LIC is bigger than GDP of 80% of the countries in this planet

Private insurers are not even snapping at LIC’s heels

It has been more than a decade now that private insurance players have been trying to gain a foothold in the market. But despite tying up with global leaders and having some of the best brains on board, private insurers seem to be headed nowhere.

  

Private sector insurers are witnessing rapid erosion in market share. Despite having been around for a decade, even reaching break-even seems a distant dream for a number of them. On top of this, private players are even planning initial public offerings (IPOs)! 

The numbers do all the talking. Between March 2009 to September 2010, domestic giant Life Insurance Corp of India (LIC) increased its market share in terms of first year premium to 73.27% (from 60.77%) while its market share in terms of number of policies increased to 72.20% (from 70.52%).

Moneylife calculated the first premium market share of life insurance companies as of September 2009 and September 2010, based on data from the Insurance Regulatory and Development Authority (IRDA). We considered first-year premium of individual single, individual non-single, group single and group non-single policies. 

The writing on the wall couldn't be any clearer. LIC has taken away market share from almost all the players.

So is this endgame for private operators? How long will they keep flogging tired revenue models and continue to support balance sheets bleeding red?

Coming back to the IPOs that these private insurers are planning, IRDA is currently readying its guidelines for such offers. Already, questions are being asked over the quality of disclosures mandated and whether investors would really be able to analyse the prospects of such companies. 

Speaking about the challenges in the valuation process of insurance companies at a seminar held in Mumbai recently, Ashvin Parekh, partner and national leader - Global Financial Services, Ernst & Young Pvt Ltd, said: "Disclosures for profitability of different product lines should have been made long ago. It would have helped not just for IPOs, but also for corporate governance. But the regulators have already missed the boat by 7-8 years. The authorities kept dragging their feet on Embedded Value (EV) disclosure even after three committees have gone into it. They kept saying it was too technical for them. If it is introduced now, it is impossible for investors to get (an) accurate picture from the disclosure that will be submitted to regulators as per the new guidelines. The regulators should have taken the lead, but confirmed the age-old belief that business is always ahead of regulators."

But regulatory lapses aside, why have private insurers not been able to take on the public sector behemoth? Agreed, LIC is huge, its size bigger than the GDP of almost 80% of countries in this planet- but whatever happened to private ingenuity and nimbleness?  

Till 2000, LIC enjoyed a monopoly. But elephants can dance, too. After the market was thrown open to private players, it got its act together. According to TS Vijayan, chairman, LIC, "The company felt threatened, but made changes and prospered."

According to Vipin Anand, chief-corporate communications, LIC, "The opening (up) of (the) insurance sector to private insurers did shake us up, but LIC responded well due to its intrinsic strength. We have 14 lakh agents as of today who cover every part of the country. We were the first government company to go for computerisation. Our computer network is (the) largest in the country after the Indian Railways. Even with the volume of our business we are able to have speed ratio (settlement within stipulated time, usually 30 days) of settling claims at 97.47% (maturity claims) and 95.29% (death claims) for 2009-10. We have excellent investment expertise to manage funds in-house." 

Is it too late for private insurers to go back to the drawing board?

Courtesy: Moenylife

IRDA yet to disclose claims repudiation ratio for 2009-10

IRDA has not disclosed details of repudiation of claims for 2009-10 for reasons best known to it. Private life insurers have come out pretty badly vis-à-vis LIC in this regard

Claims experience has to be one of the most important factors to consider before finalising life insurers, because every insurer will love to collect premiums, but few insurers will feel the same about claim payments.

Unfortunately, this crucial data is not available for 2009-10. LIC comes out better than private insurers in this regard. It too does not disclose its repudiation number for 2009-10, but hinted that it was slightly higher than 1.33% which was the figure in 2008-09. Looking at the atrocious claims repudiations percentage of private insurers, they may be the ones having something to hide. Can the Insurance Regulatory and Development Authority (IRDA) publish the numbers soon?

Based on 2008-09 data, the most incredible statistic is that of Aegon Religare with no claims settled, 71.43% claims repudiated and 28.57% claims pending. Please see: 

It could be that for 2008-09 there were lesser claims being generated because of new business, and unfortunately, the claims that came in had to be genuinely repudiated. We have to give the benefit of the doubt if that is the reason. When a life insurance company gets a claim within three years of policy start there is always investigation and possibility of claim repudiation.

Bharti Axa Life has recently unveiled its new brand positioning - "Jeevan Suraksha Ka Naya Nazariya." It has a service guarantee of "Release of Fund Value within 48 hours" of receiving claim intimation. It is even advertised on TV. In 2008-09, Bharti AXA Life had 53.20% claims settled, 44.83% claims repudiated and 1.97% pending. Low claims pending shows that Bharti Axa certainly is making quick decisions on claims, but high claims repudiation means that one out of two claimants will never get claims paid, forget about the 48-hour claims settlement.  We will again give the benefit of the doubt to this insurer if the 2008-09 data is indeed skewed due to new business.

The reason for repudiation can be due to incorrect/hidden details in policy forms filled by a policyholder with or without abetment from an agent. It is imperative that the policyholder fills up the policy form completely and in good faith without the agent filling any policyholder personal data. An ethical agent who is properly trained by the insurer will not mislead the potential customer just for getting commission. The policyholder will be at a loss because the policy form will be scrutinised only at the time of claim.

The other reason can be policyholders themselves indulging in fraud. As far as fraudulent claims are concerned, the insurer has every right to repudiate the claim.

