Working as an Assistant in LIC of India, Rockfort BO, Trichy, TN.
Having a strong belief that LIC's welfare is our welfare and always trying to work towards that. Also functioning as an office bearer of AIIEA Thanjavur Division.
Life insurers have tossed ethics out of the window, and the insurance regulator seems to be looking the other way.
In a concerted move, a number of life insurance companies have quietly increased the mortality charges on their unit-linked plans (Ulips) from September 1.
The Insurance Regulatory and Development Authority (IRDA) didn’t find anything wrong with that and cleared a passel of new plans recently.
The move is another blow for investors in Ulips — the product that stormed the mutual fund bastion a couple of years ago and sparked a tussle for regulatory oversight between the IRDA and capital market watchdog Sebi earlier this year.
Earlier, the life insurers raised the entry barriers for Ulips by increasing the minimum monthly premium on a policy to anywhere between Rs 1,500 and Rs 3,000 a month from Rs 500 to Rs 2,000 earlier. Clearly, the insurers were looking to target the well-heeled through the new Ulip plans.
But in an even more sinister move, they have raised the mortality charge, which is the cost deducted from the premium you pay to cover the payment of death benefits.
Why to worry?
Let us suppose you have bought a policy with a sum assured of Rs 10 lakh and the total premium (or the investment fund value in the case of a Ulip) paid till now is Rs 2 lakh. If you happen to die now, the risk of death benefit payment on the insurer is Rs 8 lakh.
To cover this risk, the insurer deducts the mortality charge from your premium. While the mortality premium is calculated on the sum at risk (Rs 8 lakh in our example), the premium rate is determined by the mortality table.
Mortality measures the probability of death, and the mortality premium rate increases with the increase in the age of the policyholder.
From September 1, the insurers have increased the mortality premium rates for each age category steeply compared with the Ulips they sold before.
For example, the mortality charge for a 20-year old policyholder was Rs 1.122 per Rs 1,000 sum at risk in the case of Bajaj Allianz Life’s Max Gain policy. The insurer has now more than doubled it to Rs 2.57 per Rs 1,000 sum at risk in its new Ulip Max Advantage.
The insurers have a glib explanation for this move.
“We have increased the mortality charges because the minimum sum assured has now gone up to 10 times the annual premium from five times earlier. Under our new Ulips, we are giving both the sum assured and the fund value as death benefit. Besides, there is a built-in accident death cover,” said a senior official with Bajaj Allianz Life Insurance Company.
However, this argument is a little woolly because almost all insurers had earlier been offering a sum assured under their Ulip plans of as high as 20 times the annual premium.
Type II Ulips — where both the sum assured and the fund value are given on the death of the policyholder during the policy term — have always been around and nobody used this as an excuse to raise the mortality charge. For example, SBI Life’s Unit Plus Elite II didn’t slap differential mortality charges.
The insurers’ argument can also be easily demolished. If the sum at risk goes up at any given point of time, the mortality premium, calculated at a given rate, automatically goes up. So why tweak the rate?
“The mortality premium rates can vary if the underwriting conditions change or if the insurer experiences a high claim ratio in a particular product,” said G.N. Agarwal, chief actuary of Future Generali Life Insurance Company.
“We have also noticed some companies increasing their mortality charges. This should not have happened. It isn’t proper,” said Agarwal, who formerly was an actuary with the Life Insurance Corporation of India. “I don’t understand how the regulator approved these products without seeking clarifications from the insurers.”
S.B. Mathur, secretary-general of the Life Insurance Council, the lobbying body of life insurance companies in the country, said he was not aware of this development. But he added, “This should not have happened. I am not aware of this. So, I cannot make further comments. I’ll take a look at it.”
In its revised circular issued in August 2009 that capped charges relating to Ulips, the insurance regulator excluded mortality charges from the overall cap on expenses while determining the investment returns of policyholders.
The first circular in July 2009 had, however, included mortality charges within the overall cap on expenses.
