Response to IRDA's Exposure Draft

Dear Friends,

As we all know, IRDA has placed a material called Exposure Draft which also deals with agency conditions.  IRDA has called for opinions from the stakeholders.  LIC Development Officer Mr.T.S.Rajan from Karur, Tamil Nadu (Thanjavur Division, South Zone) has sent his response.  We publish here his response in full.  We also register our thanks on behalf of all LICians for his sincere effort.

-Arivukkadal

=========================

Dear Sir,

This is in response to the ‘Exposure Draft’ dated 16.07.2010 posted in IRDA website requesting to submit our comments to ypriyab@irda.gov.in on or before 31.07.2010. 

Without prejudice, let me represent the view points of marketing men like me, in the context of your thought to provide for a framework that would stipulate certain minimum requirements for agents, in terms of performance. 

Tied-up Individual Agents:

Of all the channels of distribution, this is the only channel which is time-tested, devoted to the Insurer and the policyholder and works as agent for both. The other alternate channels namely- corporate agents, brokers, bancassurance, online etc, primarily are self-centred with their eyes on profit.

These alternate channels never visit the customer at his doorstep nor do they know the need and insurability of the life proposed. 

Whereas, the Tied-up Individual Agent makes umpteen calls prospecting his clients and succeeds after continuous perseverance. This process continues throughout the term of the policy and throughout the agency career. The business thus procured involves expense of time & money and the success rate of the prospecting calls are less in the initial stages. 

Thus, there can be no comparison with alternate channels as the modus operandi and the service aspects besides remuneration & expenses are totally incomparable. 

Thus while fixing any condition, the statistics that pertains to the Tied-up Individual Agents alone should be the parameter and not of the whole industry.

Since the advent of private insurers lot of changes have taken place in the industry and the market has drifted from

•        Insurance Agents to Investment Consultants
•        Urban centric
•        High Net worth Individuals & Single Premium
•        Switching Funds & Recycling of existing business

In this melee, the small time rural & semi-urban Tied-up Individual Agents are at a loss to understand as to how to get tuned.

Speculative ULIPS should not have been offered in the basket of Life Insurance products. While Insurers, IRDA and even professionals do not assure the returns, the client expects his maturity value and year-wise return from his agent and holds him responsible.

Another problem since the introduction of ULIPS, has been the customers have the choice of foreclosing at a profit or to minimize the incurring losses. Either way, the individual agent does not have a role for such discontinuance.

These individual agents - majority of them- matrics and rural based have been very successful in spreading the brand equity and insurance awareness. 

They are mostly part-time because the increasing difficulties due to competitions resulting in drifting priorities of customers make their renewal & first commissions unsure.

Majority of our agents are doing their insurance business by virtue of their good conduct, good rapport and credibility towards the Insurer and customers. 

They are from very humble background in the low-middle income group with insurance commission to supplement their income to meet their basic needs.

They have been associating with the general public and the Insurer for a long time with their identity in the society as an Insurance Agent.

Their customer base includes the majority of the public in any area who are workers with minimal wages, agricultural laborers, semi-skilled/unskilled workers, workers in unorganized sectors.

These customers can only contribute in hundreds towards their premium. 

With this client base in his hold, these agents cannot bring in lakhs of premium.

To speak premium in lakhs and providing hi-tech training towards that target would only result in the golden duck dying.

The insurance industry thrives today and is made attractive to private players only because of the tireless and selfless services rendered by this community of genuine agents.

Industry has grown today. It should not leave this segment to pathetic conditions designed in the boardrooms with impractical statistics which do not reflect the reality.

The tied-up individual agents and the millions of their policy holders and prospects need an emotive and helping hand with realistic possibilities. 

Minimum business stipulation has to be there. Let it be on the number of lives alone and not on premiums as premiums depend on the environment in which he works and the background of the agent.

Imposing ‘Disincentive for lapsation in the form of commission claw back’ is punishing twice as the agent is already going to lose his renewal commission if a policy is lapsed and the commission is already structured in such a way to take care that an agent devotes his time & services for renewal premium collections.

Thus, we request you to drop the proposal changing the structure of minimum business stipulations and commission payments and leave it to the Insurers which were hitherto in their domain.

Terminations for want of huge new business and reinstatement or reappointment with the same or other insurer with just license in force would only make a mockery of such imaginative proposals.

Changes are to be made.

The Bancassurance arm of alternate channels is just a referral market. The business procured by the individual branches with no IRDA licensed agent in the branch is allowed to continue.

Brokers and Corporate agents procuring new business through multi-level marketing are well known.

We are really appreciative of the role of IRDA in black listing such corporate agents and issuing a diktat to bancassurance set-up.