According to Vipin Anand, chief-corporate communications, LIC, "Repudiation of claims also has investigation cost and possibly litigation cost in cases of a policyholder filing a grievance. In some cases, these costs can be greater than the claims cost. LIC can repudiate claims on technicalities and policy wording, but it does not do so unless there is a fraudulent claim. Moreover, LIC is in a strong financial position and does not worry about the bottom-line when genuine claims have to be paid. We pay on (an) average 77,000 claims in a day. "

Private insurers are struggling to break even and will surely be scrutinising claims to a greater extent. It will be hard for them to keep up with the giant called LIC. When will private players measure up to the insurance behemoth?

Courtesy: MoneyLife

Expose Bharti Axa to public

Fraudulent advertisement of Bharti Axa

Bharti Axa's recent and now telecasting TV advertisement speaks about (death) claim settlement. An elderly woman weeps after submitting her husbands belongings to an insurance company and asks for the claim. The company shown in the advertisement resembles LIC office with Govt. office style steel tables and chairs. After that, the advertisements goes on to tell that Bharti Axa settles the claim within 48 Hrs. and if not, pays 1% of fund value as penalty per day! 

Now look at the actual position from IRDA figures:

The Company, Bharti Axa, which repudiated almost 10 times more claims than LIC,

now tries to fool the general public and 

wants to show as if LIC is not settling

claims.

Actually, Bharti Axa repudiated more than 

one claim for every five claims reported!

This is the actual face of Bharti Axa!

Peel off it's mask!

Convey it to all the customers who speak about Private Cos.!

This is the actual face of all the Private Insurance Companies!

-Arivukkadal

Reliance takes 80% FYP as allocation charge!

IRDA bans ULPs it cleared a year ago!

October 22, 2010 03:40 PM

Raj Pradhan

IRDA has finally woken up to the ill-effects of ULPs, which we again highlighted four days ago. The question to ask is why these products were even allowed in the market? It gave insurers ample time to make a killing by charging 80% premium allocation charge in the first year as in the case of Reliance

One would think that 80% premium allocation charge in the first year would ring alarm bells with the regulator, but the Insurance Regulatory and Development Authority (IRDA) had approved one such universal life policy (ULP), launched less than a year ago. It is Reliance Super InvestAssure Plan which had 80% premium allocation charge for the first year premium.

But ULPs, which were being promoted as an alternative to unit-linked insurance plans (ULIPs) had a field day for a year. Yesterday IRDA announced an overnight ban on all ULPs. In the past IRDA gave advance notice to insurers, but companies have taken undue advantage of this and have pushed these products by positioning them as a "limited period offer".

"After examining the complaints, the authority is satisfied that universal life products need a better regulatory framework for protecting policyholders' interests," IRDA said. Interestingly, Moneylife had reported just four days ago on 18th October that IRDA will go after toxic ULPs; Reliance will be hit the most. (Read here).
ULPs come mainly from four companies - Max New York Life, Aviva Life, Bharti Axa Life and Reliance Life. Companies had built in high commissions into these plans. In a way, they contain the shortcomings of both traditional plans and ULIPs - high costs and pathetic returns. 

Reliance Super InvestAssure Plan had 80% allocation charge for first year premium while Max New York Life Secure Dreams plan had 30% of the same. There are additional charges like policy administration charge and fund management charges that eat into investor premium.

According to industry sources, insurers anticipated that IRDA would order ULPs to be wound up effective from the end of year. This anticipation only prompted them to go all out and push this toxic product with even more vigour. It happened for ULIPs and now for ULPs. It will happen again in the future unless IRDA is proactive and not reactive.

Source: Moneylife

ULIP review: LIC's pension plus has a low cost structure

ET Slide show about LIC's Pension Plus

(in pdf format)

Download Here

LIC's Profit from Stock Market Doubled!

Life Insurance Corporation of India (LIC) has booked profits on equity investments and turned net seller in the ongoing bull run. The company, which targets to invest Rs 60,000 crore in equities this financial year, has invested only a third of the amount (Rs 19,347 crore) in the first six months. 

Market officials believe that LIC may be conserving its money power for eventual investment in the government’s divestment programme, including the coming Coal India initial public offer.

A senior LIC official told Financial Chronicle that the company sold stocks worth Rs 22,600 crore in April-September this year, against Rs 11,250 crore sold in the same period last year. The profit made from selling equity has doubled to Rs 9,044 crore from Rs 4,500 crore in the corresponding half of last year.

Of Rs 19,347 crore invested in equity in the first half, Rs 18,632 crore went into the secondary market and Rs 715 crore in the primary market. The corresponding figures of last year were Rs 18,835 crore, Rs 18,200 crore and Rs 635 crore.

Leading investment bankers say LIC has been selling in the market to accumulate cash for the coming Coal India public offer, which will open on October 18 and close three days later.

Going by market perception, LIC is gearing up to take part in the government’s divestment plan. “LIC is a contrarian player in the market. It invests when the market is down and books profit in a bull run,” said Ramanathan K, chief investment officer of ING Investment Management India.

“LIC is a continuous seller, LIC might be saving for the Coal India issue,” he said. Anita Gandhi, director and head of institutional business at Arihant Capital Markets, also said LIC had been a net seller in the past two months.

The government has set a target of raising Rs 40,000 crore from divestment this year and so far it has garnered just around Rs 2,000 crore from the SJVN and Engineers India issues.

LIC’s cash pile is rising not only from booking profits but also from higher inflows of premium income. According to an Edelweiss report of October 1, LIC collected Rs 7,600 crore in fresh insurance premium in August.

Besides Coal India’s mega issue, the government has already announced divestment plans for SAIL, Hindustan Copper, Power Grid Corporation, Manganese Ore and Power Grid Corporation. ONGC is another company where disinvestments plans are in the final stages but its issue may hit the market only in March.

Source: Financial Chronicle

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