1- 48 pages (may issue for pdf) - irdaonline.org · editorial board: c.s.rao p.a. balasubramanian...

Volume II, No. 6

MAY 2004

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Editorial Board:C.S.RaoP.A. BalasubramanianS.V. MonyK.N. BhandariA.P. KurianNick TaketAshvin ParekhNimish ParekhHasmukh ShahA.K. Venkat SubramaniamProf. R.Vaidyanathan

Editor:K. Nitya Kalyani

Hindi Correspondent:Sanjeev Kumar Jain

Design concept & Production:Imageads Services Private Limited

Printed by P. Narendra andpublished by C.S.Rao on behalf ofInsurance Regulatory and Development Authority.

Editor: K. Nitya Kalyani

Printed at Pragati Offset Pvt. Ltd.17, Red Hills, Hyderabad 500 004and published fromParisrama Bhavanam, III Floor5-9-58/B, Basheer BaghHyderabad 500 004Phone: 5582 0964, 5578 9768Fax: 91-040-5582 3334e-mail: [email protected]

© 2004 Insurance Regulatory and Development Authority.Please reproduce with due permission.Unless explicitly stated the information and views published in thisJournal may not be construed as those of the Insurance Regulatoryand Development Authority.

C.S.RAO

Human needs are complex and, surely, amazing intheir range. Today we desperately need things thatwe did not need yesterday; in fact that did not evenexist yesterday. While technology and technologyrelated products lead in this area, it is equally trueof financial products too.

Changing needs reflect changes in theenvironment. Pensions have acquired a newsignificance because of the way our society istransforming itself and the traditional communityand family ties are loosening while longevity isincreasing. Health insurance is critical because ofthe myriad risks we face increasingly due to lifestyle.Liability insurance for businesses including for topcorporate management is needed becauseindividuals and institutions are asserting theirrights, and seeking redressal of wrongs, throughlitigation if need be. The list could go on …

As the consumer of insurance is waking up tonewer needs, the Indian insurer is also getting thereto meet them. Through product and market researchand no doubt through observation of consumerbehaviour, changes are effected in the kind ofproducts and features coming out into the market.In this issue of IRDA Journal we bring you an

From the Publisher

overview of how products, benefits, features, or evenproduct presentation are changing. Innovation isnot only when a new risk can be covered or a financialneed is met. It can be, at one level, a simple productlike a critical illness ignored for long but dusted upand offered with renewed vigour now. Or it can bethe way you describe and illustrate a product thatirons out the wrinkles in the sale process, improvingchances of a well-informed sale.

In a sense this topic is a subset of what wefocused on last month – customer expectations. Newtrends in product and its marketing also throw lighton what the company does internally and to theprocess of conveying it to the customer in terms ofthe latter’s understanding and acquisition.

And we follow the topic through in the nextmonth. The next issue will be on alternate channelsof distribution. Assuming that agency, includingthe corporate kind, brokerage and bancassuranceare ‘traditional’ channels, we will try to look at newchannels in rural and urban markets that theinsurance companies are using or creating and thepeculiar opportunities and challenges of each oneof them. As always, we welcome your participationwholeheartedly.

A New Way ofThinking

Vantage Point - K. Nitya Kalyani 4

In the Air 5

Pension Pages 6

Statistics � Life Insurance 8

‘Waiting for a Change’ - Interview with Mr. Karl Wittmann 10

On the Shopfloor... - K. Nitya Kalyani 12

Dreaming the ‘Healthy India’ Dream - Aloke Gupta 20

A Spicy Bouquet of Benefits - Nirmala Ayyar 25

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Technology and the Indian Insurer - M. Arunachalam 36

Statistics � Non-Life Insurance 40

News Briefs 42

The Balancing ‘Act’ - P.S. Prabhakar 46

Round Up 48

Inside

ISSUE FOCUS

R. Kannan

Dinesh Chandra Khansili

Behind theScenes

13“I Wish...”R. Sridhar

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here Dreams are Born...WWe have heard enough about the pent up demand for insurance products in India. ‘Low insurance penetration’

and ‘a highly underinsured country’ are two of the phrases that crop up regularly when the insurance market

is discussed. This issue of IRDA Journal looks at new trends in products and product features that the

industry is seeing.

While many totally new products have not been introduced there is a distinct trend towards some types of

features and benefits gaining prominence. Health related riders for one. And definitely in a bull market such

as the one we have been seeing, unit linked products. On the non-life side there has been more interest in

liability insurance of the corporate kind, reflecting both Indian corporates’ entry into the world capital

markets and hence, their area of scrutiny and required level of protection, and also reflecting the new needs

dictated by the stress on good corporate governance.

We bring you some articles that outline what’s happening in the market and some inferences for the near

future. Ms. Nirmala Ayyar uses new products, riders and features of some private sector companies to

illustrate how the industry is getting more user friendly while Mr. Dinesh Khansili, Deputy Director (Actuarial)

of IRDA focuses on a new policy of LIC to bring out similar lessons.

We bring you the product imaginings of a common, prospective insurance buyer, Corporate Creativity

Consultant, R. Sridhar. And in an effort to ground those dreams in reality we present an imaginary sketch of

how a product is born, through the eyes of an Appointed Actuary, Dr. R. Kannan of SBI Life Insurance

Company.

A new section, Pension Page, seeks to give a snapshot of the reform process in the pensions sector in the

country.

In the Follow Through section this month is an interview with Mr. Karl Wittmann, Member of the Board

of Management, Munich Re, who oversees the company’s activities in Asia, Australasia and Africa, outlining

his company’s association with the Indian market.

Mr. M. Arunachalam, Advisor, Insurance, HCL Technologies Ltd. starts a four part series in this issue on

the application of information technology (IT) in the insurance industry bringing in his long experience with

the LIC and as a domain expert on insurance for the IT industry.

We do hope you will find the issue useful and illuminating. Our next issue will be about the newly

emerging distribution channels for insurance and their challenges and the potential they hold.

K. Nitya Kalyani

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The Ever Shifting Road...K. Nitya Kalyani

The new channels that areemerging slowly presentan interesting picture.

Think of insurance and the first thingthat comes to mind is the pesky agentwho won’t take no for an answer. Hetempts you with tax benefits, scares youwith the thought of dying and leaving yourfamily on the streets or steps in to getyour medical policy just in time for you toleave on that holiday abroad.

Add to that your bank trying to sellyou some insurance when you take ahousing loan. Or when they find that youhave surplus money in your account andcould do with more life insurance! Andsoon brokers will get to the point wherethey will offer individuals a range ofpolicies from different insurers and findus the one that fits just right.

But these are the well known, by now,channels of reaching insurance as aproduct to the customer. The new onesthat are emerging slowly present aninteresting picture.

Take the Internet for instance.Companies are willing to provide quotesfor certain types of policies through theirwebsite. Not just Life policies or Motor,but Marine Cargo policies….. Go to a bankautomatic teller machine (ATM) and youdon’t come away with just cash. You arebombarded with questions on whetheryou would like insurance policies… didyou check that option? It’s right therebelow the internet hours!

Call your bank’s phone bankingservice and, after telling you your balanceor whatever it is you seek, they will try tointerest you in a policy or two, or at leastin playing host to an agent who is eagerto come in and say his piece.

Or these calls out of the blue asking ifyou are interested in insurance or apersonal loan or a housing loan in threedays flat!?

In the rural areas there is a differentkind of intermediation emerging. Theapproach there is very community based.The local community’s thought leaderhas been roped in to spread the good word.They could be non-governmentalorganisations (NGOs) working ineducation or microfinance in that area, ora company with consumer contact outlets– like one selling fertilisers or consumergoods of varying kinds, or buying theproduce of the land for that matter.

They take on the work of distributinginsurance adding value to their customersand adding a fee based income to their

own revenue streams. Some have metwith good success and others are in theprocess of settling down to what isessentially a tremendous task.

What does all this add up to? Otherthan more apparent marketing activityfor a product that was mostly boughtrather than sold? Other than beingpursued for something that you soughtout and tried to buy with great difficulty?Other than intermediaries more willingto tell you about the product than beforewhen they just expected to get yoursignature on a mostly blank proposalform and run?!

Marketers and market theoryproponents say that it means betterservice. That it means better productdefinition and hence the development ofmore suitable products for the endcustomer. That it means that the insurerand his intermediaries work at efficientcosts since someone else is alwaysbreathing down their necks. …

But it can also mean a loss of privacy.Not just in a personal way, but also inthat the confidentiality of your financialdata is being shared with people you havenot authorised for access. Even if it is theinsurance company owned by your bankor represented by your bank. In future itcould mean that your financial status coulddictate your insurance premiums – as itdoes in many western countries now – andthat your financial status is being sharedwithout your consent or knowledge rightnow as you read this.

Is this such a big change? Certainly!As big a change as having an insuranceagent come to you to sell a policy is fromthe very early days of insurance whenthe board members of an insurerpersonally interviewed new applicantsonce in six months to decide whether toinsure him or not!

And in the pipeline are policies fromyour local post office and perhaps throughyour mobile phone! During an importantmeeting or an engrossing movie your phonebeeps. It’s an SMS from your mobile phoneservice provider. Just SMS ‘I wantendowment’ to the specified number, itsays, and download your custom madepolicy!

Come to think of it, kind of remindsyou of that pesky agent doesn’t it!

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GIC’s Commission Rates ChangedIRDA, in consultation with its reinsurance advisory

committee, has changed the commission rates forreinsurance placed with the National Reinsurer underthe compulsory cessions. While there has been anupward revision in some cases, rates for Motor andWorkmen’s Compensation have been brought down byfive per cent to make the new rate 20 per cent.

The new rates for Fire is 35 per cent (the old ratewas 30 per cent), Marine Cargo 25 per cent (22.5 percent), Marine Hull carries a five per cent commissionfor net rated risks and 17.5 per cent for gross ratedrisks (17.5 per cent for both).

Reinsurance commission rates for War and Strike,Riot and Civil Commotion (SRCC) as well as the SRCCcover continue at 10 per cent each, Aviation Hull at 10per cent, Aviation Liability at 15 per cent, Oil andEnergy at 2.5 per cent, Public Liability and ProductLiability 25 per cent, other Miscellaneous Engineeringrisks reinsurance will continue to be given a commissionof 25 per cent. Rates for Engineering, Machinery

Breakdown, Boiler Explosion, Loss of Profit,Construction All Risk, Erection All Risk, AdvancedLoss of Profit and Delayed Start Up have been reducedfrom 30 per cent to 25 per cent.

The method of computation of profit commissionshas also been revised. While earlier profitcommissions were computed for the entire portfolioof an insurer as a whole, the new system is tocalculate profitability for each class of business andpay a differential commission for each. Accordinglythe profit commission rates payable are 20 per centfor Fire, 10 per cent at the end of 36 months forMarine Cargo and 20 per cent at the end of 36months for Oil and Energy. Other classes of businessare not eligible for any profit commission.

IRDA has also urged all insurers to try to utilisethe domestic capacity for reinsurance throughfacultative placements of reinsurance with other Indianinsuters and with the National Reinsurer, beforeseeking coverage in markets abroad.

PPPPP.H. Y.H. Y.H. Y.H. Y.H. YadavadavadavadavadavBajaj Capital Insurance Broking Ltd.5th Floor, Bajaj House, 97, Nehru Place,New Delhi-110019Ph: (011)26418903Ph: (011)26418903Ph: (011)26418903Ph: (011)26418903Ph: (011)26418903

KKKKK . Anand. Anand. Anand. Anand. AnandKS Insurance Broking Pvt. Ltd.New No. 15, Venkatraman Street,R.A. Puram, Chennai-28.Ph: (044)24937911Ph: (044)24937911Ph: (044)24937911Ph: (044)24937911Ph: (044)24937911

S. Balwinder SinghS. Balwinder SinghS. Balwinder SinghS. Balwinder SinghS. Balwinder SinghL & G Insurance Brokers Ltd.30-Prakash Nagar, Model Town,Jalandhar, PunjabPh: (0181)2274336Ph: (0181)2274336Ph: (0181)2274336Ph: (0181)2274336Ph: (0181)2274336

Uday KumbhareUday KumbhareUday KumbhareUday KumbhareUday KumbhareUnited Risk Insurance Broking Co. Pvt. Ltd.9, Vee Nimbkar Society, Near Sakai Nagar,Baner Road, Pune-411 007Ph: (020)5674148Ph: (020)5674148Ph: (020)5674148Ph: (020)5674148Ph: (020)5674148

Sandhaya AroraSandhaya AroraSandhaya AroraSandhaya AroraSandhaya AroraACE Insurance Brokers Pvt. Ltd.B-17, Ashadeep Bldg., 9 Hailey Road,New Delhi-110001Ph: (011)23713898Ph: (011)23713898Ph: (011)23713898Ph: (011)23713898Ph: (011)23713898

C. Chandra SekaranC. Chandra SekaranC. Chandra SekaranC. Chandra SekaranC. Chandra SekaranNew Era Insurance Services Ltd.102, Siva Sai Sannidhi,Opp. Shiridi Saibaba Temple,Hindi Nagar, Punjagutta,Hyderabad-500034Ph: (040)55787878Ph: (040)55787878Ph: (040)55787878Ph: (040)55787878Ph: (040)55787878

Harsh SinghalHarsh SinghalHarsh SinghalHarsh SinghalHarsh SinghalMarsh Brook Insurance Brokers Pvt. Ltd.F-8/15, Vasant Vihar,New Delhi-110 057.Ph: (011)26156482Ph: (011)26156482Ph: (011)26156482Ph: (011)26156482Ph: (011)26156482

PPPPP.N. Bhat.N. Bhat.N. Bhat.N. Bhat.N. BhatBerkeley Insurance Services Ltd.SCO 42, Sector 26, Madhya Marg,Chandigarh-160 019.Ph: (0172)5089999Ph: (0172)5089999Ph: (0172)5089999Ph: (0172)5089999Ph: (0172)5089999

S.S. AgarwalS.S. AgarwalS.S. AgarwalS.S. AgarwalS.S. AgarwalRBA Insurance Brokers Pvt. Ltd.32-F, Opp. L.I.C. Building, Sanjay Place,Agra-282 002.

Jeprish GandhiJeprish GandhiJeprish GandhiJeprish GandhiJeprish GandhiSigma Insurance Broking Pvt. Ltd.303,Somnath Commercial Complex,33/37, Karan Para, Opp. Hotel Samrat,Rajkot-360 001Ph: (0281)2238937Ph: (0281)2238937Ph: (0281)2238937Ph: (0281)2238937Ph: (0281)2238937

Dinesh VashishtDinesh VashishtDinesh VashishtDinesh VashishtDinesh VashishtSREI Insurance Services Ltd.“Viswakarma”, 86C Topsia Road(South),Kolkata-700 046.Ph: (033)22850124Ph: (033)22850124Ph: (033)22850124Ph: (033)22850124Ph: (033)22850124

Sanjay SinghSanjay SinghSanjay SinghSanjay SinghSanjay SinghVision Insurance Risk Analysis Management& Brokers Pvt. Ltd.A10/30, Aziz Manzil Shanti Nagar,Kanpur-208012Ph: (0512)24221710Ph: (0512)24221710Ph: (0512)24221710Ph: (0512)24221710Ph: (0512)24221710

DDDDD.K.K.K.K.K. Goyal. Goyal. Goyal. Goyal. GoyalMadhav Insurance Brokers Pvt. Ltd.Gandhi Chowk, Ahmedgarh, Distt. Sangrur,Punjab-148021Ph: (011)242656Ph: (011)242656Ph: (011)242656Ph: (011)242656Ph: (011)242656

Umesh NarangUmesh NarangUmesh NarangUmesh NarangUmesh NarangApple Insurance Brokers Pvt. Ltd.D-10, 1st Floor, Green Park,New Delhi-110 016Ph: (011)51755370Ph: (011)51755370Ph: (011)51755370Ph: (011)51755370Ph: (011)51755370

VVVVV. Shak. Shak. Shak. Shak. ShakerererererNandi Insurance Broking &Risk Management Services Pvt. Ltd.215/216, Kamer Bldg., 38,Cawasji Patel Street, Fort,Mumbai-400 023Ph: (022)22886915Ph: (022)22886915Ph: (022)22886915Ph: (022)22886915Ph: (022)22886915

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A New Face for Pensions

A member will accretesavings into his personal

retirement account while heis working and use the

accumulations at retirementto procure a pension for the

rest of his life.

- An Overview of the Proposed System

The SystemThis system will offer two types of accounts(a) a Tier-I non-withdrawable and taxdeferred pension account, and (b) a Tier-IIwithdrawable savings account with no taxadvantages.

This pension system is based on personalretirement accounts (PRAs) created byindividual members. Each account createdin this system will be allotted a unique accountnumber. A member will accrete savingstowards his retirement into his PRA throughhis working life.

This PRA will stay with the memberregardless of where he stays or works –including spells of unemployment, self-employment, changes in jobs or location.

He will be able to use a nation-widenetwork of competing pension serviceproviders (POPs) to access this system foropening a PRA, accreting new contributions,receiving account or system information andfor obtaining retirement benefits.

A member will have complete control onhow his contributions and savings in his PRAare managed. He will be able to select aprofessional Pension Fund Manager (PFM)from a pool of competing pension fundmanagers.

Each PFM in this system will offer achoice of three simple and standard pensionschemes with different risk and returnprofiles. If he desires, the member will befree to allocate his savings across multiplePFMs and schemes. If a member is unable toselect a PFM, his savings will be directed to a

‘Default’ scheme. He will also be free andable to switch his savings seamlessly betweenfund managers and products as and whenhe desires.

With individual accounts and completefreedom of choice, a member will be able toeasily alter his risk profile in an optimum

fashion over time – he will be able to movefrom a high return scheme with relativelyhigher risk at a young age, to a low or nearzero risk, modest returns portfolio whenapproaching retirement if he desires. Themember will receive periodic, consolidatedstatements of his PRA which will reflect hisnotional wealth in his PRA across variousproducts and PFMs. This will be the sum totalof his contributions at that point of time andthe returns that these contributions haveearned.

On retirement, the member will be ableto use a part of the savings accumulated overthe years in his PRA to buy a pension whichwill finance his post-retirement consumptionfor the rest of his life.

In this process of accumulatingretirement savings, the Pension FundRegulatory and Development Authority(PFRDA) will provide the members of thisscheme with a sound regulatory frameworkand an umbrella of safety with respect toprevention of fraud and malpractice.