These forward steps only give us a hope that IRDA takes decisions only after analyzing the ground level realities.

We are sure that the opinions espoused in this mail would also be analyzed and a favourable decision would be taken to safeguard the interest of not only the policy holders but also the tied up individual agents who have been the bread & butter for the Insurer and vice-versa.

Thanks & Regards,

T S Rajan

Place: Karur

Date: 29.07.2010

PDF version sent by him can be downloaded here.

Performance of LIC ulips as on 15/07/2010

Performance of LIC ulips as on 15/07/2010

Download pdf version here

Info:   Rakesh Upadhyay (u_rakesh@rediffmail.com)

LIC agent launches mobile van service to collect premium

LIC agent launches mobile van service to collect premium

An LIC insurance service provider here has launched a unique mobile van service for collecting premiums from his clients helping them to make payments sitting home. 

Bharat Parekh, a 'Top of the Table' award recipient for nine years, floated the idea before the LIC authorities recently for gaining this logistic support. 

With 30,000 policies to his credit and total business of Rs 866 crores till date, Parekh introduced the mobile collection method in May this year after teething troubles.

(Nagpur)
Source: http://economictimes.indiatimes.com/news/news-by-industry/et-cetera/Insurance-agent-launches-mobile-van-service-to-collect-premium/articleshow/6223090.cms           

LIC snaps up nearly 75% new biz in Q1

The grip of insurance giant Life Insurance Corporation's (LIC) on the market only got cemented this quarter further with the state-run behemoth cornering nearly three-fourths of the new premiums in the first quarter with Rs 18,740-crore business.

LIC clocked a more than twofolds growth in new business in the June quarter over Rs 9,028 crore it garnered in the same period last fiscal. In other words, LIC cornered Rs 18,740 crore of the Rs 25,522 crore overall business this the quarter to June period.

According to the Insurance Regulatory and Development Authority (Irda) data, 23 life insurers collectively mopped up Rs 25,522 crore in first-year premium during the first quarter of the current fiscal compared to Rs 14,456 crore in the year-ago period, a growth of over 76 per cent.

In contrast, 22 private life players together managed Rs 6,782 crore new business in the first three months of those fiscal compared to Rs 5,428 crore in the same period last year, translating into a growth of around 30 per cent.

Among private life players, ICICI Prudential saw its news business growing 74 per cent to Rs 1,407 crore in the period, while Reliance Life saw its business increasing 20 per cent to Rs 605 crore during the reporting period.

Significantly, SBI Life saw its business declining to Rs 976 crore in April-June 2010, against Rs 1,072 crore during the same period last year, thereby registering a decline of 9 per cent.

The non-life insurance industry grew over 21 per cent in the first quarter by collecting Rs 10,751 crore premium against Rs 8,829 crore q-o-q.

In the April-June period, the four public sector general insurers collected Rs 6,390 crore compared to Rs 5,243 crore during the corresponding months last year.

The maximum premium was mopped up by New India Insurance with a 21 per cent growth to Rs 1,994 crore.

Among the private players, ICICI Lombard grew 25 per cent to Rs 1,070 crore new premium during the April-June period. 

Source: http://www.expressindia.com/latest-news/LIC-snaps-up-nearly-75--new-biz-in-Q1/652435/

LIC Premium Payment through Mobile may start this year

LIC Premium Payment through Mobile may start this year 

- LIC Chairman

Life Insurance Corporation of India (LIC) said that its policyholders will soon be able to pay their insurance premiums through mobile phones.

In an interview with the Wall Street Journal, TS Vijayan, LIC chairman, said, “We are in discussion with two to three banks; if you have a bank account with them, through mobile you will be able to transfer (funds).” He expects to roll out the facility some time this year. 

Till now, only account holders of Corporation Bank, in which LIC owns a stake, can use mobiles to pay premiums on select LIC policies. This facility was introduced two years ago and is available to customers who sign up for the bank’s mobile payment service.

The customer needs to send a text message to a given number and once the payment gateway verifies his or her details from LIC, the premium is deducted from the customer’s account. This service does not allow payment for unit linked insurance plans.

LIC had started using information technology way back in in July 1995. Its first information and communication technology (ICT) enabled offering to its customers was an online service through which customers could receive immediate policy status reports. Further, their payments were promptly accepted and get they could get revival and loan quotations on demand.

After that, the company started using interactive voice response (IVR) functions to enable customers to receive information on the next premium due, policy status, loan amount, maturity payment due, accumulated bonus etc. through their mobile phones in 59 centres across the country.