After August 2009, insurers such as SBI Life increased the mortality charges while reducing its premium allocation and other charges.
“After the new regulations came into place from September 1, insurers have been increasing their mortality charges to make profits which otherwise would have suffered,” Agarwal explained.
What the insurer doesn’t tell you is that profits earned from the investment of mortality premium accrue to the shareholders of the insurance company and not to its policyholders.
Therefore, an increase in mortality charges imply more investible fund for an insurance company and, hence, greater distributable profits to shareholders. “This could be another reason why insurers are raising their mortality charges,” admits Agarwal.
Insurance Regulatory and Development Authority (Irda) has revised the benchmark for minimum annual business by each insurance agent downwards to Rs 100,000 from the earlier proposed Rs 150,000 in annual premium collection.
This follows a presentation made by life insurance companies to lower the requirement as not more than half the present agency force can meet the target.
The final guidelines on persistency of agency channels, prepared by Irda, are expected to be announced in October.
“The life insurance companies have made joint representation asking for the requirement to be lowered,” a senior Irda official said. The final guidelines that are expected in October will revise the benchmark to Rs 100,000 per annum, the official said.
“Not more than 30-40 per cent of our existing agency force gets Rs 150,000 per annum of business,” said Tarun Chugh, executive vice president (sales and distribution) for ICICI Prudential Life Insurance Company, on the sidelines of a recently concluded conference.
Irda in its draft guidelines July 16, 2010, recommended a minimum business generation (in terms of premium collection) by agents and distribution channels of all life insurance companies, in line with that of Life Insurance Corporation of India. As per Irda, persistency of the agents and the various distribution channels remain key in the growth and profitability of any life insurance company.
Amitabh Chaudhry, managing director and CEO of HDFC Standard Life Insurance Company, told FC in an interview that the company would find it difficult to meet the requirement as asked in the draft guidelines. “Not more than 15,000 of the 2 lakh agents that we have would not be producing Rs 150,000 of premium annually and hence, we have written to Irda in our feedback to relook at the benchmark,” he said.
According to the Irda official, this (life insurance companies’ plea) talks a lot about the quality of the agents these companies have. The idea of the draft guidelines is to ensure non-performers are weeded out, as there is huge cost involved in training these agents.
“Though we will look at lowering the requirement to Rs 100,000, we will ensure the performance of these agents is closely monitored by the companies,” the official said.
There are around 3 million agents working with all the life insurance companies in India, of which around 2 million are working with private life insurers.
According to Andrew Cartwright, executive vice president and head actuary of Kotak Life Insurance, there are a lot of dormant life insurance agents who do not actively seek life insurance business. “Around 5,000 of our 37,000 strong agency force will be getting Rs 1.5 lakh worth of business in terms of premium annually,” Cartwright said.
According to him, there are chances that Irda will give some levy to companies to form layers of agents achieving 25 per cent, 50 per cent and 75 per cent of the target in levels.
Life Insurance Corporation of India (LIC) has settled over 2.11 lakh claims during the 2009-10 fiscal amounting over Rs 53,954 crore.
Speaking to “The ET” here on the sidelines of opening the new office building of Bhubaneswar divisional office on Tuesday, LIC chairman T.S. Vijayan said at least 97.47% total maturity claims were settled on or before the date of maturity while 95.16 per cent of non-early death claims were settled within 15 days of intimation.
“LIC is fastest in claims settlement. Our outstanding claims – both maturity and survival benefit – ratio is just 1.13%. Similarly, our outstanding death claims stands at 1.41%,” Mr Vijayan said.
Stating that the LIC has grown by leaps and bounds in the challenging and dynamic phase of the life insurance industry, the Total Premium Income (TPI) for the fisal 2009-2010 was Rs01,85, 986 crore and gross total income stood at Rs 2,98,721 crore,” Mr Vijayan added.
To a query on the demand by LIC employees of Orissa for setting of a zonal office in the state, the chairman said the proposal was under active consideration and necessary initiatives would be taken in that regard once the zone achieve the targets of 45 lakh police holders. “Bhubaneswar office has 15 lakh policy holders. We hope to enroll 30 lakh more customers in the next couple of years,” he added.