The Participants1. Members : This scheme will target

two categories of individual participants(members):

a) It will be applicable to employees ofthe central government (excluding ArmedForces) who join service after January 1,2004. For these employees, participation andcontributions to the Tier-I account will bemandatory. Every month, the governmentwill deduct 10 per cent of the salary (basicplus DA) of these new employees, match itwith an identical contribution from its side,and transfer this full 20 per cent contributioninto the relevant employee’s PRA. Theemployee will select the PFM(s) andscheme(s) to which this 20 per cent monthlycontribution will flow.

These employees will also be eligible toopen and operate a Tier-II savings account(which will allow withdrawals) on a voluntarybasis. The amount and periodicity ofcontributions into this Tier-II account will bedecided by the employee and will be overand above the mandatory contributions intothe Tier-I pension account. The governmentwill not contribute to this account.

If a government employee decides toresign from service, he will be able to moveinto any other service along with the full

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An initially limited numberof competing, specialised

professional pension fundmanagers (PFMs) willmanage the retirement

savings of members.

balance in his PRA on that date. However,once he ceases government service, he willno longer be eligible for the 10 per centgovernment contribution and will thereafterbe free to contribute voluntarily into his PRA.

b) The second category of members willinclude all other citizens of India who willparticipate in this scheme on a voluntarybasis. This category of members will also beallowed to operate the Tier-I and Tier-IIaccounts which will be identical to theaccounts for central government employees.

However, voluntary investments into theTier-II (withdrawable) account will bepermitted only after a minimum annualaccretion into the Tier-I account is achieved.These members will be free to decide theamount and periodicity of their contributions.For these members, there will be nomatching contribution by the Government.

However, employers (including privatefirms, state governments, PSUs and others)will be free to make contributions into thePRAs of their workers if they wish. Unlike inthe case of the government, thesecontributions by employers may not bemandatory.

In both categories of members andaccount types, the members will a receive aunique account number, accretecontributions into this account, select a PFMand product, switch between PFMs andproducts, and receive consolidated accountstatement.

2. Points of presence (POPs) will bethe service providers for members and willoffer a host of services. POPs will open newPRAs with unique account numbers; collect,verify and transfer contributions and/orinstructions regarding PFMs and schemes tothe CRA with relevant and correct memberaccount information; collect and transfercomplaints from members to the CRA;provide performance data as well as accountinformation and statements to members; andcommunicate changes in personalinformation of members to CRA. Once amember retires, the CRA may use this samenetwork to deliver the lump sum terminalaccumulations to the bank account ofrelevant member.

Banks, post offices, depositoryparticipants and other secure entities whichare capable of electronic connectivity withthe CRA will serve as POPs.

For central government officers, the Pay& Account Offices (P&AOs) will performsome of the POP functions.

3.The recordkeeping, administration andcustomer service functions for all membersof this pension system will be centralised andperformed by the Central RecordkeepingAgency (CRA). The CRA will issue a uniqueaccount number to each member, maintaina master database of all personal retirementaccounts and record the transactions relatedto each member’s PRA. The CRA will receiveand consolidate member contributions andinstructions and transmit them to therelevant PFM and scheme on a daily basis.The CRA will provide periodic, consolidatedPRA statements to each member. The CRAwill also enforce operational guidelines of thePFRDA as well as mandatory contributionsby government employees.

4. An initially limited number ofcompeting, specialized professional pensionfund managers (PFMs) will manage theretirement savings of members. The CRAwill reconcile and collate all instructions and

funds received from members through thePOP network or the Internet. Once allbalances are determined, the CRA will remita single, netted amount to the PFM (whichbe the sum total of the netted amounts acrossall three schemes of the PFM) along with astatement specifying the exact amount to beinvested under each of the three schemes.PFMs will comply with the investmentguidelines issued by the PFRDA for allocatingthese assets under each scheme. Firms withrequisite fund management experience andwhich satisfy the eligibility criteria specifiedby PFRDA will be eligible to apply for a PFMlicense.

5. When a member retires, he will bemandated to use a specified part of histerminal accumulations in his PRA to buy aninflation indexed annuity from a pool of

competing annuity providers who will beresponsible for delivering a regular monthlypension to the member for the rest of his life.Life insurance firms which are registered withthe IRDA will serve as annuity providers.

6. Authorised Retirement Advisors(ARAs) will help in marketing the new systemto potential members. They will advise andassist members with opening retirementaccounts, as well as with selecting appropriatepension fund managers and products.

The ARAs will conform to a uniform codeof conduct and ethics and will have to pass acertificate examination prescribed by thePFRDA in order to obtain a periodicallyrenewable work license. The ARAs may beaffiliated to specific PFMs, POPs or may workas independent advisors. Existing agents andfinancial intermediaries of mutual funds andinsurance firms will also be able to serve asARAs by passing this certificationexamination.

7. In this entire process of accumulationsand withdrawals, a sound regulatoryframework would give individuals anumbrella of safety with respect to problemsof risk management and prevention of fraud.The PFRDA will regulate the POPs, ARAs,CRA and PFMs during the the accumulationphase of this pension system. The process ofdelivery of pensions to members by annuityproviders will be regulated by the IRDA.

However, if a member chooses to notwithdraw his savings as a lump sum anddecides to instead phase out his withdrawalsfrom his PRA, he will continue to interactwith the POPs, CRA and PFMs and willthus remain the responsibility of the PFRDAas wel.

CRA Responsibilities

The CRA will serve as the centraladministrative entity and will be directlyresponsible to the PFRDA and members forrecord keeping, reconciliation, netting andfunds transfer, customer services,interconnectivity and access, enforcementand compliance. The CRA will interact withthe POPs, PFMs Annuity providers and thePFRDA.

The rationale for CRA are lowertransactions costs through centralisingthe administration and recordkeepingprocess, efficient customer services byproviding a unique account number forportability across jobs and locations (which isonly possible with central recordkeeping) andregulatory efficiency.


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Report Card:LIFELife industry grows at 10.5 % in 2003-04

With a spurt in business underwritten inMarch, 2004 at Rs.5,670.07 crore, the lifeinsurance industry underwrote first yearpremium of Rs.18,710.15 crore during thefiscal 2003-04, recording a growth of 10.48 percent over the previous year.

In terms of policies, the insurers exhibiteda growth of 12.83 per cent with 286.27 lakhpolicies. The shares of premium of privateinsurers increased to 12.96 per cent as against5.66 per cent in the year 2002-03. Individually,all the private insurers increased their marketshare over the previous year. Further, theprivate insurers recorded a growth of 153 percent in terms of first year (including single)premium underwritten by them.

Cumulatively the twelve private playersunderwrote premium of Rs.2,425.46 crore.Amongst the private players, ICICI Prudentialled with a market share of 4.01 per cent

followed by Birla Sunlife at 2.40 per cent.

LIC underwrote premium of Rs.16,284.68crore during the year under reporting. LIC’smarket share for 2003-04 was 87.04 per cent.The business underwritten by LIC under theVarishtha Pension Bima Yojana, announcedby the Government of India in July, 2003, wasRs.6070.50 crore towards 3,32,748 policies.This premium has not been included in thefirst year premium figures. In terms of numberof policies, LIC contributed 94.21 per cent.Interestingly, 30 per cent of the business forthe year was underwritten in the month ofMarch, 2004, with private insurers and LICunderwriting business of 31 per cent and 30per cent respectively in the said month.

The premium underwritten by the privateplayers for 16,57,636 individual policies stoodat Rs.2,048.66 crore. In case of LIC, thepremium underwritten under 2,69,51,919individual policies was Rs.12,636.86 crore.

A comparison of the individual single premiumunderwritten by the private players and LICreveals a decline of 3.42 per cent and 61.29per cent at Rs.287.97 crore and Rs.1,164.71crore respectively. The decline was on accountof the impact of the change in the provisionsof section 10 (10D) of the Income Tax Act.

Under the group schemes, the premiumunderwritten by the private players and LICstood at Rs.376.79 crore and Rs.3,647.82 crorewith lives covered at 17,35,315 and 45,10,429,respectively. The market share of the privateinsurers and LIC, in terms of premiumunderwritten for group insurance, was 9.36per cent and 90.64 per cent respectively. LICcovered 72 per cent of the lives under thevarious group schemes. Amongst the privateplayers, SBI Life covered 12.38 per cent of thelives. The total number of lives covered underthe various group schemes was 62,45,744.

First Year & Single Premium – Financial Year 2003 - 04 (Provisional)

1 Allianz BajajAllianz BajajAllianz BajajAllianz BajajAllianz Bajaj 6,573.596,573.596,573.596,573.596,573.59 17,970.5117,970.5117,970.5117,970.5117,970.51 6,338.896,338.896,338.896,338.896,338.89 183.50183.50183.50183.50183.50 0.960.960.960.960.96 0.370.370.370.370.37 43,09243,09243,09243,09243,092 1,85,3501,85,3501,85,3501,85,3501,85,350 1,15,9641,15,9641,15,9641,15,9641,15,964 59.8359.8359.8359.8359.83 0.650.650.650.650.65 45,82945,82945,82945,82945,829 1,01,7971,01,7971,01,7971,01,7971,01,797 1.631.631.631.631.63ISP 1,952.51 2,228.92 2,388 3,099INSP 4,572.63 15,629.14 40,699 1,82,194GSP 0.76 1 781GNSP 48.45 111.69 5 56 45,829 1,01,016

2 ING VysyaING VysyaING VysyaING VysyaING Vysya 2,740.592,740.592,740.592,740.592,740.59 7,260.667,260.667,260.667,260.667,260.66 1,765.921,765.921,765.921,765.921,765.92 311.15311.15311.15311.15311.15 0.390.390.390.390.39 0.100.100.100.100.10 31,75131,75131,75131,75131,751 90,97690,97690,97690,97690,976 10,97610,97610,97610,97610,976 728.86728.86728.86728.86728.86 0.320.320.320.320.32 5,4015,4015,4015,4015,401 6,6136,6136,6136,6136,613 0.110.110.110.110.11ISP 53.86 82.26 7,935 12,115INSP 2,643.45 7,088.81 23,813 78,853GSP 24.52 68.29 1 91 163GNSP 18.76 21.30 3 7 5,310 6,450

3 AMP SanmarAMP SanmarAMP SanmarAMP SanmarAMP Sanmar 688.07688.07688.07688.07688.07 2,788.162,788.162,788.162,788.162,788.16 631.52631.52631.52631.52631.52 341.50341.50341.50341.50341.50 0.150.150.150.150.15 0.040.040.040.040.04 9,4399,4399,4399,4399,439 46,28246,28246,28246,28246,282 16,34416,34416,34416,34416,344 183.17183.17183.17183.17183.17 0.160.160.160.160.16 1,7721,7721,7721,7721,772 60,34160,34160,34160,34160,341 0.970.970.970.970.97ISPINSP 541.45 2,433.27 9,423 46,250GSP 107.93 107.93 5 5 1,189 1,189GNSP 38.69 246.96 11 27 583 59,152

4 SBI LifeSBI LifeSBI LifeSBI LifeSBI Life 8,068.078,068.078,068.078,068.078,068.07 19,590.0819,590.0819,590.0819,590.0819,590.08 7,188.087,188.087,188.087,188.087,188.08 172.54172.54172.54172.54172.54 1.051.051.051.051.05 0.420.420.420.420.42 26,37426,37426,37426,37426,374 86,49586,49586,49586,49586,495 17,74617,74617,74617,74617,746 387.41387.41387.41387.41387.41 0.300.300.300.300.30 2,01,9472,01,9472,01,9472,01,9472,01,947 7,73,2237,73,2237,73,2237,73,2237,73,223 12.3812.3812.3812.3812.38ISP 1,148.05 3,149.27 1,791 7,847INSP 2,487.14 5,308.71 24,417 78,099GSP 2,828.66 7,381.00 4 26 24,232 73,109GNSP 1,604.22 3,751.10 162 523 1,77,715 700,114

5 Tata AIGTata AIGTata AIGTata AIGTata AIG 3,728.363,728.363,728.363,728.363,728.36 18,015.4718,015.4718,015.4718,015.4718,015.47 5,220.845,220.845,220.845,220.845,220.84 245.07245.07245.07245.07245.07 0.960.960.960.960.96 0.310.310.310.310.31 24,97724,97724,97724,97724,977 1,61,9671,61,9671,61,9671,61,9671,61,967 91,48791,48791,48791,48791,487 77.0477.0477.0477.0477.04 0.570.570.570.570.57 19,42819,42819,42819,42819,428 1,89,5871,89,5871,89,5871,89,5871,89,587 3.043.043.043.043.04ISPINSP 2,013.12 12,387.07 24,969 1,61,897GSP 54.68 485.92 1 9,581 95,939GNSP 1,660.57 5,142.47 8 69 9,847 93,648

March 04 2003-04 2002-03 % Growth 2003-04 2002-03 March 04 2003-04 2002-03 % Growth 2003-04 March 04 2003-04 2003-04

Premium Market No. of Policies/Schemes Market Lives coveredShare Share Group Schemes

MarketShare

(Rs. in lakhs)

Insurer

10�� Jour Jour Jour Jour Journal, December 2002nal, December 2002nal, December 2002nal, December 2002nal, December 2002 11


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Note:1) LIC’s business figures do not include Varishtha Pension Bima Yojana.2) % Growth has been computed over previous year.

6 HDFC StandardHDFC StandardHDFC StandardHDFC StandardHDFC Standard 5,377.565,377.565,377.565,377.565,377.56 20,933.2620,933.2620,933.2620,933.2620,933.26 12,931.3812,931.3812,931.3812,931.3812,931.38 61.8861.8861.8861.8861.88 1.121.121.121.121.12 0.760.760.760.760.76 35,44235,44235,44235,44235,442 22222,,,,,03,20503,20503,20503,20503,205 11111,,,,,24,83724,83724,83724,83724,837 62.7862.7862.7862.7862.78 0.710.710.710.710.71 20,14220,14220,14220,14220,142 58,33558,33558,33558,33558,335 0.930.930.930.930.93ISP 1,296.59 6,252.06 2,600 38,581INSP 3,974.79 13,045.08 32,832 1,64,523GSP 106.18 1,636.12 10 101 20,142 58,335GNSP

7 ICICI PrudentialICICI PrudentialICICI PrudentialICICI PrudentialICICI Prudential 17,364.2317,364.2317,364.2317,364.2317,364.23 75,091.0375,091.0375,091.0375,091.0375,091.03 36,410.6736,410.6736,410.6736,410.6736,410.67 106.23106.23106.23106.23106.23 4.014.014.014.014.01 2.152.152.152.152.15 95,68395,68395,68395,68395,683 44444,,,,,36,19636,19636,19636,19636,196 22222,,,,,44,43444,43444,43444,43444,434 78.4578.4578.4578.4578.45 1.521.521.521.521.52 18,19418,19418,19418,19418,194 45,92645,92645,92645,92645,926 0.740.740.740.740.74ISP 2,372.03 12,005.00 1,414 10,417INSP 14,461.00 62,211.00 94,235 4,25,694GSP 10.50 167.33 28 73 12,083 38,852GNSP 520.70 707.70 6 12 6,111 7,074

8 Birla SunlifeBirla SunlifeBirla SunlifeBirla SunlifeBirla Sunlife 20,233.7620,233.7620,233.7620,233.7620,233.76 44,986.1944,986.1944,986.1944,986.1944,986.19 12,956.7912,956.7912,956.7912,956.7912,956.79 247.20247.20247.20247.20247.20 2.402.402.402.402.40 0.770.770.770.770.77 43,59143,59143,59143,59143,591 11111,,,,,55,59855,59855,59855,59855,598 64,75864,75864,75864,75864,758 140.28140.28140.28140.28140.28 0.540.540.540.540.54 53,59553,59553,59553,59553,595 11111,,,,,98,31398,31398,31398,31398,313 3.183.183.183.183.18ISP 702.58 1,941.33 5,729 28,454INSP 10,580.59 26,741.57 37,806 1,26,990GSP 35.82 392.90 314 3,107GNSP 8,914.77 15,910.39 56 154 53,281 1,95,206

9 AAAAAvivavivavivavivaviva 1,778.531,778.531,778.531,778.531,778.53 7,713.847,713.847,713.847,713.847,713.84 1,346.631,346.631,346.631,346.631,346.63 472.83472.83472.83472.83472.83 0.410.410.410.410.41 0.080.080.080.080.08 14,52314,52314,52314,52314,523 71,00171,00171,00171,00171,001 17,02317,02317,02317,02317,023 317.09317.09317.09317.09317.09 0.250.250.250.250.25 36,92136,92136,92136,92136,921 88,85788,85788,85788,85788,857 1.421.421.421.421.42ISP 65.12 495.45 80 722INSP 1,685.61 7,154.35 14,434 70,252GSPGNSP 27.80 64.04 9 27 36,921 88,857

10 OOOOOMMMMM Kotak Kotak Kotak Kotak Kotak 5,763.085,763.085,763.085,763.085,763.08 12,710.1912,710.1912,710.1912,710.1912,710.19 3,520.963,520.963,520.963,520.963,520.96 260.99260.99260.99260.99260.99 0.680.680.680.680.68 0.210.210.210.210.21 12,23212,23212,23212,23212,232 51,07151,07151,07151,07151,071 32,76732,76732,76732,76732,767 55.8655.8655.8655.8655.86 0.180.180.180.180.18 11,56511,56511,56511,56511,565 52,92452,92452,92452,92452,924 0.850.850.850.850.85ISP 2,125.80 2,414.74 343 590INSP 3,232.17 9,273.18 11,884 50,453GSPGNSP 405.11 1,022.27 5 28 11,565 52,924

11 Max NewYorkMax NewYorkMax NewYorkMax NewYorkMax NewYork 2,638.082,638.082,638.082,638.082,638.08 13,148.8013,148.8013,148.8013,148.8013,148.80 6,731.376,731.376,731.376,731.376,731.37 95.3495.3495.3495.3495.34 0.700.700.700.700.70 0.400.400.400.400.40 27,68127,68127,68127,68127,681 11111,,,,,45,58145,58145,58145,58145,581 77,53177,53177,53177,53177,531 87.7787.7787.7787.7787.77 0.510.510.510.510.51 2,6932,6932,6932,6932,693 11111,,,,,17,87917,87917,87917,87917,879***** 1.891.891.891.891.89ISP 24.59 178.35 31 203INSP 2,600.41 12,560.37 27,640 1,45,298GSPGNSP 13.09 410.08 10 80 2,693 1,17,879

