of FY22, citing new bancassurance partnerships and agency channels. On the acquisition of Exide Life Insurance Co, Padalkar expects HDFC Life to receive the approval from the regulator by late third quarter or early fourth quarter.

Total income of the insurer in the second quarter, however, rose to Rs 20,478 crore against Rs 16,426 crore a year ago, while the net premium income increased by 52% to Rs 11,445 crore from Rs 10,056 crore, the insurer said in a regulatory filing.

“Value of new business (VNB) recorded a robust 30% growth to Rs 1,086 crore over last year. Our profit after tax stands at Rs 577 crore for H1, 26% lower than H1 FY21, on the back of higher claims reserving warranted by the second wave of the pandemic,” said Padalkar.

The insurer settled around two lakh claims in the first half of the fiscal. Gross and net claims amounted to Rs 3,640 crore and Rs 2,466 crore, respectively, against an anticipated net claims of Rs 1,690 crore, the management said in a post-earnings call. The excess Rs 776 crore was paid out of reserves, which stood at Rs 204 crore as on 30 September.

The company’s overall experience has been in line with their projections, and an Excess Mortality Reserve (EMR) of Rs 204 crore is being carried into the second half of FY22, the company said in a filing. Its solvency ratio was at 190% compared with 203% a year ago, while its 13th month persistency was at 84.8% against 83.9% around the same period last fiscal.



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Life insurance sees good growth, claims fall post second wave

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The life insurance industry is slowly coming back to normal after facing a high claim burden in the first five months of the current fiscal following the second wave of the Covid-19 pandemic.

“The industry is doing well. With every passing month, business is improving. Private sector life insurance companies are doing well and public sector bank-led banca companies are doing especially well,” said Rushabh Gandhi, Deputy CEO, IndiaFirst Life Insurance.

In an interaction with BusinessLine, Gandhi said there are green shoots across the industry as well as for the insurers and there continues to be strong demand amongst consumers for life insurance.

“A large part of our portfolio is non-participating products; the contribution of protection business is growing. Quotations for term life are increasing. It is a visible and sustainable trend,” he noted. Claims, which shot up by nearly two to three times in the second wave of the pandemic compared to the first wave, have also come down for life insurers, he further said.

“In the first five months of the year, claims have been very high. Peak deaths happened in May and intimations came in June and July; now it seems to be easing,” he added.

Burdened by high claims, a number of life insurers have reported losses for the first quarter of the fiscal and have also been increasing premium rates.

According to IRDAI data, life insurance companies registered a 22.21 per cent growth in first year premium in September on a year on year basis. Of this, private sector companies registered a growth of 42.42 per cent while LIC recorded a growth of 11.55 per cent last month on an annual basis. IndiaFirst Life Insurance grew by 71.05 per cent in September.

Comeback

Analysts too expect the life insurance sector to continue to stage a full comeback in the second half of the fiscal.

“We have seen a healthy pick-up in growth in the past few months, with September 2021 witnessing healthy trends across most players. We believe premium growth would see strong traction over FY22, with continued focus on non-participating, annuity, while ULIP would see gradual recovery,” said Motilal Oswal in a recent report.

Care Ratings said that while Covid claims are likely to remain elevated in the second quarter, the impact should be minimised compared to the first quarter.

“In the first quarter of the fiscal, the growth in premiums, albeit muted, was driven by unit-linked products and protection plans. However, the life insurance sector witnessed significant claims in the first quarter due to the second wave of the pandemic and profitability suffered as companies made provisions and reserves to alleviate the impact of the claims,” it said.

Growth strategies

Commenting on growth strategies for IndiaFirst Life Insurance, Gandhi said the insurer has been focussing on credit life insurance and expects premium of about ₹300 crore from the segment this year.

“We have managed in our partnership with Bank of Baroda to get attachment rates of over 70 per cent and have started doing covers for all loan products,” he said, adding that the insurer is working on tie ups with a number of other lenders as well.

“Our strategy remains intact. We will remain a multi-channel distribution company with bancassurance as our main focus and contributing 80-85 per cent of premium. On agency, our focus will be on quality not quantity, while on banca our focus will remain on penetration,” he further said.

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Non-life and life insurance industry reported growth during the pandemic: IRDAI

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The insurance industry proved resilient during the pandemic. The non-life industry registered 12.78 per cent growth and the life insurance industry registered 10 per cent growth, said S N Rajeswari, Member (Distribution), Insurance Regulatory and Development Authority of India ( IRDAI).

She was delivering the inaugural address at the National Insurance Academy, Pune’s annual Insurance Summit on Thursday, on the virtual platform. The 17th in the series, the theme of the summit was ‘Quest for Collaboration: New Frontiers in Closing the Insurance Protection Gap’.

Rajeswari said the pandemic has resulted in people losing jobs, moving to different places for a livelihood and even children being forced to quit education to earn a livelihood. She insisted on the need for a coming together of all stakeholders to provide insurance coverage to the people living at the bottom of the pyramid, where bread winning is the priority, with simple and cost-efficient products.

Talking about the health protection gap, she said out of pocket expenses (OOP), higher cost of treatment, and communicable and lifestyle diseases are the major contributors. Technology can be a great enabler in quick settlement of claims, checking fraudulent claims, and providing end-to-end solutions to insurance customers, she said.

Though the intensity and frequency of natural calamities have increased manifold, only 10 per cent of the total losses are covered, NIA Director G Srinivasan said. He added that only 5 per cent of people in India have home insurance, 12 per cent have health insurance and only very few have cyber insurance cover. A large number of 3 crore MSMEs are under-insured and 90 per cent of the Indian working population is in the unorganised sector and, therefore, life insurance, health insurance, and pension are very critical for them, he said.

G Srinivasan highlighted the need to address the insurance protection gap and the urgent need to plug the increasing uninsured economic losses and loss of lives, as they adversely affect the economic growth of the country.

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Punjab National Bank begins exit from Canara HSBC OBC Life Insurance

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Punjab National Bank, the country’s second largest public sector bank, has set the ball rolling for sale of if its entire stake in Canara HSBC OBC Life Insurance (CHOICE) by inviting bids for the appointment of a legal advisor for the proposed transaction.

After the three way amalgamation with Oriental Bank of Commerce and United Bank of India from April 1 last year, PNB had become a promoter shareholder, with 23 per cent stake in CHOICE. Prior to this amalgamation, OBC held 23 per cent stake in CHOICE.

Also see: Banks should embrace digitisation to ensure govt schemes reach needy: FM Nirmala Sitharaman

Canara Bank has a 51 per cent stake and HSBC Insurance (Asia Pacific) Holdings has 26 per cent stake in the life insurer, which is now an associate company of PNB.

It maybe recalled that PNB had, in May this year, said that PNB will divest stake in CHOICE at an “appropriate time, depending on market conditions and available options.”

IRDAI norm

The plan to exit CHOICE is in keeping with the insurance regulator IRDAI’s norm that a commercial bank should not hold more than 10 per cent stake in two life insurance ventures at the same time.

Post the OBC amalgamation, PNB had significant shareholding in two life insurance ventures — PNB MetLife insurance (30 per cent stake) and Canara HSBC OBC Life (23 per cent stake).

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