The LIC employees of Orissa have been demanding for a zonal office because of the long distance of the present office at Patna in Bihar. Elaborating about the performance of Bhubaneswar division, Mr Vijayan said it procured 198385 policies and collected Rs 150.22 crore as first premium income.
“Bhubaneswar division is doing exceedingly well. Apart from good collection of first premium income, the divisional settled 104209 of claims and paid Rs 174.48 crore towards claim proceeds. In the current fiscal, Bhubaneswar division has target of 24, 0000 policies and Rs 190 crore first premium Income,” he said.
Life insurance companies are shying away from launching new pension plans following new norms, which mandate that all unit-linked pension plans will have to offer a guaranteed return of 4.5 per cent.
Most life insurance companies have not launched any new unit-linked pension plans after the new ULIP guidelines came into effect from September 1.Life Insurance Corporation of India's Pension Plus is the only unit-linked pension plan currently on offer in the market.
Companies said the guaranteed return regime would force them to move away from equities and increase debt exposure, which may affect profitability.
It was launched on September 2. Pension products constitute 20-25 per cent of the total premium collected by the industry. During the last financial year (2009-10) around Rs 65,000 crore came from sale of pension products --- representing a quarter of the total premium collection of Rs 2,61,025 crore.
Firms also said that to provide a guaranteed return of 4.5 per cent, companies would have to earn about 6.75 per cent to 7 per cent.
“This guaranteed (4.5 per cent) return is applicable on maturity date for policies where all due premiums are paid. Mortality and, or health cover could be offered along with the pension/annuity products as riders, giving enough flexibility to policyholders to select covers of their choice,” the IRDA guidelines said.
Insurance companies said an underdeveloped long-term debt market offers limited options for them to park their money that would ensure a steady risk-free return for tenures extending up to 30 years.
“For long term investments, the best returns can be earned through equity but with the guarantee, life insurance companies would have to invest in debt instruments and that pose some problems,” a Max New York Life spokesperson told Hindustan Times.
“We are evaluating the pension market in the light of the new regulation and seeing when we can launch a pension product,” Yateesh Srivastava, chief marketing officer, Aegon Religare Life Insurance however said.
An annualised return of 4.5 per cent does not compare well with other long-term savings instruments. A savings bank account offers 3.5 per cent, while the employees’ provident fund raised interest rates to 9.5 per cent for 2010-11. A PPF subscriber earns 8 per cent per annum.
“At 4.5 per cent guaranteed return (for unit-linked pension plans) even customers may not find it attractive,” a senior executive of a Mumbai-based life insurance company said, requesting anonymity.
Explain customers that Pvt.Cos. are sinking ships!
ICICI Pru. alone closed 360 offices!! No need for IRDA approval to close office!!!
The new guidelines on unit linked insurance plans (Ulips) have forced life insurance companies to shut branches, retrench staff and restructure operations to control rising expenses.
As per the latest data available with the Insurance Regulatory and Development Authority (Irda), about 454 branches have been closed this financial year, most of them after June when the new Ulips structure was unveiled by life insurers.
“Life insurance companies have reported to Irda that 454 branches have been closed by them during the five months between April-August 2010. Of these, ICICI Prudential Life accounts for 360, HDFC Standard Life 32, Max New York Life 31, and MetLife Insurance 19,” a senior Irda official told Financial Chronicle.
“Higher productivity has become the key word. We are looking at consolidating some of our branches and resizing some of the others to manage expense,” Amitabh Chaudhry, managing director and CEO of HDFC Standard Life Insurance told FC in an interview.
According to him, the company will first shut excess branches in cities. “This would definitely mean some of the staff have to leave,” he said.
A senior ICICI Prudential official said, “Some of the non-performing staff have been asked to leave. We have shut branches concentrated in the same area.”
Max New York Life’s spokesperson said the insurance company was realigning its distribution infrastructure and consolidating offices.