12 MetLifeMetLifeMetLifeMetLifeMetLife 509.95509.95509.95509.95509.95 2,338.162,338.162,338.162,338.162,338.16 769.88769.88769.88769.88769.88 203.70203.70203.70203.70203.70 0.120.120.120.120.12 0.050.050.050.050.05 5,6275,6275,6275,6275,627 25,12425,12425,12425,12425,124 11,22711,22711,22711,22711,227 123.78123.78123.78123.78123.78 0.090.090.090.090.09 22,98222,98222,98222,98222,982 41,52041,52041,52041,52041,520 0.660.660.660.660.66ISP 9.97 50.49 52 273INSP 478.03 2,236.42 5,563 24,832GSPGNSP 21.95 51.25 12 19 22,982 41,520Private TotalPrivate TotalPrivate TotalPrivate TotalPrivate Total 75,463.8875,463.8875,463.8875,463.8875,463.88 22222,,,,,42,546.3542,546.3542,546.3542,546.3542,546.35 95,812.9395,812.9395,812.9395,812.9395,812.93 153.15153.15153.15153.15153.15 12.9612.9612.9612.9612.96 5.665.665.665.665.66 33333,,,,,70,41270,41270,41270,41270,412 1616161616,,,,,58,84658,84658,84658,84658,846 88888,,,,,25,09425,09425,09425,09425,094 101.05101.05101.05101.05101.05 5.795.795.795.795.79 44444,,,,,40,46940,46940,46940,46940,469 1717171717,,,,, 35,31535,31535,31535,31535,315 27.7827.7827.7827.7827.78

13 LICLICLICLICLIC 44444,,,,,91,543.7691,543.7691,543.7691,543.7691,543.76 1616161616,,,,,28,468.6728,468.6728,468.6728,468.6728,468.67 1515151515,,,,,97,676.1597,676.1597,676.1597,676.1597,676.15 1.931.931.931.931.93 87.0487.0487.0487.0487.04 94.3494.3494.3494.3494.34 7676767676,,,,,26,36226,36226,36226,36226,362 22222,,,,,6969696969,,,,, 68,06968,06968,06968,06968,069 22222,,,,,4545454545,,,,, 45,58045,58045,58045,58045,580 9.879.879.879.879.87 94.2194.2194.2194.2194.21 99999,,,,,43,82343,82343,82343,82343,823 4545454545,,,,, 10,42910,42910,42910,42910,429 72.2272.2272.2272.2272.22ISP 65,669.85 1,16,471.78 1,36,894 2,30,607INSP 2,87,125.35 11,47,214.80 74,85,574 2,67,21,312GSP 1,38,748.56 3,64,782.09 3,894 16,150 9,43,823 45,10,429GNSPGrand TotalGrand TotalGrand TotalGrand TotalGrand Total 55555,,,,,67,007.6467,007.6467,007.6467,007.6467,007.64 1818181818,,,,,71,015.0271,015.0271,015.0271,015.0271,015.02 1616161616,,,,,93,489.0893,489.0893,489.0893,489.0893,489.08 10.4810.4810.4810.4810.48 100.00100.00100.00100.00100.00 100.00100.00100.00100.00100.00 7979797979,,,,,96,77496,77496,77496,77496,774 22222,,,,,8686868686,,,,, 26,91526,91526,91526,91526,915 22222,,,,,5353535353,,,,, 70,67470,67470,67470,67470,674 12.8312.8312.8312.8312.83 100.00100.00100.00100.00100.00 1313131313,,,,,84,29284,29284,29284,29284,292 6262626262,,,,, 45,74445,74445,74445,74445,744 100.00100.00100.00100.00100.00

% %March 04 2003-04 2002-03 Growth 2003-04 2002-03 March 04 2003-04 2002-03 Growth 2003-04 March 04 2003-04 2003-04

Premium Market No. of Policies/Schemes Market Lives coveredShare Share Group Schemes

MarketShare

(Rs. in lakhs)

Insurer

* The figure for February 2004 was revised by the insurer. Hence the cumulative figurefor 2003-04 is not comparable with the figure for upto February 2004.

ISP - Individual Single Premium INSP - Individual Non-Single PremiumGSP - Group Single Premium GNSP - Group Non-Single Premium

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“I am absolutely convincedthat the market does not

need overprotection.”

Mr. Wittmann, responsible for MunichRe’s activities in Asia, Australasia andAfrica (AAA), attended the 14thInsurance Congress of DevelopingCountries in New Delhi on his fourthvisit to India during the last fourmonths! As his office is quick to pointout, this shows the importance theworld’s leading professional reinsurer isattaching to the changing Indianinsurance sector.

IRDA Journal asked Mr. Wittmannsome questions:

IRDA Journal: What has Munich Re’sassociation with India been like. Howhas it changed over the years?

Mr. Karl Wittmann: Munich Re hasbeen dedicated to the Indian insuranceindustry for more than half a century.

We were part of the market even longbefore nationalisation.

We enjoyed a fruitful co-operationwith the public insurance industry,providing capacity and security but alsocreating jointly new classes of business,e.g. engineering insurance. Generationsof Indian insurance experts wereparticipating in numerous seminars weorganised in India as well as in Munich.

Since the opening of the market weare of course providing our professionalco-operation also to the newlyestablished private insurance sector.

Nevertheless, our concrete businessopportunities became limited over thelast years. This has to be seen inconnection with the increasinglyunbalanced and exposed nature of thebusiness accessible internationalreinsurers and with the fact that the stillstrongly regulated environment in Indiamakes it difficult for internationalreinsurers to contribute.

In this regard, to answer yourquestion “has it changed?” we are stillwaiting for change to come or in otherwords: “we hope for a level playing fieldin Indian reinsurance.”

Q: Give us an idea of your operationsand experience in markets in similarstages of opening up like China…

A: I hesitate to directly compare yoursituation and our experience in othercountries, especially China. India faceschallenges and has great opportunitiesof its own and has all the resources to goahead in its own way.

But to answer your question: Theprocess of opening and liberalisation inChina’s economy – initiated only fewyears ago – has indeed reached anadvanced stage. The authorities thereappreciate the fact that primaryinsurers and reinsurers need twodifferent sets of regulations.Reinsurance is by definition a globalbusiness. China has acknowledged thatand, accordingly, specific regulations forreinsurers are already in place.

Well selected internationalreinsurers were invited to establishoperations in China. Munich Re was thefirst company to be granted a

countrywide licence for Life and Non-Life business. We opened our branchalready last year. Our businessperspectives are very significant, to thebenefit of the local market and theconsumers.

Q: What’s the knowledge, regulatory oroperational gaps between these marketsand India? And between India and themore developed markets? How (andwhy) should they be bridged?

A: Apart from the restrictive regulatoryenvironment for reinsurers, there is inmy view no specific gaps compared toother countries.

There is certainly no knowledge gapas we know from our regular exchangewith representatives from both thepublic and the private insurance sector.

Having said this, one can of coursealways learn and benefit from the

experiences of others – be it regardingproducts, statistical database, valuebased management tools you name it.We are all living in a truly global world.Understanding the global aspects of ourbusiness and operating locally – this ishow I feel.

I am absolutely convinced that themarket does not need overprotection.For a self-confident and professionallyacting Indian market there is no reasonat all to fear competition, even oninternational levels. On the contrary:India will succeed! Just take the IT-sector as an example!

Q: What’s your view of the Indian directinsurers’ position today. All are new tomanaging reinsurance programmes asindividual entities and the market isundergoing considerable churning(tariffs, economic downturn in the lastcouple of years….) Where does that placereinsurers like Munich Re given theadditional backdrop of the changes inthe international market from theSeptember 11 incident onwards…?

A: Possibly the capital bases of directinsurers will have to be furtherstrengthened as they continue to growand to expand their market share. Ofcourse, unsatisfying technical resultsdue to given restrictions and compulsorytariffs would not encourage freshinvestments of capital, which isexpected to produce an adequate return.

And there lies a real problem : thefast growing Indian economy needs astrong, well developed insuranceindustry to support investment. I feelthere is only one way – a rathersimplistic one – to improve thissituation : the insured and the insurersneed to understand that each risk hasits price eg. the direct insurers will haveto charge risk adequate prices for theirproducts and services. The focus shouldbe on competitiveness in respect ofquality and service rather then just onlowest prices.

We at Munich Re are doing exactlythat on an international scale and so wedid long before 11 September.

‘Waiting for a Change’- Interview with Mr. Karl Wittmann, Munich Re

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Q: About detariffing. India is alreadylooked at as a market where the directpremium rates are not adequate. In asituation where detariffing is beinguneasily debated, what would itspossible effects be. There is a fear thata rate war will be inevitable and eventraditionally profitable portfolios willsuffer.

As a reinsurer how do you view thesepossibilities and rate them in terms ofeffects on your business?

A: Detariffing is inevitable and willultimately be in the best interest of theconsumer and the insurance industry.It will of course affect insurers. They haveto prepare for this and in effect MunichRe is offering to assist insurancecompanies in this process as we havedone in many other countries before.

In a free market environment,compulsory tariff rates, deductibles etc.will have to be replaced by moresophisticated instruments based onexperience and well structuredstatistical data. The primary insurerswill then be responsible for their ownprices and efficiency as well as for theirultimate results. Their shareholders, bethey from the private or public sectorwill ultimately ensure that theiroperations will be profitable - or else…!The solvency of course will have to bestrictly monitored by the relevant

Indian authorities in the interest of theconsumers

A more efficient primary market –whose operation is based on professionalrisk assessment, pricing and selection– will master these challenges. This willnot necessarily lead to increasing ratesbut it will lead to more efficiency.

We are aiming to set up a branchoffice in India with full access to theinternational experience and backed bythe financial strength of our group inorder to accompany our clients in thisprocess. We want to become a reliablelocal partner for our Indian clients.

Q: What were your expectations fromliberalisation of the sector in India andhave they been realised?

In a free marketenvironment, compulsory

tariff rates, deductibles etc.will have to be replaced by

more sophisticatedinstruments based onexperience and well

structured statistical data.

A: As said before, beside a certainopening of the market for private playerswith limited involvement ofinternational partners – the realliberalisation of the market still needsto be realised. This means in the firstplace the inevitable abolition ofcompulsory tariffs but also the openingof the market for selected internationalinsurers and reinsurers, based onspecific regulations.

I foresee a fully liberalised Indianinsurance industry which plays itsrightful role in supporting your stronglygrowing economy. I see the insuranceindustry as a necessary basis for localand foreign investment in India. I seethe insurance industry assisting anincreasing number of private individualsand families to secure their possessions,their lives, to make provision forchildrens’ education and for old age.

I foresee local and internationalreinsurers providing the necessarycapacity in cooperating with the primaryinsurers in the Indian market as theydo elsewhere. But all this can onlyhappen with the consent of theauthorities and the regulators. In amconfident that this consent willeventually be forthcoming . I believe thatultimately they see it the same way!

�� Jour Jour Jour Jour Journal, Januarnal, Januarnal, Januarnal, Januarnal, January 2004y 2004y 2004y 2004y 2004

� http://www.irdaindia.org/irdajournal.htm��

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There is an appropriate time for aproduct. At that time the customerwants it, the service provider providesit and the price is just right! Each couldbe the chicken, or the egg.

The time today is for unit linkedproducts. The equity markets arebooming and interest rates are falling.The life insurance buyer, who has beenaccustomed to looking for investmentreturns from his policy jumps at thechance.

Only, the product is less of a riskcover than a market instrument. In atraditional insurance policy, theinsurance company takes two risks. Oneon the life of the insured, and the otheron the investment returns. In the caseof a unit linked product, the insurerpasses on the investment risks inentirety to the insured.

Premiums in unit linked policiescase do not form part of the controlledfunds under section 27 of the InsuranceAct, 1938 that seeks to protect thepolicyholder’s interest by ensuring apredominantly safe and relativelyliquid portfolio mix with a specifiedexposure to more volatile investmentssuch as the equity markets.

In the case of traditional lifeproducts a lion’s share of theinvestments should be invested inGovernment securities under variouscategories with a maximum of 35 percent being allowed to be invested incapital market instruments.

Unit linked policy funds are investedaccording to IRDA’s investmentregulations for this class of products.Here, up to 75 per cent of the funds canbe invested in approved investments(which include equity and debtinstruments in the capital marketswhich conform to the norms underSection 27 A and 27 B) while theremaining 25 per cent can be deployedin other than approved investments.

K. Nitya Kalyani

On the Shopfloor...It’s a product that the customer has

to go into with his or her eyes open, justas the insurer does!

The time today is also for liabilityproducts for corporate clients promptedby corporate governance issues, sexualharassment dangers, lenders’ liability,accountability to shareholders,professional indemnity coverage as alicensing condition (for insurancebrokers!) or market pressure(malpractice insurance for medicalpractitioners and hospitals.)

Most of these continue to be customerdriven, and the customer is driven bystatutory requirements or in turn by hislitigious customers!

Some products extensions andinnovations are being experimentedwith and require marketing anyhow.Like the weather insurance product that

ICICI Lombard has been testing outwith Agriculture Insurance Company ofIndia not far behind.

One of the recent product extensionsis the introduction of third partyadministrators (TPAs) to handlehospitalisation insurance claims. Thesystem is going through teethingtroubles yet and the feedback is that‘cashless’ policies, where the hospitalbills are directly paid by the insurer tothe healthcare provider rather than thepay and seek reimbursement modelthat was prevalent till now, has not yetmaterialised in full.

With customer pressure drivinghospitalisation premiums upwards,these support services and the creationof preferred provider network (PPN)hospitals are bound to find their rightfulplace and receive due credit in theshort term.

Behind any new product (or thewithdrawal of an existing product) sitsthe file and use procedure devised bythe IRDA. An insurer has to fileextensive product information includingterms, benefits, exclusions and pricing.Depending on the type of policy (forexample, unit linked) charges alsoshould be given with details. For non-life products information on reinsurance,excess, overinsurance and the like willalso have to be given. Both categorieshave to give financial projectionsincluding pricing assumptions from thepoint of view of claims, expenses andcapital and solvency requirements.

Moreover, the Appointed Actuary ofthe company has to endorse that “thepremium rates, advantages, terms andconditions of the product are workableand sound, the assumptions arereasonable and premium rates are fair.”

The Appointed Actuary is a specialkind of employee of an insurancecompany (in a general insurancecompany in India today he can be aconsultant). The AA is bound by hisprofession as an Actuary to follow thecode of conduct of his professionalinstitute, the Actuarial Society of India(ASI). Morever his appointment to thecompany is cleared by the IRDA underits ‘fit and proper’ procedure – ascreening for certain top levelappointments in any insurancecompany. He has the duty to be the eyesand ears of the IRDA inside thecompany and has the responsibility tokeep the board of directors fully briefedon the workings of the company relatingto pricing, solvency, capitalrequirements, profitability and relatedcompliance matters.

Coming back to the file and useprocedure, in the case of generalinsurance today in India, about 80 percent of the products come under the tariffset out by the Tariff AdvisoryCommittee (TAC). So it is only forproducts that do not come under a tariffthat new product filings need to be done.For new tariff products or modifications

The Appointed Actuaryhas to endorse that “theterms of the product are

workable and sound.”

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to existing tariff products, it is the TACthat goes through the file and useformalities just like any other insurancecompany.

The Tariff rates should be certifiedby an Actuary appointed by the TACtogether with policy wordings includingexclusions at least 30 days beforeimplementation of these rates. Similarformalities apply to the TAC, as for thecompanies, relating to withdrawal ofproducts.

The file and use procedure, followedby most insurance regulators the worldover, serves several purposes. The endobjective of most of them is to see to itthat the policyholders’ interests areprotected.

The regulator does this by checkingif the product terms and benefits are

acceptable with some minimumstandards being prescribed for somebenefits.

Pricing is evaluated from the pointof view of whether it will be aremunerative product for the insurer. Itmay be puzzling that the regulatorshould be bothered whether a productmakes profits or not. But an insuranceproduct, unlike a manufactured item forinstance, is really delivered only at thetime of a claim. And sufficiency inpricing is what will determine whetherthe insurer will have the money to paythe claim as and when it arises. For thepolicyholder to receive his benefits, thecompany should be and stay healthy.

Another advantage of a file and useprocedure is that the regulator can check

pricing and benefits across the board.This acts as a natural balance (butpossibly secondary to the one providedby a competitive market where thecustomer has a choice of insurers) forcompanies to charge premiums andother charges on an even keel ratherthan being distinctly out of line withwhat his costs justify.

Over time, the information gotthrough the file and use procedureaccumulates pricing and costinformation and profitabilityindications about the industry that helpthe system understand the nature of themarket.

After all, it is past trends andexperience that form the backbone of theinsurance business!

The other day I was looking for a book inmy collection. I searched for three daysand I still could not find it. I have had thebook for 15 years and it is currently out ofprint. I cannot get this book for love ormoney. Either, it will take a lot of time orcost me a lot of money.

How do I make up this loss?Could I have insured the book?

I wondered. I then realised that I hadseveral things that were dear andvaluable to me. I could lose them. Can Iinsure those?

This thought led me to a new trail. If agenie were to appear in front of me andask, “If you had wish that I will grant,what kind of insurance product would youlike?”

Therefore, here is my wish list. I donot know how insurance products areconceived and launched. The only thingthat I know is what an insurance expert

told me. The current range of insuranceproducts is no different from what we havehad for the last several decades. Therefore,read the list as the naïve wish list of acustomer. If you are an insurance expert,apply your insurance expertise to see how

many of these can be introduced. Do notuse your expertise to explain why thesewishes cannot be fulfilled!

1. I would certainly like an insurancecover for my book collection.(Individual as well as collection).

2. If I was a politician, I would like a policy

to cover the risk of my losing theelection.

3. If I was applying for a US visa, I wouldlike a policy to cover the risk of notgetting the visa.

4. I had a laptop I would like a policycovering the risk of the battery runningout on me at the most critical moment.

5. If I had a cell phone, I would like apolicy covering the risk of my missingcritical conversation because of poornetwork coverage.

6. I would like an insurance policycovering internet downloads withoutinterruption.

7. If I was a film producer, I would like apolicy covering the risk of the filmbecoming a flop.

8. I would like my computer/laptopinsured for my business worth and notjust the hardware. (Here is aninteresting story. NicholasNegroponte well known author of the

“I wish…”R. Sridhar

If you are an insuranceexpert, apply your

insurance expertise to seehow many of these can be

introduced.