Source: http://telecomyatra.afaqs.com/

Full interview of LIC Chairman 
Download here

LIC PF grabs lion's share of govt staff pension funds

LIC PF grabs lion's share of govt staff pension funds

LIC Pension Fund has emerged the best performer among fund managers who manage retirement funds of government employees under the New Pension Scheme (NPS).

As a result of its performance, LICPF has received the highest allocation among the three fund managers, which include SBI Pension Fund and UTI Retirement Solutions. LICPF has generated returns of 10.19% while the other two fund managers have generated lesser returns.

Speaking to ET, LIC Pension Fund MD H Sadhak confirmed that the subsidiary of Life Insurance Corporation has been allocated 35% of the retirement funds of central government employees. The allocation for SBI Pension Fund and UTI Retirement Solutions was understood to be around 32%. The government-created NPS Trust decides how much funds to allocate to each fund manager based on their performance.

Interestingly, this is the first time that LICPF has outperformed its peers. The central government had introduced the new pension system with effect from January 2004 and selected the three fund managers  to manage NPS funds. These fund managers started investment operations in April 2008. For the first year, i.e. 2008-09, allocation was made on the basis of fund management fees quoted by these three fund

managers. However, in the subsequent years, allocation by NPS Trust was based on fund management performance.

In 2008-09, the first year when funds were allocated following aggressive bidding by its peers in terms of fund management charges, LIC Pension Fund got the lowest allocation of 5%. In 2009-10, LICPF got an allocation of 29% following an improved performance.

Many state governments also joined NPS and usually they follow the allocation pattern of central government funds. It is expected that assets under management of LIC Pension Funds will increase very substantially during the current year.

Although NPS has not divulged the numbers, assets under management under NPS for government employees is expected to be around Rs 4,500 crore. SBI Pension Fund manages the bulk of the funds in excess of Rs 2,000 crore followed by UTI Retirement Solutions and LICPF.

Close to half of the funds are invested in government securities and less than 15% is invested in equity. The rest are allowed to be invested in top-rated debt.

Source: http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/LIC-PF-grabs-lions-share-of-govt-staff-pension-funds/articleshow/6189395.cms

Nanayam Vikatan (Tamil) story about insurance Agents

Nanayam Vikatan (Tamil) story about insurance Agents

Download Here

Courtesy:

A.KANNIKUMAR,
AGENT LIC OF INDIA,
ALAPPAKKAM -PORUR,
CHENNAI

ambiekumar@gmail.com

LIC cashes out on top bank counters

LIC cashes out on top bank counters

By :Rajesh Gajra

Jul 14 2010

The single largest institutional investor in equities in the country, the Life Insurance Corporation of India (LIC), preferred to take out profits from its holdings in banks, as compared with other sector holdings, in the quarter ended June 30, an FC analysis reveals. Its purchases, however, were more diverse across sectors.

LIC had invested Rs 61,648 crore in equities in FY 2009-10, about 50 per cent more than it did in FY 2008-09. FC had on June 10 reported that LIC invested Rs 8,363 crore in equities in the first two months of the ongoing financial year, in the story headlined “LIC to invest Rs 200,000 cr in FY11, Rs 75,000 cr in equities”.

The analysis was based on Capitaline data of public shareholding of more than one per cent in companies as disclosed to stock exchanges till July 13. Of the companies that had made the June-end shareholding pattern disclosure, there were 119 companies in which LIC had holdings under its own name or in the name of its ULIP (unit linked insurance plans) schemes such as “LIC of India Money Plus” and “LIC of India Market Plus”.

Of these 119 companies, 31 saw LIC reducing its stakes. This would have been through sales in the market any time in the qua­rter ended June. A rough estimate of the shares sold at July 13 prices works out to Rs 2,714 crore. Similarly, LIC also raised its stakes in 34 companies at a rough estimated purchase value of Rs 3,158 crore. In the rest of the companies, LIC did not change its stakes.

LIC was bullish on banking and financial sector stocks in FY 2009-10.

But in the last quarter, it sold a part of its holdings in large market cap financial sector companies such as Punjab National Bank, HDFC Bank, State Bank of India, Housing Development Finance Corporation, Union Bank of India and Canara Bank. Interestingly, it was also a seller in public-sector stocks such as BPCL and HPCL, as well as in other high-profile stocks such as Dr Reddy's Laboratories, Zee Entertainment, Mahindra & Mahindra and GlaxoSmithKline Pharma.

On the other hand, the largest equity investor in the country, was a large buyer in a diverse mix of stocks, that in addition to the top five stake hike in value terms (see table) included Bharat Electronics, L&T and Crompton Greaves.

