Health Insurance Portability in India (effective October 1, 2011)

The scheme was proposed to come into force from July 1 earlier, but was deferred for three months due to certain outstanding issues with insurance companies.

Health portability will allow consumers to change their service provider without losing the basic coverage of health insurance. As per portability rules, consumers will get credit for the time already spent for covering the pre-existing disease along with bonus accrued to him from his past insurer.

However, health insurance portability will be limited to non-life insurers, which will allow policy switch with respect to all individual policies, including family floater policies.

Even individual members, including the family members covered under group health insurance policy of a non-life insurer, will be able to migrate from a group health policy to an individual policy or a family floater with the same insurer.

MetLife and Punjab National Bank enter strategic bancasssurance partnership

MetLife India and Punjab National Bank (PNB) have entered into a strategic business partnership to distribute life insurance products of MetLife. PNB has acquired a 30% stake in MetLife India's operations and a 10 year agreement to distribute its products through it's channels.

Final approval by the Govt. and financial regulators is awaited, post which MetLife would be known as PNB-MetLife India Insurance Company.

This joint venture looks like a win-win for both the parties involved. MetLife would receive a major boost to its distribution set up with PNB's more than 5000 branches and 60 million customers. This would help PNB establish itself more comprehensively in the financial services sector.

This deal also augurs well for the fledgling insurance industry in India. With 60% of PNB's branches located outside Indian Metropolitan areas, it would take life insurance to the oft neglected semi-urban & rural areas.

This deal is a testimony of the importance and effectiveness of bancasurance in the current distribution set-up. Insurance companies are constantly looking at cost optimisation and alliances with banks not only serves the purpose but contributes to profitability.

As per IRDA annual report 2009-10, bancassurance contributes 8.46% of new business premium (individual and group) and this is high for private insurers with 22.02% of new business premiums coming from bancassurance.

India Post to distribute Insurance Polices

Finally, the largest network with maximum reach has been roped in to distribute insurance policies in India. Department of Post (DoP) has been allowed by IRDA, the insurance watchdog, to sell insurance policies of multiple insurance companies.

This has been a result of a study undertaken by an expert committee on 'Harnessing the India Post Network for Financial Inclusion' which had recommended that the low cost platform of India Post be used for strategic partners like microfinance institutions (MFIs), mutual funds and insurance companies.

The sheer size of the network and its reach is substantiated by the following facts:

• Over 155,000 branches - twice as large as the outreach of all commercial banks in India put together
• Nearly 16 crore people use India Post
• Savings as on March 31, 2007 - Rs. 3,23,781 crore
• Deposits in savings bank account - Rs.16,789 crore

The DoP across India has been divided into 22 postal circles and now each circle is treated as a separate unit and will be allowed by IRDA to tie up with 2 non-life insurance companies, 2 life insurance companies, 1 agricultural insurance company and 1 stand alone Health Insurance Company for this purpose.

However, IRDA has disallowed the Head/Corporate Office of India Post to engage in the distribution of the insurance products of any insurance company ("in its individual capacity it shall not obtain license to act as Corporate Agent of any insurance company")

An excellent alternative:

With the opening up of this new distribution channel, it provides an excellent opportunity for insurance companies, busy chasing banks for distribution partnership, to tie up with India post. Insurance companies are facing a scarcity on this front with successful and large banks already engaged. This distribution arrangement will provide a low cost avenue with a wider reach for insurance companies, at the same time proving to be a new source of income for department of posts.

Now the fight would be for prime circles (especially in metropolitan areas) with cap on the number of companies that each can tie up with. In the case of metropolitan areas, as noted by IRDA, the head of Circle may approach IRDA for prior approval of further division in the circle as separate units to obtain licence to act as corporate agent in view of the large population. The head of the circle would be deemed to be the corporate insurance executive (CIE) — the key executive responsible for all insurance agency dealings.

One of the interesting points to be noted here is that the regulator has barred India Post from selling customer data to insurance companies under some referral arrangement.

Natural catastrophes and insurance in India

Natural catastrophe is nothing new to India. Be it floods, landslides, extreme cold or heat, they all have their seasons in India. Many lives are lost every year due to these calamities. Earthquakes and tsunami are rare but equally devastating. Its been nearly 6 years since tsunami struck us and still individual natural catastrophe covers have not yet evolved in India.


There is a strong need to insure individual property and its contents. India is yet to see a standalone insurance product for natural disasters. IRDA is now studying CAT insurance solutions to insure an individual against such natural acts of destruction. In response to this, Mr. Narayan, chairman, IRDA, mentioned that the government at present provides the bulk of financial aid through budgeted funds, which are largely given for restoration of public buildings, humanitarian relief and writing off of crop loans. Loss of individual family assets is not taken care of.


He suggested that mandating lenders to take out catastrophe insurance, irrespective of the location of the properties on which they have loaned money, was one way of increasing cover against disasters. 

Classroom 3: Reverse Mortgage

Reverse mortgage is a financial product that enables senior citizens (60 plus) to mortgage their real assets with a lender and convert part of the equity into tax-free regular income. This saves them from selling assets in their life-time. 

Reverse Mortgage and Insurance in India

Reverse Mortgage is not yet a big thing in India. And insurance companies role in this has been limited. India's largest life insurance company, LIC (Life Insurance Corporation) is now planning to enter the reverse mortgage space.

Embedded Value for Indian Insurers

Indian insurance regulatory body, IRDA has signalled mandatory valuation of insurance companies on Embedded Value (EV). This could be applicable from the current financial year, i.e., 2010-11.

This new method of valuation is calculated as explained in my Classroom Series (refer Classroom 2 - EV).

Need for change:

• Broadbased and transparent disclosures
• Facilitate inter-firm comparisons
• Assist capital market accession for insurance companies

For details, please click on 'Deccan Herald'