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Make insurance moreaccessible, inexpensive

and easy to use. By doingso, you would get several

million people coming intothe net for a variety of

reasons.

book Digital was once asked to declarethe value of his laptop, at the entranceof a scientific facility. When hementioned a couple of million Dollars,the attendant apparently remarkedthat the model of laptop that Mr.Negroponte carried retailed at justUS$1,000. Why was he talking aboutamillion Dollars? Mr. Negroponteexplained that content on his machinewas worth much more than thehardware !

9. If I was a student, I would like aninsurance cover for exam papers notleaking on the exam day and creatinghavoc.

10. If I was organising a wedding in myfamily I would like a policy that coversthe risk of the whole function beingderailed because of poor attendance,rains, riots etc.

11. I would like a policy to protect me fromflight delays that not only causeinconvenience and anxiety but alsoresult in loss of businessopportunities.

12. If I were a young parent, I would likea policy to protect how my child willgrow up. We do not know what theycould become in their later years !

13. I would like a policy that covers myallergy risks. Most people donot know what they are allergic to,until they are hit by a severebout. (I recently met some one who

is allergic to the sun’s ultra-violetrays!)

14. If I were a young girl in Delhi, I wouldlike an insurance policy that covers

the risk of eve-teasing and perhapsgang rape.

15. If I were a journalist, I would like apolicy that protects me frominfluential politicians, authoritiesand rich men.

16. If I were a breadwinner for my family,I would like a medical insurance,which not only pays my expenses butalso covers my loss of income.

17. I would like to insure my holiday frombeing ruined because of poor attitudeand service from travel agents,airline staff, hotel staff etc.

18. I would like an insurance policy thatcovers the risk of illnesses likeAlzheimer’s, Parkinson’s disease etcthat make me dependent on others.

19. I would like an insurance policycovering the risk of my suddenly losingmy eyesight or hearing or speech.

20. I would like an insurance policycovering the risk of paralytic attack.

21. I would like an insurance policycovering the risk of my not being ableto eat all that I like because of

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The author has been in advertising, directmarketing and brand consulting for over30 years now. His professional consultingfirm, Ideas-RS (www.ideasrs.com), worksin the area of corporate innovation andcreativity and focuses on “helpingindividuals and organisations benefitfrom the power of ideas.”

conditions like diabetes andcholesterol.

22. I would like an insurance policycovering the risk of my favourite filmstar or sports stars losing theirpopularity and talent.

23. I would like an insurance policyto cover the risk of my losing valuablerelationships due tomisunderstandings.

24. I would like an insurance policy tocover the risk of my prematurely goinggrey, baldor, losing my teeth.

25. I would like an insurance policy tocover the risk of premature burnoutsin the high-pressure fields like filmsand advertising.

I could go on to create a list of at least100 such wishes.

As I run through my list, I realise thatmy wishes seem to be falling into twobroad categories. Fear of losing myphysical or mental abilities that wouldrender me disabled. Fear of losing thingsthat I hold dear. Some very basic, andsome very fancy.

I know the fancier my wish gets themore it will cost me. Here is where I wishinsurance companies applied the ‘hotmail’logic. Make insurance more accessible,inexpensive and easy to use. By doing so,you would get several million peoplecoming into the net for a variety of reasons.

I find two books on the subject of newproduct design very interesting andinspiring.

1. The Art of Innovation : Lessons inCreativity from IDEO, America’sLeading Design Firm by Tom Kelly

2. Blockbusters – Five Keys to developingGreat New Products by Gary S. Lynn,Richard R. Reilly

Here is one more wish. I wish someone from the insurance industry wouldread and apply the principles in thesebooks. Develop new insurance productsthat makes insurance interesting, userfriendly and meaningful to the customers.

Part of the product design must coverthe process as well. One big step would beto make the insurance form simple andeasy to use. What if I do not need to fill up

an elaborate form if I have a credit card?My submission is that you needinnovation not just in the product designbut also in the marketing and salesprocesses. How about using the Internetand ATMs more effectively? Why notreduce dependence on agents for policiesless than a certain amount?

My favourite quote these days is: “Oneman’s bug is another man’s business.”

All that the insurance companies haveto do is to meet their customers and listento what bugs them most in life. What dothey hold dear and fear to lose?

Insights that can lead to some greatnew insurance products, will be theirinstant reward.

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Monday, April 2: Ramlagan, InsuranceAdvisor with Nakula Life InsuranceCompany Ltd. which has substantial lifebusiness in both eastern and westernIndia, is returning thoughtfully to hisoffice after his third meeting with aleading businessman in Ranchi.

The businessman has categoricallytold Ramlagan that unless he is offereda healthcare rider, in particular one thatcovers, interalia, the risk of heart attack,he would not buy his company’s famousendowment insurance product from him.Ramlagan does not want to lose business!

On reaching office he calls hisRegional Chief and explained theposition. The latter calls central office’sProduct Development Cell (PDC) for adetailed discussion. The Chief of thePDC immediately puts him at easesaying that other requests for thisproduct have been there and that theissue is already engaging his attention!

Tuesday, April 3: The PDC Chief callsfor a meeting in his department todiscuss the basic features of this riderproduct. The PDC also discusses anotherhealth related rider, this one for coveringnon-surgical hospitalisation expenses.The views that emerge make their wayto the Marketing Department.

Saturday, April 7: Marketing discussesthese two riders and likes the ideas! Iteven adds one more new rider to the list,to cover advanced dental and eyetreatment. This is not uncommon in theinsurance companies, that they startdiscussing one product and finally endup with a number of products.

Opinion from the joint venturepartner’s office is also obtained as, intheir country, they have marketed anumber of such products successfully.

Finally the Marketing Departmentprepares a detailed note for the ActuarialDepartment listing out product featuresthey want in these three riders, mainlyfocusing on which diseases / medicaltreatment would be covered; whatbenefit structure could be offered undereach rider etc.

Behind the ScenesR. Kannan

Meanwhile PDC also collectsnecessary details about reasonablysimilar products (one may not alwaysfind exactly comparable products)available in India, which are offered byother insurance companies.

Friday, April 13: The note fromMarketing and PDC are seen by Mr.Gokulakrishnan, Appointed Actuary, forpricing the riders and taking themforward. The AA has doubts about someof the diseases listed there, as he afraidthat they are difficult to establish andhence many false claims could emerge.

Further, morbidity rates for somediseases are not available with theActuarial Department.

Saturday, April 14: The AA consults theChief Medical Officer (CMO) anddiscusses these riders. The latter says

that while the incidence of heart attackis well-defined, that of non-surgicalhospitalisation is difficult to define andcould result in many false claims. Unlessthe definition of insured events arestrictly outlined and enforced, it wouldnot be possible to allow the policyholdersto avail the benefits they pay for.

Regarding sophisticated dental andeye treatment, the CMO agrees thatalthough such insurance products areavailable in countries like the US, theissues are to be handled carefully whenthey are applied to India. Some amount

of clarity emerges in the mind of AAconsequent to this discussion.

Tuesday, April 17:Mr. Gokulakrishnan meets with thereinsurers who represent an insurancecompany’s lender of last resort in suchinstances.

The role of a reinsurance companyhas to be duly recognised here.Reinsurance companies help insurers todevelop very sophisticated products.They contribute to defining the benefits,defining the events under which benefitsare payable, the maximum amount ofbenefit that could be entertained,exclusions etc.

Due to their international experiencethey have the necessary expertise andalso they provide the required morbidityrates (morbidity rates are nothing butthe probability values that a given sizeof population will be affected by aparticular disease in a given duration oftime, at various ages and separately formales and females).

Nakul’s reinsurer totally agrees withthe AA about the parameters of theproposed covers and the difficulties ofpricing the desired benefits.

Tuesday, April 24: The reinsurers getback to the AA saying that while themorbidity rates for the first two riderproducts are available or one could arriveat them with a reasonable degree ofconfidence, the third one – advanced eyeand dental treatment - is difficult.

They admit that it is not clear howwell the morbidity rates in the US couldbe modified to suit Indian conditions andalso that the implementation of thisproduct could be very difficult. Howeverthey promise to help the AA in this task.After a few days they send him detailsincluding morbidity rates for the firsttwo riders.

Meanwhile the AA the has a detaileddiscussion with the InvestmentDepartment and gets an estimates of theinterest rate that he can use in pricingthe product. Furthermore, from the

Reinsurance companieshelp insurers to develop

very sophisticatedproducts. They contributeto defining the benefits,

defining the events underwhich benefits are payableand the maximum amount

of benefit that could beentertained

- How an Insurance Product is Born

��


Finance Department he obtains the firstyear fixed expenses, variable expensesand renewal expenses. For arriving atthis he asks the Finance Department touse very cautious estimate of salesvolumes projected by the MarketingDepartment, because he has experiencedearlier that huge sales volume wereinitially committed to by the MarketingDepartment, but that final sales figureswere much lower.

Monday, April 30: The ActuarialDepartment starts work on pricing of theproducts using the information from thereinsurer, the Investment, Finance andMarketing Deparments.

In the pricing any life insuranceproduct, three key variables aremortality / morbidity rates, interestrates and expenses. Their relativeimportance and weightage depends uponthe nature of the products. For example,in the case of a savings dominatedproducts (say endowment, money-backpolicies), interest rate assumption iscritical whereas for life cover dominatedproducts (say pure term, critical illness)mortality / morbidity assumption iscritical.

Also for products, which are notentitled for bonus all the threeassumptions must be consideredcarefully as the premium rates can bedirectly compared in the market. Aftertaking a reasonably final view on theseissues, the pricing is done by theActuarial Department.

After initial pricing, the ActuarialDepartment carries out some importantrelated calculations. They include profitgenerated from the product andadditional capital required to meet thesolvency margin. This department alsoensures compatibility of this productwith other products which the companysells in the market.

They also carry out scenario analysis,which tests whether the product willfetch minimum profits even underadverse conditions related to investmentreturns, expenditure overrun and higherthan expected claim rates. Till a

satisfactory profit level is reached, thepricing is changed. They also ensure thatthe rider premium rates are within IRDApermissible limits, viz., the riderpremium cannot exceed one- third of thebase product premium. However this ruleis not applicable to health rider products.

Saturday, May 5: The AA is now readyto take the product to Mr. Sohib Lal,Managing Director, to brief him about itsfeatures, pricing and profitability. Hetells him that although he was asked bythe Marketing Department to developthree riders, only two are possible. Thethird one, the advanced eye and dentaltreatment had to be discarded as thereinsurer is not sure about such a productand hence it could not be offered now.

As usual Mr. Lal tells his AA: ”Look,this is your responsibility and I still donot understand all these calculations.Can you assure me this profit level from

these products? Do not ask for hugecapital injection.”

The AA says, “If these sales figuresmaterialise, this profit is sure”.

Monday, May 7: After obtainingconcurrence from the MD, the premiumtable and definitions of various benefitsincluding exclusions are given toMarketing for comments. On comparingthe premium with other companies’premium rates for similar products, Mr.Dharm Veer Singh, Chief MarketingOfficer, dashes to the AA’s cabin inannoyance and says that the premiumrate for “heart attack rider” isacceptable, but the exclusions are verytight and the field force will find it verydifficult to sell it!

He asks the AA to dilute theexclusions. The AA is willing, but saysthat the price will have to be revisedupwards. The marketing chief is notagreeable to this.

Regarding the second rider too he hasa problem. The premium rates are veryhigh!

“Other companies don’t have suchhigh prices and exclusions, why you aresuggesting such things. We cannot sellthis product,” he says.

Further he is very upset to note thatthird rider is not going to be availableand declares that the sales figure for theyear will definitely be affected!

“We should be more innovative andshould not depend on the reinsureralways,” he tells the AA.

The AA is used to such sweetexchanges with the marketing chief!

Thursday, May 10: The AA and theMarketing Chief go together to the MDfor freezing the features. The MD islittle nervous seeing both of them in hiscabin as he is aware that he has tomediate now!

In the pricing any lifeinsurance product, three

key variables aremortality / morbidity

rates, interest rates andexpenses.

��


In the MD’s opinion, the AA and theMarketing chief are part of a system ofchecks and balances. And when he findsthey are in agreement, he promptly seeksan independent opinion from the ChiefFinancial Officer!

After a detailed discussion amongthe MD, the AA and the Marketing chief,it is decided to market the first rider nowand consider the other two at a laterpoint of time.

This is a very interestingdevelopment. While one productproposal could emerge as final product,other two could not.

For one the pricing was done, but itwas found that given the definitions, theprice was felt very high. Hence the lifecompany felt that they might not sellsufficient volumes. The other rider couldnot be developed as acceptable basicmorbidity rates are not available and nocomfort could be obtained from thereinsurer. In the development of products,such abortions are common. We must

recognise that product development is acontinuous exercise. No product iscompetitive / successful at all points oftime. Changing competitive position,macro economic changes, changes in taxadvantages given to life insuranceproducts and changes in regulationscontribute to this dynamism.

Friday, May 11: After detaileddiscussions, parameters like definitionof diseases and benefit structure arefinalised for the first rider. Thepremiums are reworked with referenceto these final features and all related

calculations are done again. Now theproduct is almost frozen.

While the Marketing Departmentprovides the ‘sales literature,’ whichexplains to the buyer of this productvarious features including benefitspayable and when benefits are notpayable with clear numerical examplesof the benefits structure. Benefitillustration occupies an importantposition in the sales literature.

The legal department provides thepolicy document. In the case of a riderproduct, it is also decided to which baseproducts this will be attached. TheActuarial Department then examinesthese documents to ensure that theproduct features given in the salesliterature are not misleading and alsothe terms and conditions in the policydocument are in line with the design ofthe product.

Friday, May 18: The AA now preparesthe ‘file and use’ application for productapproval from IRDA. Usually approvalis obtained within 30 days.

We must recognise thatproduct development isa continuous exercise.

No product is competitive/successful at all points

of time.

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The author is Appointed Actuary withSBI Life Insurance Company Ltd. Theviews expressed here are his own.Comments are welcome [email protected].

Monday, June 18: Once approval isreceived, the AA sends the final productfeatures to all the departments,especially to Operations, informationtechnology (IT) and Accounts. MarketingDepartment prepares for impartingnecessary training to the field staff forlaunching this product.

They also ask the advertising agencyto prepare the sales literature withsuitable photos for advertisement. TheOperations Department preparesunderwriting rules for this product withthe consultation of the Chief MedicalOfficer and the AA.

Accounts department ensures thatnecessary accounting entries could bedone in the system once the product issold. IT takes care of all datarequirements of various departmentsincluding MIS. The ActuarialDepartment finalises reinsurancearrangement for this product.

The Actuarial Department alsoexplains to other departments theirrequirement of data and otherinformation after the product islaunched, so that at intervals of sixmonths they are in a position to analysethe reactions of field staff and examinewhether any modification is required inthis product. Necessary data forconducting actuarial valuation is alsoensured at this stage, keeping in viewregulatory requirement.

It is amazing to see how insuranceproduct development works. In the entiregamut of the financial market, aninsurance product is the only one whichinvolves specialists like actuaries,accountants, investment experts,lawyers, doctors, advertising agencies,medical clinics, marketing personnel, ITpersonnel, underwriters, general

administrators to man the operationdepartments, etc. I cannot think of anyother parallel. This exhibits clearly thecomplexity involved in designing,marketing and follow up actions involvedin designing an insurance product.

Thursday, June 28: At this stage,Mr. Sohib Lal, the Managing Director,looks for a ‘muhurat’ date to launch theproduct. Usually products are launchedclose to a Board Meeting day so that allboard members could participate in thelaunch, which is an important event forthe company.

More than the launch ceremony, theMD usually enjoys the press meet,because this gives him an opportunity to

elaborate on his future plans and hederives immense pleasure from sharingall details with the press people.

Monday July 8: New product launch!

Mr. Ramlagan is specially invited forthis function as he was one of the forcesbehind introducing this product. Hefeels very honoured.

Mr. Sohib Lal holds a successfulpress meeting and he is confident thatthis product launch will be covered wellin the newspapers next day.

As he leaves office after the hecticday, he sees the Chief Marketing Officerand the AA coming out of the nearbycoffee shop sharing a happy moment.

As he goes away to celebrate thelaunch over a peg of Glenfiddich heremembers the AA’s frequent remark:“we all have a common objective – thecompany’s prospects. Either we allswim together or sink together.” Yes,”he thinks, “we have a good team in place!

The actuary has to follow‘ten commandments’ that

ensure that insuranceproducts are priced to be

profitable and competitive.

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Insurers should notmarket standalone CIcovers or riders as a

panacea for all healthcarerelated expenses.

Dreaming the ‘Healthy India’ DreamAloke Gupta

Health insurance in the country ismostly equated with the Mediclaimpolicy of the public sector generalinsurance companies. Mediclaim wasintroduced in 1987 and has not seenmajor structural changes except the onein 1999, when the internal benefit sub-limits were done away with.

That change ushered in majordistortion in the health insurancemarket making it unprofitable for theinsurers. It also curtailed the ability andwillingness of insurers to introduce newproducts – no product could simplymatch the low price and wide cover thatthe 1999 change rendered to theMediclaim policy. Insurers are stillreeling under the impact and measuresare now afoot to contain claims throughThird Party Administrators (TPAs). Itis still not clear that these efforts willyield results on a long-term sustainablebasis.

This article attempts to look into theexisting health insurance products in thecountry and seeks to identify need gapsfrom customer viewpoint.

Health insurance has been a battleof turf between life and general insurers,with general insurers claiming it to betheir exclusive domain. However, lifeinsurers have come up with healthinsurance products that are benefitpolicies in nature and which are in theform of riders to life covers like criticalillness or hospital cash benefit.

Critical Illness InsuranceCritical illness (CI) insurance is a

life benefit intended to providepolicyholders with a lumpsum paymentupon diagnosis of any one of the ‘covered’critical or life threatening illnesses.Commonly covered critical illnesses areHeart Attack, Stroke, Cancer, andKidney Failure. The number of criticalillnesses covered varies from insurer toinsurer, ranging from a basic four to overa dozen.

CI insurance was first developed inSouth Africa in the 1960s after it wasdiscovered that many people whosurvived these illnesses often sufferedsevere financial hardships. In real lifesituations, financial assistance is moremeaningful to a person as he battles acritical illness than when he is no moreor has been physically disabled ormentally traumatised due to it.

