Irda may allow agents to sell products of more than one insurance company

The Insurance Regulatory and Development Authority (Irda) plans to allow agents to sell products of more than one insurance company, allowing private insurers to access the vast army of agents selling products of the market leader – the Life Insurance Corporation (LIC).

Agents can sell products of only one insurer under existing norms, but Irda Chairman J Hari Narayan said the current global trend was to do way with tied agents, who can retail products of only one company. “The idea is to allow agents to sell products of more than one company. This model has been tried in Hong Kong. In England, tied agents have vanished,” he said.

The capping of charges on unit-linked insurance plans (Ulips) in September 2010 had reduced the income of agents, resulting in many exiting the sector and forcing the regulator to consider opening up alternative avenues of income.

More than 3 lakh agents have exited the insurance business after the regulator introduced stringent norms.

The new norms led to more than 100 products becoming ineligible. The number of agents came down from 3 million in 2009-10 to 2.65 million in 2010-11, according to data compiled by the Life Insurance Council. LIC has 13.5 lakh agents distributing its products.

“The move will increase earnings of agents. Though consumers buy Ulips of private insurers, when it comes to life products they only go for LIC. This would help us bolster our sales,” said Renu Dhavan, an agent with ICICI Prudential.

Private insurers have largely followed the bancassurance model, in which banks distribute insurance products. However, access to LIC agents, particularly the bigger ones, will increase the reach of private insurance companies.

LIC had a market share of around 76% in terms of new business premium for the financial year up to August 2011 while the remaining was divided among 23 private insurance companies. The state-owned insurer has been increasing its market share mainly because of its strong base of traditional products, which were unaffected by the change in regulations, and its group retirement plans.

New Norms

The new regulations introduced a year ago increased the lock-in period and quantum of life insurance cover while capping charges that could be paid out as commission to agents.

Before September 2010, bulk of the premium paid in the first year was passed on by the insurer as commission to the agent responsible for bringing in the client. This created an incentive to sell new policies while existing ones were often surrendered after the initial years.

The intent of the new rules was to encourage consumers to buy more protection against accident or death. The Indian insurance market is dominated by Ulips -investment products with a nominal life cover that compete with mutual funds.

Irda had also made it mandatory for agents to retain 50% of their business in the second year.

This regulation, known as persistency norms, refers to the percentage of business retained without lapsing or being surrendered.

Many agents have found it difficult to meet these norms and operate in a scenario where the commission payable has come down.

The difficulties being experienced by agents were one reason for the insurance regulator to consider allowing them to diversify their portfolio.

LIC opens 2nd divisional office in city

LIC’s in-charge chairman D K Mehrotra on Saturday inaugurated the insurance firm’s Patna divisional office II. With this, Bihar gets its fifth divisional office.

LIC had earlier four divisions in Bihar – Begusarai, Bhagalpur, Muzaffarpur and Patna. Muzaffarpur and Patna divisions have now been reorganized to form the fifth division. The new divisional office consists of 12 branches and 15 satellite offices spread over eight districts of the state.

Speaking on the occasion, Mehrotra said the changes in Bihar in affluence, awareness of insurance and demography are noticeable. “This is what prompted the opening of a second divisional office at Patna,” he said and added it was now up to the firm’s marketing and administrative teams to validate this decision by getting close to the customer both in terms of servicing and marketing.

He urged the agents, development officers and employees to walk that extra mile to maintain the LIC’s position as a market leader.

Zonal manager Vinay Sah, regional manager (marketing) Rakesh Kumar and senior divisional manager of the newly-opened Patna II office Anirban Sarkar were present on the occasion.

Faster, cheaper trade draws insurers to direct mkt access

The facility is currently available only to institutional investors in India.

 

Domestic insurance companies have started using the direct market access (DMA) facility for stock market transactions to keep trades confidential and benefit from extremely low broking rates.

DMA is an electronic facility that allows brokers to offer their clients a direct access to the exchange trading system through their infrastructure, but without manual intervention. The Securities and Exchange Board of India (Sebi) had allowed DMA in April 2008. This facility is currently available only to institutional investors in the country.

DMA EXPLAINED

WHAT’S DMA? DMA is an electronic facility that allows brokers to offer clients direct access to the exchange trading system through their infrastructure, but without manual intervention. Sebi had allowed DMA in April 2008 WHO ARE ITS MAJOR USERS? At present only institutional investors are allowed to use DMA in India. Over 30 per cent of FII trades are estimated to come through this route

Foreign institutional investors (FIIs) are the major users of DMA in India, with more than 30 per cent of their trades coming through this route, according to brokers.

“Since manual intervention is not there in DMA, you can have finer broking rates, which can be as low as 25 per cent of the normal rates,” said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance. “You can monitor your trade on a real-time basis. Also, sanctity of trades is maintained as they are not disclosed,” he added. About 25 per cent of IDBI Federal Life Insurance’s trades in stock markets now happen through DMA.