LIC’s investments in equities are less than its investments in debt securities, predominantly government securities. In FY11, LIC expects its investments to be more than Rs 200,000 crore, of which about Rs 67,000 crore to Rs 75,000 crore will be in equities. In FY10, it invested about Rs 1,92,000 crore, of which Rs 61,648 crore went into equities.

Source: http://www.mydigitalfc.com/stock-market/lic-cashes-out-top-bank-counters-621

New ULIP norms: LIC seeks not to tinker with agents' commission

LIC is not going to reduce agents' commissions according to IRDA guidelines

-Businessline 7.7.2010
Life Insurance Corporation of India may not reduce agent commissions while restructuring its unit-linked products to meet the insurance regulator's new guidelines.

With 90 per cent of new business for the corporation coming via the agency channel, any tinkering with the commission structure could affect the business of the country's largest life insurer. So, the corporation may look at absorbing the commission costs into its books, said Mr D. K. Mehrotra, Managing Director, LIC.

Typically, insurance companies pay an upfront commission of 30-40 per cent in the first year, which comes down to 5-10 per cent from the second year.

The Insurance Regulatory and Development Authority has asked life insurers to evenly distribute the charges on unit-linked plans over a period of five years (say, 10 per cent commission every year). Insurers fear that squeezing agent commissions will reduce business for them.

LIC hopes to get over this by continuing with the current commission structure and by taking the costs on to its own books (to be adjusted later annually).

The corporation did something similar the last time a cap was set on charges. “We had tried to squeeze in the charges and did not touch the agents' commission. We will see whether we can do it this time also,” said Mr Mehrotra.

However, he admitted that it may not be that easy this time around to leave agent commissions untouched; the corporation would have to rely on volumes to compensate for the lower margins that would result.

“It is going to be difficult this time. We have an advantage on the volumes side. If the volumes keep on coming to me, I can tweak the products such that I don't touch their commissions,” he said.

The corporation has a 14.5-lakh strong agency channel.

“Initially, there will be an impact if commissions are reduced. If you don't pay commission, why will people work? We are still trying to see how best to structure our products…what are the expenses that we can absorb and what we would have to pass on,” he said.

Currently, ULIPs constitute 65 per cent of LIC's total sales. After the new regulatory changes, selling ULIPs will not be as easy as before and as a result sales will fall. The ideal mix of ULIPs and traditional policies will be 60:40, Mr Mehrotra said.

However, for private life insurers, leaving agent commissions untouched may not be a viable option.

“LIC has huge volumes. They can afford to do it though will not be easy even for them. We (private insurers) will not be able to absorb all the reduction in charges onto our books. We will have to pass it on. LIC is more dependent on its agency channel. But most of the older private players have a well established bancassurance channel,” a private insurance company CFO said.

Source: http://www.thehindubusinessline.com/2010/07/07/stories/2010070753730100.htm

LIC hikes stake in Bharti Airtel to 5%

Life Insurance Corporation of India has hiked its stake in private telecom services provider Bharti Airtel to 5 per cent after acquiring shares worth Rs 13.17 crore.

LIC has purchased 5 lakh shares, representing a 0.013 per cent stake in Bharti Airtel, for Rs 13.17 crore through an open market transaction, the telecom services provider said in a regulatory filing to the Bombay Stock Exchange.

The state-owned life insurer acquired the shares on June 30.

Prior to the acquisition, LIC held a 4.998 per cent stake in the company, while now it holds 5.011 per cent in Bharti Airtel.

As per the March quarter shareholding pattern available on the BSE, LIC of India held a 4.76 per cent stake in Bharti Airtel.

-Press Trust of India, July 06, 2010 (New Delhi)

Source: http://beta.profit.ndtv.com/news/show/lic-hikes-stake-in-bharti-airtel-to-5-80934

Read more at: http://beta.profit.ndtv.com/news/show/lic-hikes-stake-in-bharti-airtel-to-5-80934?cp

Bandh is also an opportunity for LIC Agents!

Bandh is also an opportunity for LIC Agents!

Insurance agents reap dividends on bandh days

KOLKATA: Did you know life insurance agents find bandh days, such as the one on Monday, the best time for client prospecting. And the serious ones make sure they meet as many clients as they can on such days. Prospective clients lend a very attentive ear to agents on such days.

“This is generally not the case on any other normal day or even on a holiday when prospective clients have pre-occupations and a host of other things on their mind. On bandh day, they are normally free and listen to our presentations very attentively. Conversion rates (policies sold) are higher than other days and we do not miss the opportunity of meeting as many clients as possible on such days,” says Ranjan Bandhyopadhyay, a Life Insurance Corporation’s agent.