It was documented by Dr. MariusBarnard that patients and theirfamilies who had undergone an episodeof critical illness were oftenoverwhelmed with debt and a reductionin their capacity of earning the samelevel of wages prior to the episode. Thisled to lowering of living standards,ensuing hardships and at timesfinancial ruin. The situation in Indiawould be no different.

It would not come as a surprise if astudy found that majority of patients

become aware about the need of healthinsurance after they have had anepisode of expensive hospitalisation.

Post the liberalisation of theinsurance sector, life insurers haveintroduced and aggressively marketed CIriders. CI riders have met with cautiousresponse from the policyholders thoughsome life insurers claim that almost 65percent of their policyholders have optedfor CI riders. CI riders are not alwaysthe most optimal way of coveringhospitalisation expenses.

CI insurance is a poor substitute fora more comprehensive health insurancepolicy. CI insurance does not cover

helthcare related expenses orhospitalisation expenses due toaccidents, infections or acute illnesses.The coverage is more towards illnessescaused due to a typical lifestyle. In acountry like ours, it seeks to mostlyaddress urban oriented lifestylediseases, and hence becomes amarketing gimmick tosell mostly to uninformed,unsophisticated semi-urban or ruralpolicyholders.

CI insurance can be effectively usedas a ‘top-up’ or supplementary cover toa comprehensive health insurance cover.In other words, it has to be layered overa comprehensive health policy. Criticsof CI insurance have compared buyinga CI policy to playing the lottery ratherthan managing financial risk.

Insurers need to educatepolicyholders about CI insurancelimitations and encourage them to usethese as supplementary covers only.They should not market standalone CIcovers or riders as a panacea for allmedical related expenses.

Additionally, with the rise of theretail credit culture in the society, it maybe worthwhile to link CI insurance tomortgage redemption. At present,mortgage redemption covers are mainlylimited to housing loans on life policies.This needs to be extended to mortgageredemption due to critical illnesscovering housing and other mortgagestoo.

There is also a wide difference indefinitions of critical illnesses frominsurer to insurer. From policyholders’protection point of view, it is essentialthat IRDA undertakes standardisationof medical definitions across all criticalillness products from differentcompanies.

Various socio-economic factorswould continue to fuel growth of CIinsurance in the country. Main driversfor growth would be

- Identifying the Need Gaps in Health Insurance

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(1) Advancement in medical technologyleading to longevity of life, andincreased probabilities of survivinga critical illness (e.g., Cardiacdisease)

(2) Changing epidemiological profile ofthe society with increased incidenceof lifestyle and chronic diseases (e.g.cancer)

(3) Increasing awareness aboutlumpiness of medical expenses inCI situations, adversely affectingfinancial status and earningcapacity, and

(4) Absence of public funded social orhealth security mechanism in thesociety

Similarly, Hospital Cash benefitrider kicks-in during hospitalisationepisodes. A daily benefit amount is paidper day of hospitalisation. The per daybenefit or policy benefit limits aregenerally small and are better utilisedin deferring out-of-pocket expensesincurred by the patient and the family,which are not payable under healthpolicies.

Comprehensive Health InsuranceThe Mediclaim policy of 1987

vintage qualifies to be termed as acomprehensive health insurance policy.It covers episodes of hospitalisation dueto almost all conditions, with fewexceptions. The policy has served thepolicyholders well, though there havebeen issues regarding delay in claimssettlement, lower limits of benefits andabsence of tie-ups with health providersto render the experience of cashlesshospitalisation. Many of these issuesare being addressed now.

However, the policy as it stands islopsided in terms of benefit and cost/premium as far as insurers areconcerned. This mismatch has led tohigh claims and combined ratios,becoming the proverbial albatross

around the neck of the insurers. This hasforced non-life insurers to use the low-cost-high-benefit Mediclaim policy as aninducement to get more profitableinsurance premiums relating to fire/property.

This cross subsidisation, unviable fora company wishing to do only Healthinsurance, has been a major factor inpreventing global specialist healthinsurance companies like Aetna, Bupaand Cigna from setting up shop in India.Not only this but such a situation hasalso left little scope or incentive forexisting players to spend time andenergy to develop new products.Whichever company breaks the viciouscircle will lose in the short run. Thisuncanny situation actually harms theconsumer even as it does little toalleviate the woes of the healthunderwriter.

Increase in health insurancepenetration is socio-economicallydesirable in the Indian context in viewof continued reduction of public sectorhealthcare expenditure and a dearth ofhealth security. Therefore the churningof health insurance products that caterto different segments of the society, bothin terms of benefits and costs/premiums,is imminently necessary.

Premiums need to be a function ofcost of claims, largely. In our healthcareset-up, where hospital charges are aderivative of type of room occupancy, itis pertinently important that premiums

be linked to type of room occupancy thata policyholder wishes to avail of in caseof a hospitalisation episode.

Sections of policyholders that aimto occupy ‘top-floor’ rooms in the eventof hospitalisation, need to paycommensurate premiums, whereas,those who feel ‘comfortable’ with theirsocial milieu in a general ward, levylower claims burden and hence shouldpay lower premiums.

The existing Mediclaim policydesign encourages higher utilisations inabsence of occupancy type restrictions,eventually bleeding the insurers. Let usalso be candid enough to appreciate thathigh utilisations under a Mediclaimpolicy are also health provider driven –a supplier driven phenomenon due toasymmetric information, so typical ofhealth sector.

The Product ChurnInsurance companies, like other

financial institutions constantly striveto develop and provide product andservices to clients as per changing needsof the times. Transforming and evolvingsocieties demand differing securityinstruments at differing times and,insurers have risen successfully to thechallenge by offering ever-new products.

From policyholders’protection point of view,it is essential that IRDA

undertakes standardisationof medical definitions acrossall critical illness productsfrom different companies.

��


The need of the hour ishealth insurance products

that address therequirements of old age

health care, long term care,disability income, mentalcare and hospital plans.

Development of Managed Care in theUS is an example of evolution ofinsurance products in the healthinsurance segment, when year to yearincreasing claims made it difficult foremployers to keep up with employeehealthcare benefits.

Our healthcare system has changedsubstantially over the last decade andcontinues to evolve. Medical costinflation and rapidly changing medicaltechnology require the development ofstrategies that make healthcareaccessible and affordable to largersections of society. The need of the houris health insurance products thataddress the requirements of old agehealth care, long term care, disabilityincome, mental care, hospital plans, etc.

Old Age Healthcare: Old age healthcare is a critical need of the society, moreso in absence of a comprehensive socialsecurity regime. Insurers restrict entryof new policyholders at an older age toavoid adverse selection against them.Techniques need to be developed tocounter adverse selection whileproviding this cover. Bundling pensionproducts with health insurance riderscan provide old age financial andhealthcare security. This needs to betested through a pilot. Definedcontribution health plan dovetailed witha defined contribution pension plan maywell be the answer.

Long Term Care (LTC) : LTCinsurance plans cover physical or mentalincapacity that prohibits the insured’sactivities of daily living. Though agelessens an individual’s ability to fullytake care of oneself, most elderlypersons require no assistance with theiractivities of daily living, whereas thereare instances of many younger personsrequiring assistance.

LTC insurance not only hasrelevance to the rapidly ageingpopulation but it also has a bearing onmiddle age and younger persons

experiencing similar exposures due toaccidents or medical conditions such assome critical illnesses and debilitatingdiseases.

Disability Income Insurance: Thisseeks to provide income benefit to theinsured where physical or mentalincapacity prevents him/her from beingable to work.

A growing number of individuals atleast in urban India, are concernedabout the possibility of incurring highmedical expenses and therefore, areseeking to maintain medical expenseinsurance coverages. In fact, financialconsequences of a disability can be moredebilitating for the family of the patientthan his death itself!

Similarly, large proportions of thewage earning population are purchasing

group and life insurance to relieve ormitigate their dependents of financialhardships following upon their (wage-earner’s) possible death.

However, due to absence of adisability income product in the market,wage-earning populations are not ableto cover the possibility of losing theirincome due to disability caused byaccident or disease.

The need for disability incomeinsurance and LTC is increasing per se,more so due to declining family supportas a result of disintegration of the‘extended family’ and economicdevelopment.

The institution of joint family, whichprovided social security for centuries toIndian families, is fast withering away.Tragically, it is not being replacedrapidly enough with a social security netsufficiently wide to take in its fold allthose who are the worst affected.

EpilogueWith changing demographic profile

and epidemiological disease burden,technological advancements inhealthcare and rise in healthcare costs,persistent reduction in public provisionof healthcare allocations and growingdependence of population on the privatehealthcare delivery, it is expedientlynecessary for government regulators andconsumer advocate groups to ensure thata larger range of health insuranceproducts see the light of day.

The author is a Delhi based HealthInsurance Consultant. He can be reachedon e-mail at [email protected]

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Life InsuranceCorporation of India has

also contributed to the lifeinsurance market by

making it morecompetitive by bringingout innovative products.

Innovation in the life insurance marketis generally attributed to initiativestaken by private companies. Today theIndian life insurance market is vibrant.Private life insurance companies havejoint venture partners from thecountries operating in the US, UK,Germany, Canada, Australia, Franceand South Africa and, naturally, thepractices of the life insurance marketof these countries are reflected in theproducts being made available in ourcountry by these private life insurancecompanies.

This is reflected in all the products,be it individual life products, pensionproducts, different riders, groupproducts, unit linked products,universal life products or healthproducts/ riders. The national lifeinsurer, Life Insurance Corporation ofIndia (LIC,) has also contributed to thelife insurance market by making it morecompetitive by bringing out innovativeproducts.

Not long ago it had introduced anovel product for women, JeevanBharati, covering congenital diseases.Recently it has brought out a newproduct named Jeevan Saral which isconsidered a unique product not only inIndia but in most developed countriesalso. The highlights of the product areas follows.

In the life insurance world today,endowment products (without profit)promise the same sum assured on exitdue to death or maturity, usually givenin the premium table as premium perRs. 1000 sum assured for different ages.

But in Jeevan Saral the premium iskept the same maturity value changesin the premium table giving the sumassured per Rs. 100 premium paid permonth. The maturity value depends onthe entry age and terms but death riskcoverage is the same irrespective of age.

This reflects a change in the productpricing concepts of LIC and an interestin introducing something new in the faceof competition.

The attempt here has been to makedecision making simpler for customers,especially those opting for the Salary

Saving Scheme. This appears to becustomer friendly for a section of

employer-employee groups which wasabsent till date in LIC.

Specimen maturity sums assuredper Rs.100 monthly premium are givenbelow for some of the ages and terms :

The sales literature of the productdescribes the product offering highercover, smooth return, liquidity andconsiderable flexibility. The benefit tobe payable to the nominee(s) of the lifeassured on death of the life assured ispromised as 250 times the monthlypremium plus return of premiumsexcluding extra/rider premium andfirst year premium plus the loyaltyaddition, if any.

Whereas if the life assured survivesthe term of the policy shall getguaranteed maturity sum assured,plus loyalty additions, if any.

Some of the features like theguaranteed surrender value (GSV), freelook period, grace period to pay the

premium, loan,revival of the policyare offered as in theirexisting plans.

However thepolicy declaresupfront what thespecial surrendervalue shall be. This is

a new feature and points to atransparent approach sincediscontinuance terms are made knownto the customer only at the time ofsurrender.

In the case of Jeevan Saral thespecial surrender value will be the sumof (a) and (b) as under:

9a) Discounted value oraccumulated value, as the case may be,of the following:

80 per cent of maturity sum assuredif less than four years’ premiums havebeen paid, 90 per cent of the maturitysum assured, if four or more years butless than five years’ premiums havebeen paid and 100 per cent of thematurity sum assured, if five or moreyears’ premiums have been paid.

The maturity sum assured for thispurpose will be the maturity sumassured corresponding to the term forwhich premiums have been paid underthe policy. If the premiums have beenpaid for a fraction of a year, thematurity sum assured shall be workedout by way of mathematicalinterpolation.

The above amount shall bediscounted from the due date of the

Dinesh Chandra Khansili

A New Way of Thinking- Innovation in Product Design and Pricing by the LIC

Age at EntryPolicy Term

10 years 15 years 20 years 25 years

20 11,156 19,628 28,039 36,839

30 11,053 19,300 27,345 35,492

40 10,431 17,839 24,598 30,85450 8,442 13,444 16,164 --

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next instalment premium to the dateof surrender if the duration elapsedfrom the date of commencement of thepolicy to the date of surrender is lessthan the term for which the premiumshave been paid.

If the duration elapsed from thedate of commencement to the date ofsurrender is greater or equal to theterm for which premiums have beenpaid then the above amount shall beaccumulated with interest for theperiod from the due date of the firstunpaid premium to the date ofsurrender.

The period for which the amount isto be discounted or accumulated shallbe taken in complete months andfraction of a month will be ignored. Therate of interest to be used fordiscounting or accumulating, as thecase may be, will be announced by theCorporation at the start of everyfinancial year.

b) The loyalty additions, if any, asannounced while declaring the resultsof the Corporation’s valuation as atMarch 31, immediately preceding thedate of surrender.

The policy also offers a paid upvalue:

If after at least three full years’premiums have been paid and anysubsequent premium is not duly paid,the policy shall not be wholly void, butshall subsist as a paid-up policy for areduced sum. The benefit payable ondeath/maturity under such policieswould depend on the number of yearsfor which premiums have been paid andshall be the greater of:

� a sum that bears the same ratio tothe full maturity sum assured asthe number of premiums actuallypaid shall bear to the total numberoriginally stipulated in the policy

� the surrender value as describedabove assuming that the policyhas been surrendered on the dateof death / maturity, as the casemay be.

The policy carries the options tochoose the riders by making anadditional payment dependent on age/term and health conditions of theindividual-

� Accidental death and disabilitybenefit

� Term Assurance benefit.

There are other benefits under thepolicy and some of them constitute newfeatures or point to new, user-friendlythinking. They include:

Auto Cover :The plan offers auto cover of 12

months after the policy has been in

force for a period of three years or more.This is a new dimension which wasearlier available in a different form forthe Jana Raksha Plan.

Flexible Term:The policyholder can choose a

maximum term but can surrender atany time without any surrender penaltyor loss. The flexible term is also a newdimension which was not available intheir existing products.

Partial Surrenders :The plan will allow partial

surrender from fourth year onwardssubject to certain conditions as this willbe effected by reducing the annual

The author is Deputy Director (Actuarial),IRDA. The views expressed here are hisown. Nothing contained in this articlemay be construed as an endorsement ofthe product(s) of insurance companiesnamed by authour, IRDA or IRDAJournal.

LIC appears to beaccepting the challenge ofcompetition thrown at itafter opening up of the

insurance market.

premium under the policy andcorresponding reduction of maturityand death benefit sum assured. Thesurrender value corresponding to theamount by which the annual premiumis reduced shall become payable onsurrender. Due to existence of theflexible term and partial surrendersthe policyholder will enjoy a higherliquidity under the plan.

Loyalty Additions:The plan offers loyalty additions on

the condition that the minimum termafter which a policy can earn loyaltyaddition will be 10 years. However,loyalty additions will also be payableif death occurs in the 10th year of thepolicy provided that the policy is in forceat the time of death. Loyalty additionswill be subject to the Corporation’sexperience, and may be paid in case ofdeath, maturity and surrenders. Thisis as per the existing practice of theLIC for their maximum participating(With Profit) policies.

Thus LIC appears to be acceptingthe challenge of competition thrown atit after opening up of the insurancemarket to the private players bybringing innovations into the market.It will be interesting to see how thecustomers react to such innovations.

The private players are expected tofollow suit and to sharpen their skillsto make the life insurance market morecompetitive by offering the wide rangeof the products to the customers.

��


There is a consciousstrategy adopted in meetingthe challenge of training asales force. There are either

limitations in number ofproducts or limitation in the

number of features.

Nirmala Ayyar

A Spicy Bouquet of BenefitsThe second week of March 2004 appearedto have been one of hectic activity for theIndian insurance industry. There was theGlobal Conference on Insurance in Delhiand a Health Insurance seminar atChennai, helping to focus the attention ofthe Indian public on the issues thatconcern the public no less than theinsurance industry.

The papers have been full of reviewsof insurance products, as well as advice tothe public as to how to select the rightproduct from the many. To quote from oneof the articles: “The biggest benefit ofliberalisation has been to the customer,who now has a wide choice in terms ofproduct range.”

Choice is the sole symbol of freedomand it is required for its own sake. Peopleneed to choose even if it is the sameproduct, but from a vendor of their choice,for whatever reason. The reason isirrelevant, but the act of choosing is not.

In a market economy, this freedom isexpected to push the market towardsbetter service to the consumer, bettervalue for his money, and preferably, inrespect of a financial product, bettersecurity for his money, and maybe betterreturns. That the privatisation ofinsurance has catered to this vital need ofthe insuring public needs to be acceptedwithout any qualifying conditionwhatsoever.

That the generic products are commonto all is a simple truth the acceptance ofwhich is unavoidable. But the successfulinventors are those who have beensensitive to the limitations facing themand have found a solution. The limitationsare: (1) having to create and train a salesforce in the shortest possible time; (2) todevelop back office processes and trainstaff to handle customers efficiently, againin the shortest possible time, and (3) toinstall software and hardware to handlethese processes and to train people to usethem in the shortest possible time.

Each one of these objectives in itselfprovides a formidable challenge, and toface all of them together and come up ontop is a tremendous achievement onecould legitimately be proud of. We can,without hesitation, pay homage to suchachievement, and hope that these

companies will grow to the stature of theerstwhile insurance giants like Oriental,Prudential, United India, New India etc,half a century ago, companies that madepeople proud to say that they belonged tothem.

As one scans through the manyproducts of the different companies, onebecomes aware of the conscious strategyadopted in meeting the challenge oftraining a sales force. There are eitherlimitations in number of products orlimitation in the number of features.

For instance, quite a few companieshave announced products that are limitedin choice of policy or premium payingterms, or other options. Tata AIG’sNirvana Plus has a number of features,but there is no choice with regard to thefeatures, which are all built in.

The choice is limited to the SumAssured. The attractive sales pitch says:“First choose among three levels of cover:Rs one lakh, Rs. two lakh and Rs. fourlakh. This amount is your sum assured.