The Life Insurance Corporation (LIC), India’s biggest insurer, has also shown interest in using this facility for its stock market transactions, according to brokerages officials.

The brokerage rate for DMA in the cash market is 5-6 paisa for a turnover of every Rs 100. For trades placed over phone and manually entered by dealers, institutional investors pay an 10-15 paisa per Rs 100 turnover as brokerage.

“We are using DMA in a small way at present. It works well wherever the liquidity is low, as the identity is not revealed. Also, it gives the full control in terms of execution of the orders,” said Sampath Reddy, chief investment officer (equity) at Bajaj Allianz Life Insurance. “Sometimes on smaller orders or orders with a higher monitoring level, brokers may not pay much attention in those cases DMA will be more helpful,” he added.

Bajaj Allianz Life Insurance started using DMA six to seven months ago. Less than five per cent of the company’s trade in the stock market comes through this route. “The use of DMA will keep on increasing gradually. But you can’t replace traditional broking with DMA,” Reddy added.

FIIs cut, LIC raises stake in Infy during July-Sept

Foreign institutional investors (FIIs) have pared stake in Infosys Technologies marginally during the July-September quarter, but some of its biggest institutional investors — including Life Insurance Corporation of India (LIC), sovereign funds of the government of Singapore and Abu Dhabi Investment Authority — hiked their stakes in the Bangalore-based IT firm.

During the quarter, FIIs reduced stake in Infosys from 36.88 per cent to 36.66 per cent, and the share fell 13.66 per cent from Rs 2,934 to Rs 2,533 apiece.

However, nine out of 10 institutional investors, which held more than one per cent stake in the firm, used the fall in share price to raise their holdings during the quarter, according to the company’s filings with stock exchanges.

Retail investors, who own shares worth up to Rs 1,00,000, pared their stakes in the company by 1,16,798 shares through the quarter, though the number of investors rose during the same period. However retail investors, who own shares in excess of Rs 1,00,000, rose in number by seven to 372, who collectively added a total of 4,56,635 shares during the quarter.

Hemant Kanawala, head of equities at Kotak Mahindra Old Mutual Life Insurance, said institutional investors added Infosys shares as the stock corrected sharply while small retail (investors) sold as they got influenced by the market momentum.

LIC added 35.01 lakh shares raising its stake to 5.49 per cent from 4.88 per cent. Foreign investor Oppenheimer Developing Markets Fund added 1.89 lakh shares raising its stake to 2.71 per cent from 2.67 per cent. Abu Dhabi Investment Authority (bought 19.79 lakh shares) to 2.13 per cent; ICICI Prudential Life Insurance Company (bought 9.65 lakh); Vanguard Emerging Markets Stock Index Fund ( bought 13.51 lakh); government of Singapore (5.45 lakh); Aberdeen Asset Managers (21 lakh); HDFC Trustee Company (5.12 lakh) and Bajaj Alliance Life Insurance Company (82,500).

Only institutional investors to pare stake in Infosys was Franklin Templeton Investment Funds, which sold 14,000 shares).

On an aggregate basis, FII stake in Infosys was down marginally to 36.66 per cent from 36.88 per cent, while the total number of individual FIIs holding the stock came down from 948 to 907.

“When the stock corrected in the last quarter, it was more on uncertainty on FY13 earnings. FY13 earnings estimate continued to be challenging and it will determined only by April 2012,” Kanawala said.

“Because rupee has appreciated 10 per cent, Infosys’ rupee guidance has also gone up. Given that dollar will continue to remain strong, it will help the company,” Kanawala added.

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“The profitability guidance is robust as the EPS guidance in dollar terms has been raised and EPS guidance in rupee terms has been increased significantly due to higher rupee/dollar expectation (48.98 compared to 44.5 earlier),” said Rohit Kumar Anand, an IT analyst with PINC Research.

 

Irda shortlists two for key post

Two actuaries, A Apparao and Hemamalini Radhakrishnan, have been short-listed by the search committee appointed by the Insurance Regulatory and Development Authority (Irda), to fill its vacancy of a member (actuary).

Faced with a shortage of experienced actuaries, Irda might also scrap the position of executive director, actuary. This position has been vacant after K Subrahmanyam retired in June and Irda is yet to advertise for the position. The position of member (actuary) has been vacant since S Kannan retired in May. Irda had to advertise for the position twice, after the first advertisement failed to attract applications, due to stringent qualification norms. In the second advertisement, the regulator relaxed the qualifications and age limits for applying.

 

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“We received seven applications and after going through it, we have shortlisted two — A Apparao and Hemamalini Radhakrishnan. The final decision will be taken by a panel comprising the finance secretary and Irda chairman,” said a member of the search committee, who did not wised to be named.’

