Indian Health Insurance Industry - ?

Health insurance industry holds a lot of promise. With a compounded annual growth rate of around 37 percent (FY 2002-08), health insurance industry in India is one of the fastest growing segments.

What also needs to be answered is whether it deserves to be classified as a different line of business, separating it from non-life insurance (as the present norm).

Banks must be allowed to sell insurance policies of multiple companies

Allowing banks to distribute insurance products of multiple insurance companies would be a step in the right direction for both the industry and consumers.

As per the present norm a bank can distribute one life and one general insurance product. This is restricting their area of activity and choice of offers to customers. Banks are thus handicapped in terms of product offerings and catering to customer needs.

Bancassurance across the globe is a significant distribution channel and enabling this channel to market and sell insurance policies of multiple companies would prove beneficial for banks, insurer and the customers. This way the customers would have more choices to make from which would suit their financial needs. This in turn would promote retailing in insurance.

IRDA is now contemplating on allowing banks to sell insurance products of more than one company.

Indian Private Life Insurance Companies - Break-even point

Recently two private insurance companies have been giving positive indication of breaking even by 2012. ICICI Pru Life and HDFC Standard Life expect to break-even in 2-3 years.

Operating and distribution costs hold the key. An established infrastructure plays an very important role in cutting down on the costs and thus reaching break-even faster.

Is life insurance only for the earning?

The main principle of insurance is to indemnify the risk. This risk would result in a loss in the event of it occurring. Life insurance in general are taken to make good the pecuniary loss suffered by the family in the event of the demise of the earning member. This in a way mitigates the economic loss and provides some relief in emotionally difficult times.

This brings us to an interesting question, is life insurance cover apt only for an earning individual / bread-winner / wage earner or does the non-working spouse / homemaker too deserve insurance? Economics, historically, has ignored the monetary contributions of a homemaker / housewife to the household.

As discussed above, while life insurance indemnifies any pecuniary loss, it does not do so for any emotional loss that an surviving individual or family suffers. One of the factors to be considered is that any emotional loss can be quantified if it has a financial bearing on the recipient. A homemaker too has a financial impact on the family and its well-being. While the debate continues on accounting a homemaker's contribution to the household, a life insurance cover would definitely not only protect the non-working spouse but also their family.

Some of the reasons why life insurance must be considered on a non-working spouse / homemaker is:

1. To hire professional services / domestic help to take care of home and family while one copes with the emotional loss one would have just suffered and later to focus on one's career.
2. To ensure adequate life and health cover for old age for a homemaker. It would prove beneficial to obtain a life insurance cover early as this would ensure better price and additional benefits during old age.
3. This would also take care of any medical emergencies that may arise during the lifespan of the non-working spouse and render them incapable of any work either temporarily or permanently.
4. If the homemaker decides to start earning or pursue one's interests later on in life, life insurance taken early in life would avoid buying insurance at higher premiums.

The services rendered by a homemaker is not to be ignored and a life insurance cover for the non-working spouse must be part of financial planning of any family.

Motor Insurance Scope Widened

All occupants of a private car and the pillion rider on a motorcycle are now covered under a comprehensive insurance policy.

The Delhi High Court has ruled that the families of pillion riders of two-wheelers and car passengers who die in road accidents will now be eligible for monetary compensation from insurance companies.
In a circular to the general insurance companies, Insurance Regulatory and Development Authority (IRDA) has said that injury to or death of an occupant in an insured private car and pillion rider on a two-wheeler is liable to be covered by the standard motor package policy (also called comprehensive policy) under the liability for third parties (TPL).

Seventeen insurance companies providing such comprehensive insurance policy have agreed to implement the extended cover with immediate effect and comply with an IRDA circular of November 16 relating to the liability of insurance companies.

The Next Big Regions for Insurance - Introduction

'The next big regions for insurance' is a series of articles where I will analyse and evaluate such markets which augur well and offer excellent scope for insurance growth in the coming decade (by 2020)

The countries under study are groups originally framed for the economic promises they hold. These groups have exhibited tremendous economic growth and have advanced technologically and financially as well. These countries have been in the limelight, offering greener pastures for matured economies (new markets to be targeted) and are aptly termed, 'emerging markets'.

Insurance is an offshoot of economic development. With increasing awareness (result of better educational facilities), higher disposable income (result of an increase in per-capita income) and better standard of living, insurance can reach larger audiences, offer relevant and need-based products through innovative and effective channels. What interests insurance specifically is either the large population or low penetration of a given market. These two factors, as we would discover in the articles, invariably  are present in the group of countries under study.

The groups identified for the study are:

• BRIC+M countries (Brazil, Russia, India, China + Mexico) and 
• CEE countries (Central and Eastern Europe)

We shall evaluate these groups one by one on certain common parameters thus enabling comparison. This would involve analysis of existing insurance scenario in respective markets and future opportunities and challenges for its growth.

IRDA mulls introduction of Variable Annuity products

The need for pension and annuity products in India is larger than ever before. The present population growth, increase in insurance awareness and the need for post-retirement cover have all prompted for a strong and effective pension system in India.
In accordance to the above mentioned points, IRDA has, in a circular dated 6th November 2009, constituted a 6-member working group, with Mr. Peter Akers as the chairperson, to examine the current status of annuity products and steps to strengthen the same.
Many countries are now moving towards introducing variable annuity products. It is quite popular in some mature economies, ex: USA.
The committee is expected to submit the report by January 31, 2010.

Definition of Variable Annuity: Annuity in which the amount of periodic payment varies according to the income generated by the assets in an investment portfolio. One can choose the investment options in which they would want their moeny to be invested.

Debate over agent commission cut

This has been the topic of discussion for some time now in Indian insurance scene. Understandably, with the 2008 recession and the financial crisis that followed, banks and insurance companies which were affected the most have started looking inward in terms of cutting costs. Distribution channels were the target. Most of the companies, especially in the emerging markets, incur heavy expenditure in setting up and running the distribution channels. It is these sales costs that are hurting the companies.

Its been a decade now with the liberalisation of insurance industry in India and one has witnessed a profileration of private insurance companies (with a 74:26 local-foreign joint venture). While increased competition has continued to drive down prices, expand product portfolios and shift focus on customer service, distribution and management costs have continued unabated. Indian insurance being agent-centric, commissions and agent fees constitute a major part of insurance companies' expenses.


The D Swarup committee on investor awareness and protection, formed by Govt., has come out with suggestions addressing the above mentioned issue on distribution costs. The panel suggests moving towards a commission less regime for financial products which includes insurance as well. The point to be noted is that commission is embedded in insurance products, where as the same is not the case in pension. Mutual funds too have incorporated the no-load structure. This would effectively mean a cut in commission to insurance agents, the bed rock of insurance distribution in India.

The panel plans to gradually phase out upfront commissions paid to agents and introduce a fee structure by April 2011. This has been met with a lot of opposition from life insurance agents and recently by IRDA as well. Agent's commission could be as high as nearly 15% to 20% of first year's premium paid by insurance buyer.

Eliminating commissions would result in insurance penetration suffering a setback and diminishing the role of agents. Insurance customers, urban and rural alike, irrespective of newer distribution channels such as bancassurance and internet sales, still prefer the agent route when it comes to life insurance.

The panel is now planning to modify its suggestions based on pure insurance products and ULIPs by alloting different regime of reducing/eliminating commissions.
It needs to be seen how the Govt. responds to this and if there would be any modifications in the final report.