Once you have done so, just sit back andwatch the guarantees come your way.”

It is very easy for the sales person toexplain this product to the prospect, eventhough it offers a variety of covers.

Similarly ING Vysya and SBI haveannounced products that have onlyspecified policy terms, the choice in manycases being limited to four or five, andtherefore having simplified premiumtables which are easy for the novicesalesman to understand. It is a soundbeginning and helps build a strong salesforce.

Tata AIG’s Mahalife has only onepremium paying term, and another of their

strategies is to offer four or five age bandshaving the same premium tables, whichfans out to individual age premium onlyat the higher end. This again is a strategy,apart from other considerations, to makeit simple for the sales force to handle. Itcertainly appears to be an intelligent wayto handle a highly sensitive and vitalaspect of the business.

There are interesting variations of thesame basic benefit type too. The Waiverof Premium benefit (WOP as it iscommonly called), gets attached todifferent riders in different ways, apartfrom being offered as a standalone. Forinstance, ICICI offers Waiver of Premiumbenefit under the Accidental DeathBenefit (ADB) rider, only in respect ofWhole Life Policies. Under other plans, itis limited to TPD benefit offered as 10per cent of Sum Assured as annual benefitfor ten years. It also limits waiver benefitto the ADB premiums.

ING Vysya has an interestingvariation too. It offers WOP as anincidental benefit under the CriticalIllness rider, towards disability arisingas a consequence of the critical illness.Birla Sunlife offers it as a rider on riderunder ADB or CI as per option of the lifeassured.

LIC used to offer WOP to the extent ofRs. 40,000 on a single life. However, somerecent literature indicates this as reducedto Rs.20,000. HDFC limits theavailability of this benefit to age 60, andoffers WOP as an option under its Childprotection plan, like the Premium WaiverBenefit under LIC’s old Children’sDeferred Assurance.

AMP Sanmar offers WOP as anincidental benefit of TPD to the extent ofRs.40,000, of the total instalmentpremium on one life under all its plansexcept its Child Protection Plan., underwhich it is offered as a built in benefit forthe duration of the policy from the date ofdeath of the proposer, without any upperlimit on the premium. HDFC will notconsider WOP if a claim occurs during thefirst 12 months of the policy.

In respect of the Accident BenefitRider, more or less all companies havethe same standard features with onlyminor variations. ICICI limits the

- New products and features from life insurers

��


Some of the exclusionsreflect hazards arising out

of a modern lifestyle.

maximum on one life to Rs. 10 lakh. LIClimits it Rs. 25 lakh on a single life. AMPSanmar offers ADB upto Rs. 50 lakh onone life. The exclusions, age at entry etcare practically the same for all companies.That minors are more prone to accidentsand therefore should be excluded from thepurview of ADB is a dictum of thereinsurers to which all companies haveproved compliant.

Tata AIG has the maximum exclusionclauses among all the insurers operatingin India today. Some of the interestingexclusions added by them are: Foodpoisoning or bacterial infection; physicalhandicap or mental infirmity existing atthe time of insurance application orreinstatement of the policy; any kind ofsickness, disease or congenital anomalies;complications of surgical procedures oraccidents occurring during surgical ortherapeutic procedures; ionising radiationor contamination by radioactivity fromany nuclear fuel or nuclear waste;radioactive, toxic, explosive or otherdangerous properties of equipment; anyunderwater or subterranean operation oractivity; deliberate acts of policyholder,nominee or insured; violation of the lawor resistance to arrest.

Some of these exclusions reflecthazards arising out of a modern lifestyle.For instance accidental deaths ordisabilities arising out of surgicalprocedures/medical negligence arecertainly becoming more commonnowadays. The remedy for the affectedperson should lie in civil or criminal law.But it cannot be denied that it is anunfortunate accident as far as the victimis concerned.

Similarly, the law has it that a personcannot benefit from his felony, andtherefore the nominee, the policyholder orother beneficiary gets automaticallyexcluded from even basic benefit, not tosay ADB. Some of the occupationalhazards or physical or mental disabilitieswould be excluded normally for the specificperson at the time of underwriting. Thegeneral exclusions found here are perhapsconnected with the decision makingprocesses specific to the company.

ICICI offering Double Accident Benefitin respect of death while travelling by

mass surface transport is again areflection on the hazards of modern life.The wording in the brochure leaves it opento interpretation that if a person dies ofheart attack in a train or bus also theclaimant becomes eligible for the benefit.Perhaps the detailed policy conditionstake care of this aspect.

The Critical Illness Rider is of thegreatest interest since it is expected tobring in the long awaited health benefits.This is an area where even the reinsurerstread with caution, as the anti-selectionexperience in other countries has been onthe high side. Here again, the generalguidelines given by the reinsurers havebeen followed in the main, but thevariations are also quite interesting.Minors are excluded, as also all existingillnesses. The upper limit for the benefit,a significant element in this context,varies from company to company.

While AMP Sanmar offers amaximum of Rs. 10 lakh, ING Vysya haspegged it at Rs. 20 lakh. However, INGVysya offers it as accelerated benefitrather than as Critical Illness Rider perse, in the sense, the benefit paid reducesthe basic sum assured to that extent, andis limited to 50 per cent of the basicbenefit. HDFC is one exception in offeringthe benefit up to age 70, while all othersterminate the benefit at age 65.

It is SBI Life that offers the mostinteresting variations in respect of limits.CI cover is offered only for NRIs and theirdependants, under its SethubandhanPlan, and is not available as a rider underany of its other plans. CI cover is availableto NRIs and their dependants on non-medical basis for upto Rs. five lakh forages upto 35 years, and upto 45 forRs. three lakh. NRI lives and theirdependants other than these are subjectto satisfactory medical examination forCI cover. Further, the CI cover is limitedto a maximum term of 10 years.

With the exception of a few, most salesbrochures offer minimum possibleinformation regarding the CI cover. Manydo not mention the wait period beforeonset of illness from commencement ofpolicy, nor do they mention the wait periodfrom diagnosis to claim entitlement.Everyone mentions the illnesses coveredand exclusions. Illnesses covered by allcompanies without exception are: Cancer,CABG, Myocardial infarct, Kidney failure,Stroke and Major Organ Transplant.Additions that are quite common are:Paralysis, Aorta surgery, Heart valvereplacement and Coma.

Blindness is covered by ING Vysya,Birla Sunlife, Aviva, MetLife and LIC.Though the details are not known andtherefore it is difficult to guess atexclusions, in our country where theincidence of blindness due to eye diseasesare rampant, this is a valuable optionthough difficult to administer. The causescould be many including Retinaldetachment, Glaucoma, Diabeticretinopathy, and it is reasonable toassume that there must be manyrestrictions for eligibility to the benefit.Only LIC offers CI cover against thirddegree burns. This is a bold step in acountry where death by burning isbecoming a natural phenomenon! Theproblem here will be aggravated if theclaim occurs during the period ofrestriction against suicide.

Birla Sunlife, Max NewYork andAllianz Bajaj offer CI cover againstmultiple sclerosis. Aviva covers not onlyblindness but deafness as well. It is alsospecial in that it offers cover againstterminal illness, though details are notknown as to how this is determined oradministered. Only Allianz Bajaj offerscover against Alzhiemer’s. ING Vysya,Birla Sunlife, and Aviva offer CI coveragainst benign brain tumour also. HDFCexcludes pregnancy related illnesses fromCI cover.

In the matter of the wait period fromdate of risk commencement, whilecommon practice seems to be six months,MetLife is an exception since its waitperiod is only 90 days from issue date ofpolicy. Almost all companies stipulate asurvival period of 30 days from diagnosisof stipulated condition, for eligibility to

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One interesting aspect ofthe riders is the extent towhich they are influenced

by the limitations ofexisting software.

The author retired as Head, Data Collectionand Purifcation, LIC. The views expressedhere are her own. The article seeks to explorethe variety of new products in the markettoday. It is not an exhaustive list and doesnot constitute a direct or indirectrecommendation by the author, IRDA orIRDA Journal.

CI benefit, except ICICI which has peggedit at 28 days. ICICI also offers a MajorSurgical Assistance Rider. The waitperiod from commencement is six months.Benefit expiry age is 65. Depending onnature of surgery, 50/20/30 per cent ofSum Assured is paid as a lumpsum. Thisappears to be an attractive option thoughthe limitations are not known.

One interesting aspect of the riders isthe extent to which they are influenced bythe limitations of existing software. Thereason why Critical Illness or other riderscannot be given beyond the premiumpaying period is that the software systemwill not permit a greater term for the riderthan that for the basic cover, especiallywhere the non-forfeiture system opted foris that of automatic paid up.

While this is a fundamental safeguardand is therefore not wrong to implement,it does not follow that the rider should belimited to the premium paying term. Thisis due to the fact that the software shouldpermit separate term set ups for the basicpolicy and riders and validate themagainst each other as well.

As it is, it is complicating softwareimplementation to ensure that certainrider premiums should not exceed setpercentages of the basic premium whileothers can. To add complicationsregarding term validations as well callsfor protracted effort in softwaredevelopment and testing. These things canevolve at a later stage perhaps, but fornow, others things claim priority.

In unit-linked policy software, thenatural set up is automatic premium loanfrom the units available. When theamount is not sufficient to cover one basiccover premium, the system can provide aterm cover for the duration permitted bythe available amount. For the time beingthe only two companies which have usedthe automatic provision of extended termcover (ETI), are ICICI and SBI for its Unit-linked policy.

The reason that ETI which is sopopular in South East Asia, is not popularin India lies in the experience in India inthe days immediately followingnationalisation of life insurance. Manypeople had to be informed, either on adeath claim or on maturity, that the value

of the policy had been exhausted by theautomatic premium loans (APL) andconsequent interest, and that nothing waspayable under the policies.

The fact that they were regularly keptinformed of the position did not provideany consolation, or, recognition of thelegitimacy regarding the situation.

After having paid vast sums aspremium they expected some return, andthe failure to do so resulted in rage anddisappointment. The difficulty inconvincing people led to the rejection byLIC of the APL as a viable non-forfeitureoption, and uniform adoption of the autopaid up method.

This does not mean that the APL orETI options need to be given up, asdemonstrated by ICICI and SBI. It isquite possible that APL method isadopted for unit-linked policies, not as a

matter of conscious choice, but becausethat is what the software does!

With the levels of sophistication insoftware now available, it should bepossible to let the policyholder choose hisnon-forfeiture method and also change itmid-term if he so desires.

A lot of thought and study needs to gointo what is good and what is viable, andof course what proves popular in the areaof APL vs auto paid up. This is an areathat will see a lot of experimentation inthe years to come. It is also an area thatwould require better training of the salesforce to adequately explain the situationto the prospects.

One more area that will becomeimportant, in times to come, in the contextof extended term covers, is linked to add-on or top-up policies in connection withhousing loans. Increase in sum assured isnot an established practice in India.

In other countries where it is practicedalso there are hidden costs to thepolicyholder of which he is not madeaware. The limits to so called increasesare defined at the outset, and theunderwriting risk assessment is inclusiveof future possible increases. In such a case,if the policyholder does not avail of theoption to increase the risk cover, he haspaid unnecessarily for the medicalexamination.

However, the common man is notaware of it, and even well educated peoplefeel that it will be a very attractive feature,if they are permitted to just addadditional risk cover at any date in thefuture. Because of the popular perception,this will also be an area where we can seenew things happening in the not distantfuture.

The study does throw up interestingpossibilities as the companies willcontinue to innovate by drawinginspiration from each other. Some havetaken a bold step and structured benefitsthey feel will appeal to the public. Somehave taken precautions but in such a waythat the product retains its appeal.

If experience is favourable, therestrictions will slowly go and benefitcoverage would increase. These would bein terms of relaxations in applicable agegroup, conditions restricting payment andthe way benefits are structured. There isa need for the parties concerned to cometogether to build up a reliable databasesimultaneously so that the growth in thearea is more scientific and structured,thereby benefiting one and all.

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Insurance companies with their voluminoustransactions, are the earliest dominant usersof modern computers and their ancestralcalculating machines the world over.Insurance is a data-rich industry, with theability to generate useful information toimprove business and societal benefits.

Application of information technology (IT)based business processes has exploded in theglobal insurance market as most industriesand businesses no longer feel secure withoutit. This has resulted in improved efficiencies,cost-cutting, reduced time to market andbetter understanding of customers needs. Thecollaboration of technology and businesspractices has produced countless newefficiencies and identified new revenuesources. Gone are the days when IT was aseparate entity from other functionaldepartments; technology has becomeincreasingly intertwined in the businessprocesses, people and organisation of insurancecompanies.

Globally, insurance companies who areearly adapters of IT have found it an increasingmeans to make faster and more cost effectivethe processes by they create, maintain anddischarge policies. Increasing automation ofdocument management, workflow systems,and Web-based technology have beenincreasingly implemented.

On the transaction side, ‘electronic datainterchange’ (EDI) has created the ability toexchange and access information from policyrecords, wherever they are held. In the US,ACORD has brought insurance-specificstandards for data interchange for life andgeneral insurance, and HIPAA has laid downstatutory standards for healthcare and healthinsurance. For many insurers, organisationshave now changed from hierarchical to taskgroup-based systems, with individuals beinginvolved with several tasks at a time, thanksto the power of IT.

The opening up of insurance in India andthe subsequent entry of private players intothe market have drastically changed the entireapproach to customer service. Beforeprivatisation, only a small number of agentsoffered complete post-sales customer service.The insurance buyer essentially found it hardto get any policy support, especially at the timeof claim settlement.

Three years into an open market, therehas been paradigm shift in these roles. Many

sellers approach a buyer of insurance. Thefocus now is on offering a variety of productssupported by rigorous service initiatives acrossthe life of the product. With privatisation,customers often gauge insurers in terms oftheir products, premium rates and service.

This paper discusses the problem faced bythe insurers, Global Best Practices and thelearning therefrom for the Indian insurers.

Key Issues faced by insurersSome of the problems faced by insurers

in general are:

Operational Issues� Profitability – High operating cost and slow

growth� Overcapacity� Error rates� Transaction delay� Product launches – Selecting a product

with low premium, high return/coverage,matching higher customer expectations

� Channel managementEnvironment Issues� Competition� Unforeseen issues – SARS, catastrophe,

terrorism etc.� Strategic issues� Using data intelligently� Moving from paper to electronic data

creation and storage

All that are listed above also apply to Indiaalso to a large extent. IT can certainly helpand has helped overcome many of thesehardships.

The IT scenario in global insuranceThe IT scenario is not totally problem free

even in developed countries. The insurance

systems are legacies running on multipleenvironments, working in ‘silos.’ They haveenormous problems in maintenance andintegration. A good deal of effort is required tomaintain the system incrementally andintegrate them.

For instance, a century old New Zealandinsurer has 16 different policy administrationsystems to service his 1000+ products takenover from ten different companies. The costof maintaining these systems is much higherthan that involved in any new initiatives. Acompany rarely dares to redesign its systemsbecause of the cost, risk and pain involved.However, insurers in advanced countries:

� Derive maximum advantage of IT to ensuresuperior customer service notwithstandingthe legacies of the systems. All customer-facing systems now have a higher priority.

� Make enormous efforts to make availableany kind of information that the executivesat different levels need on regular intervalsor on an ad hoc basis, unlike in the earlieryears where insurers concentrated ontransaction processing rather thanmanagement information.

Indian companies do not have suchdifficulties; they have neither multiple systemsnor heterogeneous environments as with theinsurers in advanced countries. But acomparison with them would indicate thatIndian insurers have a long way to traverse inestablishing efficient systems to improvecustomer service, reduce paper basedprocesses and manual intervention, effectbetter control and produce bettermanagement information.

Indian insurers can leapfrog to currenttechnologies as they are not saddled withlegacy systems (except a flat file system) andcan avoid the difficulties that wereencountered by advanced countries. The bestsystem not only serves their current needsbut also acts as a foundation for flexibleenhancement according to market dynamics.Are such systems in place?

The technological progress of Indiancompanies could be assessed in two ways. One,by comparing them with other serviceindustries and in particular with the bankingindustry. The other, by examining thetechnological changes in terms of globalinsurers (with examples of US practices whichwould apply to advanced countries also) and

Technology & the Indian InsurerM. Arunachalam

Indian insurers canleapfrog to current

technologies as they arenot saddled with legacy

systems and can avoid thedifficulties that were

encountered by advancedcountries.

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more relevantly in relation to expectations setforth within our country.

A comparison with the banking industryThe business requirements of banks and

those of insurers are very different. Both ofthem, however, render a variety of financialservices to a massive customer base. Now inthe business environment of bancassurance,the dividing lines between banks, brokers,insurers and other types of financial serviceproviders have become blurred. A comparisonbetween banks and insurers is logical becauseboth institutions, among other things, expectat least basic functions to be conducted onlineand have the objective of offering excellentcustomer service.

The Reserve Bank of India (RBI) has beeninstrumental in getting Indian banks to taketo IT in a big way. Most of the banks in Indiahave made significant progress in technologyupgrade, and have achieved a state ofexcellence. The technology initiatives of bankswith emphasis on customer service, ATMs inconvenient locations, online banking, directlinks to corporate customers, inter-branchtransactions for customers, and a variety ofservice committments have helped them tocapture market share, increase customerretention and lay the leadership foundation.

Technology has helped banks in severalareas. Transaction processing has been madeuser-friendly and customer-oriented, withutmost controls built in. Customers arehappier today than a few years ago. Althougha detailed review is outside the scope of thisdiscussion, a few noteworthy points are:

Customer-related:

� Reduced average transaction time, fastclearance through MICR and costreduction using the online Real Time GrossSettlement system (RTGS)

� Increased networked operations, SWIFT,electronic fund transfer

� Customer account generation, timely andon demand

� Quick processing of loan and interestcalculation with precision

� Tracking of trade finance helping importerand exporter customers

� Alternative delivery channel for lessremunerative customers

� Joint marketing efforts with petrol bunks,airlines etc and new services like online

bill payment

� One-stop service centre as a financialsupermarket

� Differentiating customers and segment-based selling

� Utilising Customer Information Files (CIF)to reach out to customers and theirassociates, viewing all the dealings of acustomer in an integrated manner

� Services on the basis of ‘ability to pay’concept

MIS-related� Centralised pool of information available

subject to hierarchy discipline

� Ability to drill down a GL balance forvarious industries

� Profitability – customer-wise, marketingmanager-wise etc

� More informed decisions in the area ofcredit in terms of concentrations

� Ability to respond to new challenges like

risk management and asset liabilitymanagement (ALM)

� Ability to download the requiredinformation by operating units

Incidentally, it could be mentioned thatamong other service industries, Railways andairlines in India have made their operationscustomer friendly. Services involving highpublic interest like travel booking, bill payment(telecom etc.) and related services havebecome extremely easy and have delightedthe customers beyond expectations.