Apparao had worked with Life Insurance Corporation of India (LIC) and his earlier assignment was as company actuary at Madison Life Insurance Company in Zambia. Radhakrishnan had a stint with LIC and worked at ING Vysya Life Insurance Company as actuary.

Member (actuary), equivalent to an additional secretary’s rank, is a key position in Irda. “Under the earlier norms, only actuaries with a fellowship could apply. In the second advertisement, actuaries who qualified as associates were also made eligible,” said an actuary in a private life insurance company.

Actuaries are primarily entrusted with the pricing of products, assumptions on future profits and valuation of businesses. Key positions in Irda, considering the main responsibility is understanding and approval of products. Insurers have been complaining about the delays in product approval over the past four months, since the positions became vacant. “It’s been more than four months since we have filed three new products. We are yet to get any approvals,” said a senior official at a private life insurance company, who did not wished to be named.

Insurance agents set to turn more professional

Come October and your policies will be managed by a professional agent. Life Insurance Corporation of India (LIC) is planning to segregate its agency force. The agents will come under four categories—LIC Mithra, Advisor, Financial Advisor and LIC Wealth Manager.

Agency force will be segregated on the basis of performance. Each segment of the agents will be trained according to the role specified by the corporation. LIC feels that there is a strong need for reshaping the agency force.

S Roy Chowdhary, excecutive director (marketing), LIC, says, “The main objective is to train the agency force in the most professional manner. By doing so, agents will be able to know more about the products, financial markets and the prevailing economic scenario. This will benefit the policyholders since the agents will be in a position to provide financial advices to them.”

This move will encourage a change of role for agents from merely distributing products to financial advisors.

So how is LIC planning to segregate the agents?

“Performance-based and experience-based segmentation of agents will be more effective. Agents will be provided training as per the specified categories. The category depends upon the kind of polices each agent deals with. For instance, agents who deal with high net worth individual (HNI) policies will be trained accordingly,” says LIC official.

 

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This could also help in retaining agents in the industry. The Indian insurance industry has been facing a challenge from the agency force. The life insurance industry has been witnessing large scale agents drop outs for few months.

Agents have welcomed such a move, saying it will help prevent mis-selling, among other things.

“This move will help the policyholders. Agents need to play the role of an advisor along with distributing products. It increases the level of customer awareness also,” says Debiprasad Bhattacharya, a Mumbai-based insurance agent.

Life insurers’ premium mop-up falls

Premium collection of the life insurance industry in India continued to decline in August. During the April-August period, the industry collected premiums worth Rs 71,565.49 crore by writing new policies. This was a fall of 22.07 per cent, compared with Rs 91,833.94 crore collected in the corresponding period last year.

During the April-June period, premium collection was down 22 per cent.

According to data collected by the Insurance Regulatory and Development Authority (Irda), premium collection of Life Insurance Corporation (LIC), in the same period fell 20.91 per cent, while that of private peers, fell 28.72 per cent. While LIC collected Rs 30,912.31 crore, private insurers collected Rs 9,740.87 crore.

However, in August, the total premium collection by the industry stood at Rs 13,857.89 crore, up 62 per cent, compared with Rs 8,511.25 crore collected in July.

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GENERAL INSURERS
Gross written premiums of the general insurance industry rose 24.06 per cent during 2011-12, compared to the previous year.

According to data collected by insurers, the industry collected Rs 23,712.75 crore by writing new policies during the April-July period, compared with Rs 19,144.06 collected crore last year.

While private insurers registered a growth of 25.97 per cent at Rs 9,861.28 crore, the four state-owned general insurance companies’ collection was higher by 22.74 per cent at Rs 13,851.47 crore.

LIC retains number 1 spot in life insurance category

From the year 2003 to 2007, LIC reigned supreme in Brand Equity’s Most Trusted Brands Survey – in the services list of the survey – the insurance major was the numero uno service brand for five consecutive years.

But call it a reflection of the market dynamics on-the-ground, the big daddy of life insurance in India slipped to No. 4 in the overall services list last year and is ranked No. 12 in the services list this year. The slip is owing to the rise of other service brands, particularly telecom services providers who have kept a scorching and an aggressive go-to-market strategy touching millions of lives across India.

Telecom services and banks may have dislodged LIC from the overall list, but the company still rules the life insurance category. LIC is at No. 1 spot, followed by competitors SBI Life and Reliance Life at No. 2 & 3 respectively. LIC today has 78% market share in the life insurance space and services 28 crore individual policies besides covering more than 9 crore people under group insurance /superannuation schemes and more than 3 crore families under social security schemes.