“In the near term, given the regulatory changes that have come about, we are in the process of adjusting our distribution infrastructure to reflect these changes. This will involve consolidation of some of our offices through which we offer products and services. These changes will create better efficiencies while ensuring the same quality of service to our policyholders and agent advisers. This will have some human impact but we ensure that all performing employees are not impacted by this change,” the spokesperson said via email.
Lower productivity of branches and agents came under spotlight after the financial meltdown of 2008-09 hit insurers. New guidelines by Irda would hit the margins of life insurers by 15-20 per cent because about 80 per cent of their new business premium used to come from Ulips.
According to a senior employee of Max New York Life in Mumbai, who wished to remain anonymous, eight branches were shut in the past few weeks in Mumbai alone, costing about 140 jobs, as new Ulips guidelines squeezed margins. Six more branches are likely to be shut soon, he said.
Max New York Life had 33 branches in Mumbai city. To reduce headcount, the management has started implementing an out-of-turn performance evaluation and those at the bottom are shown the door. “The most affected are the operational staff while sales staff is expected to work harder to generate as much volume of business as it used to be,” said the employee.
First generation life insurers that started operations in 2000-01 had incurred huge expenses to expand reach by adding branches and frontline sales force. The expense ratio of all private life insurers range between 18-25 per cent.
According to G Murlidhar, chief operating officer of Kotak Mahindra Life Insurance, the company intends to bring down the expense ratio from 18 per cent to 12-13 per cent in the short term. “The company is still examining ways to bring down cost. The options are to either close down branches and not replace the people we lose to attrition among others,” he said.
Life insurers need Irda’s approval to open a branch, but to close one they just have to inform the regulator. According to the Irda official, about 420 branches were closed in 2009-10 while 403 branches were opened by new entrants.
LIC on Friday said it has earned premium of Rs 4,853 crore from BSNL under a group scheme, which is the largest sum got by a life insurer from a single company.
This single large deal would further improve LIC's market share, which currently is around 71 per cent. The policy bond of BSNL Employees Leave Encashment Scheme which is the corpus towards earned leave encashment to be paid to employees of BSNL at the time of retirement.
This is the single largest leave encashment scheme of LIC in which 2,81,000 BSNL employees are covered, the country's largest life insurer said in a statement. The business was bagged by Divisional Office one of Delhi zone of LIC.
BSNL board has decided to transfer the Liability of Leave encashment of Rs 4,852.91 crore to LIC under LIC's Group Leave Encashment Cash Accumulation Scheme (GLES), it said.
LIC Managing Director Thomas Mathew handed over the policy bond to BSNL Management yesterday.
LIC till July this fiscal, earned first premium of Rs 7,445 crore from group business. In July, it earned Rs 1,686 crore premium under this head. During April-July period, LIC registered an over 70 per cent growth in new premium (from both group and individual) collections to Rs 24,430 crore.
In comparison, in the first four months of the previous fiscal, LIC's premium collections from new business stood at Rs 14,265 crore. Private sector including 22 private life insurers together accounted for Rs 9,818 crore worth of new business in the April-July period, compared to Rs 7,730 crore in the year-ago period, a growth of 27 per cent.
LIC is already servicing entire BSNL employees Group Savings Linked Insurance Scheme (GSLI) and the Gratuity Scheme for those employees of BSNL who have joined after the corporatisation of BSNL, it said. As such BSNL has become the largest customer of LIC in terms of managing the schemes of employee benefits, it added.
Life Insurance Corporation of India celebrates 54 years of service to the nation
~Announces the launch of New ULIP Plan “LIC’s Pension Plus” ~
September 1, 1956 witnessed the creation of India’s premier life insurance company. Today, on September 1, 2010; Life Insurance Corporation of India is proud to celebrate 54 years of dedicated customer service.