Malhotra committee’s expectationsThe report of the Committee on Reforms

in the Insurance Sector headed by Mr. R. N.Malhotra as Chairman (popularly referred toas the Malhotra committee report) wassubmitted to the Government of India in early1993. This report indicates several expectationsthat Indian insurers should aim to fulfil. It is

10 years since the report was submitted andover three years since the IRDA was set up. Itis time to look at the developments in IT thathave occurred since then. Extracts from theMalhotra committee report have been includedin italics.

The reforms committee dealt withtechnology aspects in an exclusive chapter ofthe reforms report because of its importance.Its opening paragraph states: “If usedimaginatively and prudently, informationtechnology could be a valuable aid for efficientcustomer service, effective management andmeaningful regulation.”

It is relevant to examine the technologicalchanges and operational improvements thatwere brought out thereby in terms of

A. Customer serviceB. Business intelligenceC. PricingD. Controls and fraud detectionE. Regulatory compliance andF. Societal needs

A) Customer service“The resultant improvement in customer

service would raise the public image of theindustry and its staff. Besides,computerization should improve the workenvironment and job satisfaction within theindustry. The spread of computerculture…depends on the number of computerliterates…Computer handling should notbecome a closed preserve of a few specializedofficials…achieve desired levels of customer’sservice.”

In the past few years, there has beenperceptible increase in PC usage amongstemployees working in customer servicebecause of the front office package in LICoffices, package solutions in the public sectorgeneral insurance offices, and PC basedoperation that has been introduced by privateplayers. This has significantly improved theefficiency of the functioning of the insuranceoffices.

The steps that are needed to completeinsurance functions ideally require a seamless,automated process. The following are theinstances of such automated processes:

When a change is desired in the policyconditions, the change itself should beunderwritten, including premium calculationand printing of endorsement schedule,

The best customer serviceis delivered through singlewindow processing where

all the processes aredelivered in an integrated

way and not in ‘silos.’

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accounting of premium, adjustment ofcommission entry and so on. These should beperformed in a single stretch or in phases withvery little human interventions.

Calculation of maturity paymentsincluding adjustment of bonus, excess/shortpayments, policy loan, interest for delayedpayments, flow of reminders if advancedischarge receipts are not received in time,cheque printing or automated credit to banksand so on.

Every process in insurance invariably actswith reinsurance. The processes discussedabove should automatically link withreinsurance transactions. For example, whena claim is booked, loan repayment accountingis performed, and when a claim discharge isreceived and entered, payment process andrecovery process from reinsurer should beautomatically triggered.

Customer service needs to be proactive inits approach and should detect certainscenarios that may not be good for the healthof the company and/or detrimental to theinterest of customers. A few examples basedon the practices in the US/advanced countriesare as below:

When the policyholder requests asurrender quote, the option of loan (ifapplicable) on the policy is an advisablealternative. If the surrender quote is stillinsisted on, an e-mail is triggered to the agentfor discouraging surrender. The systemshould allow for this kind of beneficialinteractions.

If a policy has been allowed to lapse andthe policyholder takes another policy in itsplace, the system should point out the earlierlapse of a policy. This is not effective as of now,unless the applicant himself faithfullymentions it.

Regulators in the US discourage thepractice of replacing a policy from one insurerwith another, since it is often against theinterest of customers. Replacement of policiesacross life insurers should go through a seriesof steps supported by appropriate informationsystems that have been put in place. Thecustomer gets complete information about theimpact of his replacement action before hefinally decides to exit, and is usually contactedby the original agent/company. Such stepsand IT systems required in India since nowmultiple insurers are competitively transactinginsurance business.

A US company rendering insuranceservices exclusively for their military personneldeclares that their members can be in themiddle of the ocean on a ship, and can meettheir financial needs in an efficient manner,with one phone call or by going to the website.They measure quality from their members’point of view by indices such as: lost members,complaints and customer satisfaction surveys.They spend a great deal of resources on theircustomer-facing processes and heavily bankon the technology that enables thoseprocesses.

The best customer service is deliveredthrough single window processing where allthe processes are delivered in an integratedway and not in ‘silos.’ When a customer walksin, he need not visit multiple departments toget what he needs but gets his requestexecuted from a single window.

Technology is an effective, and probablythe only, way to achieve this. How do the

technology/tools that have been used in theseprocesses have a bearing on customer service?Some examples stated below would providean answer to this question.

1) Product Life Cycle Management(PLCM)

In a competitive environment, the timetaken to market a product is critical. IT shouldbe used effectively to allow easy introductionof new products while maintaining the existingones. Insurance companies spend a lot of timein introducing a new product in the marketdue to the complex structure of the product.This results in delayed marketing loss ofbusiness opportunity or an advantage to thecompetitor.

Severe Acute Respiratory Syndrome(SARS) engulfed parts of Asia resulting inhundreds of casualties. A few insurers were

quick to respond to the market conditions byintroducing a product ‘SARS Cover’ againstthis dreaded disease for a nominal premium.Business is driven by political and economicconditions and/or the evolving customerdemands. Hence an insurance system shouldbe flexible to meet these dynamics. Also,technology will enable a paradigm shift inproducts offering, from standard, uniformpolicies to ‘mass customisation’ whereinsurance coverage and financial services willbe configured to meet needs of insuringprospects.

Product-related services such as rating,underwriting, and policy administration,should not be isolated technology projects.Instead, these services should be byproductsof the PLCM process.

Both life and general insurers use a largenumber of actuarial systems. Among them,asset share calculations for new products oflife insurance provide assurance that theproduct will be financially sound. It simulatesthe way in which the assets of a block of policiesshould grow, depending on variousassumptions about future interest rates,mortality, expenses, lapses, etc.

Actuaries can determine whether theproduct will be sound, fair, and competitiveover time. Such calculations for products likeuniversal life, adjustable life, and variable life,under a variety of scenarios pose challenges.Actuaries need an IT system to perform assetshare calculations effectively. Groupwarefacilitates communication among actuaries,marketing executives, and others working onnew products though they reside in differentlocations.

Are companies able to introduce newproducts as and when necessary? Are thetechnology systems so tuned to accommodatenew products without undue delay?

2) IllustrationAlmost all companies overseas allow

printing of illustration, providing differentoptions, benefits and rates which the agenthands over to the prospect. Incidentally, theillustration system is a customer-oriented toolfor selling insurance, used by agents activelyto project the future benefits of the policy,which he generates from his own PC or froma centralised system.

The sales presentation can bepersonalised by incorporating the household’sdemographic data, which could also be

In non-life insurance rulebased underwriting

systems are in extensiveuse with access to a

common repository forinformation on motorvehicle, drivers, and

claims history.

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transmitted online from the company’sdatabase to the agent’s computer. Mostcompanies are beginning to use this in a smallway but the system has to be developed so asto meet requirements such as automate theprocess wherein once the customer acceptsthe illustration, the data is automaticallytransferred to the backend system.

3) Proposal ProcessingShifting into gear with the right

technology could result in greater efficiencyand simplified new business processes.

To quote an example of a company in theUS, new business under some select planssuch as term and annuity are sold throughbrokers’ offices with web-based system thathandles the entire sales and back officeprocessing. The broker responds to thecustomer/agent with a set of quotes, for avariety of options in terms of product, term,coverage etc.

Even before the quote is released, thevalidity of agent’s license against the line ofbusiness and appointment with the companyare verified in terms of statutoryrequirements. Various quote options aredisplayed and can be selected. The selectedoption is sent to the mailbox of the agent inrich text format. When the customer selectsone of the options, complete proposal data iscaptured, and the whole data files flow to thehead office (HO) of the insurer for furtherprocess.

The HO staff reviews the proposal, and incase of any underwriting requirement, theworkflow system allows electronic interfacewith the respective third parties such aslaboratories, paramedical services, inspectionand tele-interview agencies and MIB. Whenthe proposal requirements are complete,underwriting is performed through theinsurer’s expert system. The whole process isvery user friendly, and is performed withspeed and accuracy. Insurance companiesinstall the software in broker officesproactively.

The system is scaleable to accommodatemultiple products and multiple brokers withminimum code changes. Agents can accessthe system for all their sales activities fromanywhere. Some insurers use such a systemeven for complex products as variableannuities. This web application uses acentralised rule engine for underwriting aswell as rating system, which are common for

the company as a whole, thus avoiding anyredundant systems.

The proposal processing also has anapplication tracking facility. This captures everystep of the proposal processing as it proceedsuntil the policy issuance stage. For example, ifthe underwriter orders an attendingphysician’s statement, the physician’s nameand address are included in the record. Manycompanies use an Application TrackingSystem (ATS) to facilitate inquiries.

In most cases, it is the agents who enterdata into their systems and transmit data atend-of-day to an intermediate system inoperating offices, which validate the databefore it is submitted to an underwritingsystem.

In India, the alternative distributionchannels such as bancassurance and brokersare being stabilised. Selling through theInternet has just started with at least one

insurer initiating the process. Such systemsas above will therefore be of value whenplaced with partners such as banks and brokeroffices.

4) UnderwritingThe underwriting process of Indian

insurers is considerably manual although aset of validation rules is in place. Every policyissuance requires meticulous humanintervention, which involves long turnaroundtime and tedious process. Complaints of delayand inconvenience are often heard. There is aneed to conceive a faster policy processing andissuance system in both life and non-lifeinsurance.

Most of the major global insurers use expertsystems, built in or purchased from thirdparties, to assess risks and suggest possibledecisions automatically. The followingexamples will indicate the scope to improveunderwriting capabilities in general.

� In the recent initiative of National HealthService (NHS) of UK with British Telecom(BT), a national health database of all itscitizens can be accessed electronically.

� In the US, the Medical InformationBureau (MIB) stores all medicalinformation and is available (with certainlimitations) to member companies forunderwriting

� In non-life insurance rule basedunderwriting systems are in extensiveuse with access to a common repositoryfor information on motor vehicle, drivers,and claims history. Credit history isretrieved and credit-score based rating ison the rise.

� Fixing loading/rebates based on pastclaims experience.

� Reinsurance based on the sum assuredand retention capacity per risk.

When a proposal passes throughautomated underwriting, if any health check/documents are required, a letter is printedautomatically. When the requesteddocuments are received and recorded, thesystem automatically initiates furtherprocessing of the policy issuance. Rule basedunderwriting (expert system) results inautomated policy issuance in more than 70per cent of the cases.

Some proposals may require HO approvalsand they are passed on electronically througha workflow tool. E-mail can be sent on issuanceof policy to the policyholder/ agent. Technologyplays a major role in the process discussedabove, although high-end facilities like OCRfor proposal data capture are not taken intoconsideration for the moment.

Technology integrates new businessprocesses from the application process throughcontract delivery. Insurance productsrequiring sophisticated risk assessment canbe issued in much shorter timeframes due toautomated workflow. This eliminatesredundant tasks and processing time lag bymanaging and tracking workflow, essentiallyrecognising that several people may beworking on the same case simultaneously.All these phenomenally increase theprocessing efficiency and make the job easier.

(To be continued)

The author is Advisor, Insurance, HCLTechnologies Ltd. The views expressed hereare his own.

Product-related servicessuch as rating,

underwriting and policyadministration should not

be isolated technologyprojects.

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�� Jour Jour Jour Jour Journal, December 2002nal, December 2002nal, December 2002nal, December 2002nal, December 200242�� Jour Jour Jour Jour Journal, May 2004nal, May 2004nal, May 2004nal, May 2004nal, May 200442

Report Card:GENERALG.V. Rao

Non-Life Industry ends year with 13 % accretion

Royal Sundaram 2,899.94 25,801.76 1,579.54 18,177.28 1.60 1.27 41.95

Tata-AIG 3,025.70 35,476.39 4,056.19 24,087.42 2.20 1.69 47.28

Reliance General 694.66 16,123.96 1,434.02 18,501.70 1.00 1.30 -12.85IFFCO-Tokio 4,063.36 32,529.73 2,426.47 21,332.91 2.02 1.50 52.49

ICICI Lombard 5,044.05 50,672.18 2,390.13 21,522.10 3.14 1.51 135.44

Bajaj Allianz 5,003.43 47,630.86 3,016.45 28,928.45 2.96 2.03 64.65

HDFC Chubb 1,617.72 11,166.78 341.49 943.98 0.69 0.07 1082.95Cholamandalam 1,364.87 9,668.31 668.16 1,477.79 0.60 0.10 554.24

New India 52,806.00 4,02,832.00 42,287.00 3,92,124.00 24.99 27.50 2.73

National 37,091.00 3,41,700.00 30,172.00 2,86,358.00 21.20 20.08 19.33

United India 26,668.00 3,06,817.00 25,262.00 2,96,807.00 19.04 20.81 3.37Oriental 24,786.48 2,86,907.75 23,251.24 2,78,289.43 17.80 19.52 3.10

ECGC 5,170.70 44,512.90 5,500.91 37,465.11 2.76 2.63 18.81

PRIVATE TOTAL 23,713.72 2,29,069.97 15,912.44 1,34,971.63 14.21 9.46 69.72

PUBLIC TOTAL 1,46,522.18 13,82,769.65 1,26,473.15 12,91,043.54 85.79 90.54 7.10

GRAND TOTAL 1,70,235.90 16,11,839.62 1,42,385.59 14,26,015.17 100.00 100.00 13.03

Insurer Premium 2003-04 Premium 2002-03 Market share Market shareGrowth%

2003-04 2002-03Year on

Year March 04 2003-04 March 04 2003-04

(Rs. in lakhs)

Gross Direct Premium (within India) Provisional - Financial Year 2003 - 04

Performance in March 2004

The four public sector players havesprung the biggest surprise of the fiscalby turning out an extraordinarypremium performance in March 2004.

Despite the distractions associatedwith the exercise of implementing theSpecial Voluntary Retirement Scheme(SVRS,) the month of March 2004 hasturned out to be the most productive forthem. An increase in their monthlypremium by Rs. 204 crore (17 growth)out of a total accretion for the industryof Rs. 278 crore (20 per cent) in March2004 is clearly a major feat.

New India Assurance that had lowgrowth rate trends as late as even up tothe end of February 2004 (it was 0.06per cent) has recorded a growth inpremium in March 2004 of Rs. 105 crore

(25 per cent), followed by NationalInsurance with Rs. 70 crore (20 per cent),Oriental Insurance with Rs. 16 crore(seven per cent) and United India withRs. 13 crore (six per cent). Public sectorcompanies have clocked a growth of 75per cent for the month of March 2004.

The two companies that need to bewatched in the next few months are NewIndia Assurance and NationalInsurance for the scorching pace ofgrowth they have generated in March2004. Will they maintain themomentum? Has SVRS been a shot inthe arm for them to rediscover theircapabilities and potential? These arequestions that will be answered in time.

The private sector companies for thefirst time appear to have lost a little bitof their sheen in growth terms.The growth in their premium was about

Rs. 78 crore (49 per cent growth). TataAIG has surprisingly shown a fall inpremium Rs. 10 crore and RelianceRs. seven crore. ICICI Lombard, BajajAllianz, IFFCO-Tokio and HDFCChubb are the other players that havedone well in the month as they did inthe past.

By any reckoning the performanceof the two sectors in March 2004 hasbelied the usual public expectationsthat their relative earlier performanceshad generated—that the privateplayers always outstripped theaccretions of the public players on aregular basis. The public sectorcompanies have bounced back in March2004 showing a surprising capacity toupset the averages. With private sectorcompanies assuring improved market

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discipline, 2004-05 promises to be aninteresting year for the public players.

Though the private players haveslipped up a bit in March 2004, it is tooearly to call it a trend.

Performance 2003-04The industry has recorded a

premium of Rs. 16,120 crore with anaccretion of Rs. 1,860 crore (13 per centgrowth) in the fiscal 2003-04. The shareof the four public sector companies isRs. 13,380 crore with an accretion ofRs. 850 crore (seven per cent growth).The private companies have contributedRs. 2,300 crore with an accretion ofRs. 940 crore (70 per cent growth).ECGC’s contribution has been Rs. 445crore with an accretion of Rs. 70 crore(19 per cent).

Out of the increase of about Rs. 850crore shown by the public players,National Insurance alone hascontributed Rs. 550 crore, New IndiaRs. 107 crore, United India Rs. 100 croreand Oriental Rs. 86 crore. New Indiahas, in one month in March 2004,recorded an increase of Rs. 105 crore,almost their entire annual accretion,except for Rs. two crore.

The growth trend of the public sectorcompanies continues to be uneven. Andin the absence of information on whichportfolios have contributed to theincreases, it is difficult to highlight theirspecific business strategies and forecastthe future trends of businessdevelopment in the Indian market for

the nextfiscal.

Is agrowth rateof sevenper centsatisfactoryfor thepublic sectoragainst thei n d u s t r yaverage of13 per cent?Even thisgrowth rate

of seven per cent has been made possibledue to the performance of NationalInsurance that recorded a growth rateof 20 per cent with an accretion of Rs.550 crore out of the total accretion ofRs. 850 crore for all the four publicplayers. Will National Insurance be ableto sustain the momentum it has so fargenerated in the next fiscal? Is it nowthe turn of the other three public playersto opt vigorously for the growth strategy?

There have been several industryinitiatives external to the performanceof the players; viz. the Universal HealthInsurance scheme announced by theGovernment, a spate of bancassurancetie-ups, corporate agency arrangements,the boom in the sale of auto sector allhave contributed to the growth inbusiness. What new initiatives are inthe offing for 2004-05?

The private companies’ performancehas been remarkable. ICICI Lombardh a smaintainedits topp o s i t i o nthroughoutthe yearwith anaccretion ofRs. 293crore. BajajAllianz hasrecorded anaccretion ofRs. 188crore, Tata

AIG Rs. 115 crore and IFFCO-TokioRs. 112 crore.

Comment on the performance in2003-04:

2003-04 has been an interestingyear for the private players with theirmarket share rising to15 per centagainst the eight per cent or so in theprevious year. Despite their low capitalbase and inadequate infrastructure,the private players have demonstratedthey are a powerful and vigorouscompetitive force to reckon with. Theyare likely to intensify the competitivepressures in 2004-05. They are currentlyon a roll.