For example, this Monday, when the entire state came to a halt, Ivy Dutta Roy took off on her scooter and met a number of clients near her locality. “I managed to strike deals with as many as five clients and that’s a very high conversion rate compared to any other day. Banking activities also come to halt on these days but, that doesn’t stop us from collecting first premium cheques and depositing them the next day,” she said.

Senior Life Insurance Corporation officials say total conversion ratio on bandh days is obviously smaller than any other day, but the ratio for those who are working is higher. Not all agents work during strikes, but there is one category who do all their client interaction over phone or through the internet. There are other’s like Ivy and Ranjan who refuse to let go of the opportunity that a bandh day presents.

Subhasish Ghosh, senior VP at Kotak Mahindra, says: “There is a group of clients who actually miss going to office on such days. They are the ones who wouldn’t mind doing some serious financial planning even if that’s personal work. At least, they get to do some serious planning for the future. These are the ones we find most prospective. They lend a very attentive ear to our agents and if the advisors present the right product, based on the persons profile, they generally are game.”

A development official from Life Insurance Corporation says: “I keep tab on a few of my agents during a bandh day, help them with tips and suggest products for clients from home on phone, since I may not be able to travel physically to the office or with them.”  

6 Jul 2010, 0539 hrs IST,Debjoy Sengupta,ET Bureau

Source: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/Insurance-agents-reap-dividends-on-bandh-days/articleshow/6133117.cms

    

LIC new big bull in market

PK Dey Posted online: Fri Jul 02 2010, 09:06 hrs

Mumbai : Life Insurance Corporation (LIC) has emerged as a major counterweight to foreign  institutional investors (FII) in the equity markets if one goes by latest data on the insurance major’s total equity investment, which has grown nearly 50% in 2009-10.

In 2009-10, net investment by foreign institutional investors in Indian equity markets was Rs 1,10,744 crore. The only entity which came close was LIC, which made an equity investment of Rs 61,463 crore. Significantly, while FIIs have covered their exposure to stocks by taking up positions in derivatives, LIC’s entire investment is unhedged. The Insurance Regulatory and Development Authority rules do not permit investments in derivatives by insurance companies. Still, LIC has managed to act as a major domestic countervailing force to the FIIs.

As a result, while LIC has clearly emerged as the counter-weight to FIIs in the Indian equity market, the insurance major has few if any defence against market volatility. Company officials are understandably cagey about taking a public position on the issue. Mohan Raj, executive director (investments) said the company expects to make sizable investment in the current financial year too as the sentiment in the market has improved and several public offers are in the pipeline. He also said higher investments are essentially linked to premium collections. “If premium from equity-linked Ulips goes up, the investment in the equity market rises.”

Yet, the investments made by India’s largest life insurer has been a bulwark for the relative stability of the Indian equity markets in a year of massive global turmoil.

To get a measure of this statistic, one needs to compare the FII behaviour with that of LIC in 2008-09. In the year when LIC made a net investment of Rs 40,800 crore, FIIs withdrew Rs 48,248 crore from the Indian equity market. The trend of deeper LIC presence in the equity market is persisting in the current financial year too. In just April and May, the company has invested Rs 8,363 crore in equities compared with just Rs 1,189 core made by the FIIs.

Sanjay Sinha, CEO, L&T Mutual Fund said: “Not just LIC, the entire class of domestic financial institutions can be a counter to the volatility brought about by large exits sometimes made by the FIIs.”

Sinha also makes the point that the objective of institutions like LIC should not be to offer an exit avenue for FIIs (to shore up prices in the domestic market) – it must take advantage of opportunities to sell too.

Commented SBMathur, former chairman of LIC and incumbent secretary-general of the Life Insurance Council: “The insurance industry is not allowed to participate in the derivatives market. But if they are allowed in derivatives within prudent limits, they can reduce the influence of FIIs to almost half.”

He emphasised that LIC has become a sufficient counter-weight to FIIs as far as the cash market is concerned and drew parallels with the South Korean equity market. “FIIs were net sellers in the Korean market for three consecutive years from 2005. But the Korean market actually went up in all these three years because their domestic institutions had matured enough.”

Because of these restrictions, the bulk of LIC investments are held for very long periods that, in turn, cut down liquidity in the markets and the insurance company’s ability to offer higher returns to investors. As a senior executive in a rating agency said: “LIC’s impact on markets is limited in comparison to that of FIIs, simply because LIC is a long-term player. Both its investments and withdrawals are phased; in contrast, FIIs invest and withdraw in large numbers at once, thereby having a relatively stronger impact.”

Courtesy: http://www.indianexpress.com/news/lic-new-big-bull-in-market/641089/