The opening up of the markets has only pushed LIC of India to newer heights in terms of procurement and service to customers. As per the IRDA figures, it had a market share of 71.33% in First Premium Income as on 31st July, 2010 and 71.68% on Policies. The Corporation has already completed over one crore new policies in the current fiscal year by 14th August, 2010, with a First Premium Income of Rs 15,917 crores registering an impressive growth rate of 96.17%. The Corporation is confident of continuing with its vigorous growth in the coming months as well.
When the Corporation took over on the Appointed Day (1st Sept, 1956), it had assets worth Rs. 348.68 crores. This figure has now risen to a mammoth Rs.11,52,057 crores.
The Corporation has grown by leaps and bounds in the challenging and dynamic phase of the life insurance industry. The Total Premium Income for the fiscal 2009-10 was Rs. 1,85,986 crore and Gross Total Income of the Corporation was Rs. 2,98,721 crores. In 2009-10, the Corporation settled 2.11 crore claims amounting to Rs 53954 crores during the last fiscal.
In keeping with its image as a tech-savvy organization with firm social commitment, the Corporation was the first non-government agency to sign an MOU with the UID Authority of India and has also been allotted the highest percentage (35%) of the NPS fund for the current year by the PFRDA.
LIC of India continues to reiterate its commitment towards social responsibility for which it set up the Golden Jubilee Foundation in 2007. The Corporation continues to support socially oriented sectors and has undertaken various Corporate Social Responsibility initiatives which strive for the overall development of the lesser priviledged sections of society. The Foundation has, so far, sanctioned 120 projects worth Rs. 15.44 crore for various social initiatives.
The Corporation continues to script its success story of efficient customer service through its strong infrastructure of 2,048 branch offices, 1,042 satellite offices and a gigantic employee force of 1,15,000 employees and over 14 lakh agents.
The Corporation has also spearheaded many customer oriented initiatives which have aimed to make life simple for its numerous policy holders. These include a very customer friendly Internet Portal at www.licindia.in and opening of 33 Customer Zones across India where customers can walk in and have their servicing needs addressed. LIC has also hosted campaigns such as ‘Relationship Renewal Programme’ and ‘Customer Contact Programme’ to strengthen its bond with the existing customers. There are 13 alternate channels of payment (apart from the standard branch & satellite offices) available to the customers to enable them to make their premium payments anywhere, anytime.
The performance of the Corporation has also been recognized through coveted awards such as Outlook Money-NDTV Profit ‘Best Life Insurer Award 2009’, ‘Top Brand’ in the Insurance Category by ET Brand Equity, ‘Most Preferred Life Insurance Company of the Year’ 2009 by CNBC Awaaz, Super Brand India 2009-10 by Superbrands, World Brand Congress Global Award for Brand Excellence (Banking and Financial Services Category), SKOCH Challenger Award for Micro Insurance, Readers Digest Trusted Brand Award 2010-Platinum Category, among many others LIC launches new ULIP Plan – LIC’s Pension Plus On this happy occasion, LIC has announced launch of its new product - LIC’s PENSION PLUS with effect from 2nd September 2010. It is a unit linked deferred pension plan, which provides the customer a minimum guarantee on the gross premiums paid. The plan is without any life cover during the deferment term of the policy. The customer has a choice of investing the premiums in one of the two types of investment funds available. Premiums paid after deduction of allocation charge will purchase units of the Fund type chosen.
Within a given policy year, two free switches are allowed free of charge. Premiums can be paid at yearly, half-yearly or quarterly or monthly (through ECS mode only) intervals over the term of the policy. Alternatively single premiums can be paid. The minimum regular premium that can be through modes other the ECS mode is Rs 15000 per annum while the maximum allowed for regular premium is Rs 1,00,000. For the ECS mode of payment, the minimum premium is Rs 1500 per month. The minimum single premium that can be paid is Rs 30000 while there is no limit on the upper side. Top up facility is available under this plan which enables the customer to pay additional premiums in multiples of Rs 1000/- without any limit at anytime, during the term of the policy.
For further Information please contact :
Name of the Official and designation : Vipin Anand, Chief ( CC )