While LIC still dominates the category by a wide margin, there are clear indications that competition is hard at work to narrow the gap. The Brand Equity’s Most Trusted Brands survey reveals that in the four zones, SBI Life comes a close second after LIC in the North zone. SBI Life also beats LIC as the most preferred life insurance brand in Chandigarh. Reliance Life Insurance is the other life insurance brand that has managed to beat LIC in the cities of Chennai, Bangalore and Chandigarh.

 

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The brand has been quite visible through advertising recently and its efforts at improving distribution two years back through the introduction of the Chief Life Insurance Advisors (CLIA) scheme to leverage cream of its agent pool has also yielded positive results. In less than 24 months after CLIA was first introduced, LIC managed to get close to 15 lakh agents.

The first year premium coming from just the CLIA scheme was so significant, that if the proceeds from CLIA were taken in isolation, it’ll be the sixth largest amongst the 22 life insurance companies operating in India. For the year 2010-11, LIC earned Rs 203,358 crore as premium and settled a mind-boggling 183 lakh claims for the same time period paying Rs 52,160 crore.

Wait for bancassurance norms gets longer

The much-awaited bancassurance guidelines might take some more time to come out. The regulator is considering the reaction to certain issues, such as protests from bank-backed insurance companies and the Life Insurance Corporation of India (LIC).

The bancassurance report, which came out in June, recommended that banks be allowed to tie-up with two types of insurance companies (life and non-life) for distributing insurance products.

Bank-backed insurance companies are protesting against the opening up of the channel, allowing banks to sell products of more than one insurance company. Some feel the channel, if at all, should be opened for only two companies. New entrants opine that banks should be allowed to sell products of multiple insurance companies.

LIC, the largest life insurer, is particularly against opening the channel. While it has a tie-up with at least 20 banks across the country for selling life insurance products, it says if more than one insurer is allowed to tie-up with a bank, it might lead to a “highly questionable business practice”.

“There is no easy solution to the debate on whether the bancassurance channel should be opened up. We in LIC still feel it is advisable to have a tied-agency system with one insurance company, rather than two. If banks are allowed to tie-up with more than one insurance company, then the most likely situation would be evolution of a highly questionable business practice and competition, as had happened in the case of the mutual fund industry,” said Sushobhan Sarkar, executive director (international operations) of LIC.

“It requires a huge amount of commitment from both the insurers and the banks to set up a successful bancassurance partnership. To that extent the Indian financial system has not matured and, in our opinion, banks should be allowed to tie-up with one or, at the most, two insurance companies,” said M N Rao, CEO of SBI Life, promoted by the country’s largest lender, State Bank of India.

“Most bank-promoted insurance companies are against opening the sector, as it might start a commission war,” said K Sahay, CEO of Star Union Dai-ichi Life Insurance Co, jointly promoted by Bank of India and Union Bank of India.

There is also the issue of upfront payments and on equity, which, after protests from banks led by Punjab National Bank (PNB), the insurance regulator might allow. This means banks might be allowed to treat payments and discounts on equity separately, rather than treating it as an advanced commission.

The draft report recommended that any upfront payments or equity discount offered by insurers to banks be treated as advance commission and amortised within three years of the deal. “This could have an effect on future deals, so the regulator is seriously examining it,” said sources. The issue is important, in the wake of the proposed deal between PNB and MetLife, which saw the bank getting nearly Rs 750 crore as discount.

Licence rules eased for life insurance agents

For life insurance agents, a breather is at hand.

New guidelines spelled out by the Insurance Regulatory and Development Authority (IRDA) on Tuesday said agents need to show a lower persistency ratio of 50% to keep their licence, compared with 75% earlier, with effect from July 1, 2014. Meaning, if an agent sells 100 policies in a year, he has to worry about getting only 50 of them renewed instead of 75 earlier.
Persistency, thus, indicates an agent’s ability to generate policy renewals and premiums in time.

Debiprasad Bhattacharya, a Mumbai-based insurance agent since more than two decades, said he is a relieved man. “This is a very good move by Irda for people like us. It eases the pressure. This would also mean a lesser number of agents will move out of the life insurance industry compared with what we saw last year,” he said. Failure to comply with the 50% ratio will lead to termination of the agent’s licence.

Earlier in February this year, Irda had said agents needed to maintain a 75% persistency rate in both, the number of policies and premiums.

In the revised norms put out on Tuesday, Irda said the average persistency rate has to be at least 50% in terms of number of policies — the premium collection limit is no longer a performance metric.

The objective of the modification is to ensure a high level of persistency of life insurance policies, Irda said.

“This new guideline will help the LIC. Agents should get more serious about collecting renewal premiums. They should do their best to avoid any lapsation in policies. Earlier, 2 out of 10 life insurance agents left the industry, according to our study. Now fewer may leave,” said R R Dash, zonal manager, LIC. MN Rao, managing director and CEO, SBI Life Insurance, said the new guidelines “will help insurers maintain a professional agency force”.