Despite their impressiveperformance in March 2004, the publicplayers need to do a lot more to getout of the defensive mode that seem tohave enveloped them till now. Forthis, they have to recast theirorganisational structure, revamp theirHRD practices, and deliberately becomemarket and customer savvy.

On all this will depend which waythe will market move in 2004-05 andhow it will make a difference to thepublic.

The author is retired CMD, The OrientalInsurance Company.

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In a recent meeting held betweenState Bank of India (SBI) and LifeInsurance Corporation (LIC), the latterhas agreed to provide cheap finance toinfrastructure projects during theirconstruction period, it is reported.

To start with, LIC will pick up powerprojects where the SBI and other publicsector banks have extended finance,banking sources are reported saying.

Upon the completion of the project,banks will exit so as to avoid asset-liabilitymismatches in their books and the lifeinsurance major will replace them bytaking the full exposure on itself.

Although this scheme — calledtakeout financing — has been discussed

earlier, what hindered matters was gettingfinance at below market rates.

But LIC, which has offered cheaperfinance, has also asked comfort inthe form of a guarantee frombanks which, in turn, are averse totaking long-term exposure toinfrastructure projects without anyviable exit route.

This guarantee will help theLIC to cut down the risk exposure onprojects. Sources said this is tocompensate for the cheaper finance thatthe LIC will be providing for the initialfive-year period till the project iscommissioned.

However, once the project starts,the full risk exposure and capital will

India is set to be world’s second hottestdestination for foreign direct investmentafter China in the next four years, accordingto a UN-sponsored survey.

According to news reports the surveypoints to the US having fallen to the thirdspot, while Thailand ranks fourth, followedby Poland and the Czech Republic (withequal points), Mexico and Malaysia (equalpoints) and the United Kingdom, Singaporeand South Korea (ranked equal).

These results are based on a joint surveyconducted by the UNCTAD in Geneva andby Corporate Location Magazine in London.

More than four out of five internationallocation experts from around the worldbelieve that FDI inflows are about to takeoff again, following three years of continuousdecline in global FDI.

The survey, which polled 87 investmentanalysts worldwide, gave no figures forinvestment flows, but said volumes wereseen improving after three poor yearsbetween 2001 and 2003.

For India and China, major FDIs areexpected in the manufacturing sector.Prospects for motor vehicles and othertransport equipment, machinery andequipment, chemicals and, to a lesser extent,

be provided by the LIC when the banksmove out.

Sources said that once aninfrastructure project starts,the return on investment will be verylucrative.

Infrastructure financing has been asignificant foray for both SBI and LIC asthe Government, in its mini-Budget, hadasked both banks and financialinstitutions to participate in projectfinancing in a big way for usingthe abundant liquidity in the financialsystem.

It has also proposed setting upof a Rs 50,000 crore core fund to financeinfrastructure projects.

electrical and electronic products, publishingand media service are brighter.

In the services sector, banking andinsurance, business services, tourism,transport, computer-related services, retailand wholesale trade will take the lead inattracting FDI in the years to come, expertssaid in response to the survey questions.

Asia-Pacific garners the most optimismof all regions in terms of its future FDIprospects.

The survey findings predict that the mostlikely options for business expansionoverseas are evenly divided betweenmergers and acquisitions (41 per cent) andgreenfield investments (37 per cent). Othermodes of international business expansionsuch as licensing and strategic alliances werementioned by only 22 per cent of therespondents.

Despite the fact that the outsourcing ofwhite collar jobs has become a major issue inmany countries and dominates internationalbusiness headlines, the respondents still seethe bulk of relocation occurring in lowervalue-added corporate functions.

Processing activities, logistics and supplyfunctions are the most frequently mentionedcorporate functions likely to relocate abroad.

SBI, LIC GET TOGETHER FOR INFRASTRUCTURE FINANCINGSBI, LIC GET TOGETHER FOR INFRASTRUCTURE FINANCINGSBI, LIC GET TOGETHER FOR INFRASTRUCTURE FINANCINGSBI, LIC GET TOGETHER FOR INFRASTRUCTURE FINANCINGSBI, LIC GET TOGETHER FOR INFRASTRUCTURE FINANCING

INDIA TO BE 2ND HOTTESTFDI SPOT: UN SURVEY

The Government, it is reported,has decided to launch a multimediacampaign to create an awarenessabout the new pension scheme.It is in talks with the Confederationof Indian Industry (CII) andvarious other non-governmentalorganisations for the campaign whichwill be launched in the year-end, it isreported.

The amount to be spent on thecampaign is yet to be decided. It islikely to be finalised at the time ofregular Budget for financial year2004-05.

The Government, it is reported,has decided to put in about Rs. 70crore as its contribution for the newscheme in the first year. At present,it will be operational only for the newCentral Government employees.

MULTIMEDIA ADCAMPAIGN FOR NEW

PENSION SCHEMELIKELY

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Newspaper reports say that anequity offering by the Life InsuranceCorporation of India (LIC) is in theoffing.

Reports also say that in a movethat would spark off a massive recastof the Indian insurance giant, includingcorporatisation and a large dose ofrecapitalisation by the Government inthe run-up to a subsequent publicoffering, the LIC board of directors hasadopted the restructuring reportprepared by its consultants, DeloitteTouche Tomahatsu India.

The LIC Chairman,Mr S.B. Mathur, has been quotedconfirming that the corporation hasadopted the restructuring report of theconsultants virtually in toto.

Mr. Mathur confirmed that amongits major proposals was thecorporatisation of the entity with an

eye towards accessing the capitalmarket to meet its future requirements.

“The Government might not bewilling to continuously recapitalise LIC.The additional capital may have to comefrom other shareholders.”

After corporatisation and before theIPO, LIC might have to seekrecapitalisation from the Governmentto make the pricing of its sharesattractive for public participation,reports say.

The recapitalisation would berequired to dilute the earnings pershare, since the paid-up capital of Rs.five crore that the corporation operateswith currently would result in abnormalpricing of its shares during a public float.

The other major suggestion in theconsultants’ report is that the solepublic sector insurer in the countryshould not have the advantage of thebacking of Government guarantee in

order to create a level playing fieldwith other private sector players.

Should the Government worktowards this, the corporation wouldhave to ensure that is has the paid-upcapital and meets the solvencymargins to back its operations thatcaptures over 90 per cent of the Indianlife insurance market.

LIC is already set to meet thesolvency margins by March 31, 2004by providing for an amount in excessof Rs. 10,000 crore to back upoperations since its inception.

“In the insurance business, thepaid-up capital requirement is adynamic concept,” Mr Mathur isreported saying, pointing out thatsome of the new private players havealready hiked their capital to muchabove the mandatory minimum leveldespite handling much less businessthan LIC.

��

Air India has reportedly secured aninsurance cover for its 33 aircraft fleet foraround 20 per cent less than the $11.6million premium paid last year.

A few months ago, Reliance Industrieshad bought its Rs 40,000 crore risk policyfor Rs 142 crore, about 10 per cent less thanlast year’s annual premium of Rs 156 crore.

Air India and Reliance are among theseveral Indian companies which soughtinsurance cover overseas to reap thebenefits of a softened global insurancemarket.

The cost of acquiring covers overseashas fallen by 15 to 20 per cent. Indiancompanies can seek insure overseas ifdomestic insurance firms cannot coverthem.

Domestic insurance firms need agreater ability to cover new businesses. Sothey too buy reinsurance overseas — andare getting lower premiums now. NationalInsurance Companyhas also reportedlyfinalised its reinsurance programme at a15 to20 per cent lower rate.

INDIAN INSURERS TAKE ADVANTAGE OFLOW GLOBAL INSURANCE RATES

“The international insurance market hadjacked up premiums after September 11.With no major international losses and excesscapacity in the international market, we aretoday operating in a soft market,” NationalInsurance Company Chairman andManaging Director Mr. H. S. Wadhwa hasbeen quoted saying.

Over 40 per cent of National Insurance’sportfolio has been reinsured with theGeneral Insurance Corporation of India(GIC).

The fall in global insurance premiumswon’t benefit corporates that seek cover inthe Indian market, because 65 to 70 per centof Indian insurance business continues tobe under the tariff regime — premiums arefixed by the Tariff Advisory Committee(TAC), and do not change in line with globaltrends.

So though most domestic insurers havebeen able to secure cheaper reinsurancecovers, the benefit will not be passed on toall corporates.

Visva-Bharati authorities filed aninsurance claim of over Rs 2.39 crore for thetheft in March of Gurudev RabindranathTagore’s Nobel Prize medal and memorabilia,university Vice-chancellor Mr. Sujit Basu isquoted saying.

News agency reports quote him sayingto newspersons after an emergency meetingof the Visva-Bharati Karma Sabha convenedto take stock of the situation following thetheft, “We have filed an insurance claim of2,39,70,000. The total insurance coverage forthe museum is Rs 3,59,13,402”.

Visva-Bharati filesRs. 2.39 crore insurance claim

��

��New India Assurance, the largest

domestic general insurance company isopening a new branch in New Zealandand winding up 20 of its nationwidebranches following the exit of some 1100officers due to VRS, it is reported.

On the total premium income in 03-04, the company will be collecting over Rs4,000 crore from the domestic market andRs 800 crore from the overseas operations.

��


Swiss Re’s net income increased toCHF 1.7 billion in 2003. It also postedincrease in premiums to CHF 30.7billion. Property and casualty businesswas especially strong with premiumsup 25 per cent in original currencies anda combined ratio of 98.4 per cent.

John Coomber, Swiss Re’s ChiefExecutive Officer said in a press releasethat “Swiss Re’s 2003 results reflectgood performance from all threebusiness groups. Property and casualtylines in particular developed positivelyreflecting favourable market conditions.We expect further improvements acrossthe Group in 2004.”

Particular progress was made innon-life reinsurance whereunderwriting profitability improvedsignificantly, said the press release.Overall net premiums increased six percent, or 16 per cent at constant foreign

exchange rates, to CHF 30.7 billion.Operating efficiency improved across allbusiness groups in 2003 and costinitiatives will further benefit 2004 andbeyond, it added.

Swiss Re’s Property & CasualtyBusiness Group increased premiumincome by 16 per cent to CHF 17.4billion. In original currencies premiumsgrew by 25 per cent, attributable tohigher premium rates and organicgrowth. Earnings grew to CHF 1.8 billion(including capital gains of CHF 0.4billion), reflecting a six percentage pointimprovement in the combined ratio to98.4 per cent.

Swiss Re’s Life & Health BusinessGroup maintained its earnings recordwith a return on operating revenues of8.7 per cent or CHF 1.2 billion. Premiumgrowth was flat in original currencies (-9per cent in Swiss Francs) reflecting the

continued run-off in some health lines,declining interest rates and the firsteffects of Swiss Re’s repricing actions.

Return on investments increased to5.1 per cent, from 4.7 per cent in 2002which was heavily affected byimpairment charges on equity securities.Swiss Re continued its strategy ofconcentrating capital on its corereinsurance business and has furtherreduced its exposure to equity marketsin 2003.

The company’s Board of Directorswill recommend a dividend of CHF 1.10per share (up from CHF 1.00 per sharefor 2002) at the Annual General Meetingon 14 May 2004.

At the Annual General MeetingSwiss Re will propose Kaspar Villigerfor election to the Board of Directors.Kaspar Villiger is a former President ofthe Swiss Confederation and FederalCouncillor of Switzerland.

Swiss Re is one of the world’s leadingreinsurers operating through more than70 offices in over 30 countries. It is basedin Zurich, Switzerland.

Japan Post aims to beef up itsinternational business to surviveintensifying global competition aheadof its planned privatisation beginningin 2007, according to Mr. MasaharuIkuta, President of the Japangovernment-owned entity.

“Our international business issmall right now. But we are trying toestablish the business as animportant cornerstone in the future,”Mr. Ikuta, the 69-year-old former

Mr. Ikuta is opposed to separatingthe savings and insurance operationsfrom the postal system after itsprivatization, and running its post officenetwork solely by selling a variety offinancial products, such as investmenttrusts. This idea, put forward by someexperts, would not provide enoughmoney, he said.

Fees from selling government bondsand providing settlement services stoodat 80.4 billion yen for fiscal 2003, whileit cost four trillion yen to maintain thenationwide post office network. Even ifJapan Post boosts its lineup of financialproducts, the expected revenues wouldshow an increase of only 300 billion yenat most, Mr. Ikuta said.

“It is true that the postal network isa precious treasury of the people,” Mr.Ikuta said. “But it is also a fact that therevenues we can obtain from sales offinancial products is too small to runthe postal network.”

SWISS RE REPORTS NETSWISS RE REPORTS NETSWISS RE REPORTS NETSWISS RE REPORTS NETSWISS RE REPORTS NETINCOME OF CHF 1.7 BILLIONINCOME OF CHF 1.7 BILLIONINCOME OF CHF 1.7 BILLIONINCOME OF CHF 1.7 BILLIONINCOME OF CHF 1.7 BILLION

JAPJAPJAPJAPJAPAN POST SEESAN POST SEESAN POST SEESAN POST SEESAN POST SEESINTERNATIONALINTERNATIONALINTERNATIONALINTERNATIONALINTERNATIONAL

BUSINESS ASBUSINESS ASBUSINESS ASBUSINESS ASBUSINESS ASCORNERSTONECORNERSTONECORNERSTONECORNERSTONECORNERSTONE

Chairman of shipping company MitsuiO.S.K. Lines Ltd., is reported saying.

Of Japan Post’s 2 trillion yen in salesin postal services, 1.7 per cent comesfrom the overseas parcel business. ButJapan Post expects the global marketto grow 1.9 times from the 4.9 trillionyen in 2002 to 9.2 trillion yen in 2012.

Notably, the delivery businesswithin Asia is expected to grow 3.1times in that period.

It has been a year since Japan Postwas born as a public corporation aftertaking over the governmental PostalServices Agency’s mail delivery, postalsavings and “kampo” life insuranceservices.

Japan Post is also the country’sbiggest financial entity, with its postalsavings and insurance policies standingat about 350 trillion yen. As a result, ithas been criticised for hampering theprivate insurance and banking sectors.

��


The increasing prevalence of obesityis too significant for the life insuranceindustry to ignore, according to a Swiss Restudy. The report analyses the impact ofobesity on mortality trends, and identifiesthe implications of this escalating globalepidemic on the pricing and underwritingof life insurance products.

With links to cardiovascular disease,hypertension, diabetes and many types ofcancer, obesity is now a major public healthconcern world wide. Recent estimates putthe prevalence of obesity in the developedworld at around 10 per cent to 20 per centfor men and 10 per cent to 25 per cent forwomen. In the United States and UnitedKingdom, obesity has increased two tothreefold in the last 20 years and otherdeveloped countries show similar patternsof increase.

Obesity is not, however, confined tothese countries. In the developing world,the prevalence of obesity is around 5 percent and is expected to rise in the future.

The problem is particularly acuteamongst the younger generation, where theoverweight child population is on the rise.In the United States, the number andprevalence of obese children aged six to 11has doubled over the past two decades.

Life insurers must address the growingepidemic The rising levels of obesity runcounter to the overall decline in mortalityrates seen in most developed nations inrecent decades. Mortality improvementshave been driven by progress in medicaltreatment, a reduction in heart disease anddeclining tobacco use. It is highly probable,according to the study, that mortalityimprovements could have been greater ifobesity levels had remained stable.

Looking ahead, the life insuranceindustry must tackle issues associated withincreases in obesity by ensuring that therelated risks are accurately assessed andrated, and that consumers are charged anappropriate premium to reflect the risk theypresent. This will present challenges for

� ��

��

underwriters and actuaries in anincreasingly competitive environment. Forexisting life insurance cover, thedetrimental effect of increasing obesity isexpected to be offset by continued overallmortality improvements.

Obesity must be tackled by society atlarge The increasing prevalence of obesityhas financial implications for consumersof life insurance products and society as awhole.

Ronald Klein, Global Head of Pricingat Swiss Re’s Life & Health BusinessGroup, explained: “Obesity usually stemsfrom a lifestyle choice. Society has dealtwith smoking through a variety ofmeasures including education andpersuasion. Confronting obesity is now anequally pressing task, calling for acombined and determined effort from allparties. Governments, the medicalprofession, food manufacturers andconsumers - particularly parents - need tobe alert to this emerging risk and to play arole in confronting it.

“Unless the prevalence of obesity isbrought under control, consumers willbear the ultimate cost. As consumers’ BodyMass Index goes up, so too will theirpremiums,” he warned.

The International AccountingStandards Board (IASB) recently issuedInternational Financial ReportingStandard 4 Insurance Contracts (IFRS 4).The publication of this IFRS provides, forthe first time, guidance on accounting forinsurance contracts, and marks the firststep in the IASB’s project to achieve theconvergence of widely varying insuranceindustry accounting practices around theworld.

In developing IFRS 4, the IASBbalanced the urgent need for aninternational standard on accounting forinsurance contracts with the recognitionthat developing a global consensus on arigorous and comprehensive approachwould require extensive consultation

beyond the time frame available. Inparticular, consultation on a completelynew international approach could not becompleted in time to meet the starting dateof 2005 set by the European Union andother jurisdictions. In that light, IFRS 4completes only the first phase of the IASB’sinsurance project. It is aimed at introducingimproved disclosures for insurancecontracts, and modest improvements torecognition and measurement practices,without requiring extensive changes thatmight need to be reversed when the IASBcompletes the second phase of this project.

In the second phase, the IASB willaddress broader conceptual and practicalissues related to insurance accounting. Thesewill be the subject of IASB deliberations and

consultations with interested parties thatwill resume in the second quarter of 2004.The IASB’s next step will be theestablishment of an international workingparty of about fifteen members. Theworking party will be composed of expertsactive in the insurance industry and theaccounting profession, representatives ofthe appropriate regulatory and supervisoryauthorities, and investment analysts.Although the completion of any long-termsolution for insurance contracts may takeseveral years to complete, the IASB iswilling to revise IFRS 4 in the short term inthe light of any immediate solutions arisingfrom the working party’s discussions.Further details of the insurance workingparty will be announced shortly.

IASB ISSUES STANDARD ON INSURANCE CONTRACTS

��


The Balancing ‘Act’P. S. Prabhakar

A fairly good portion of(coinsurance and

reinsurance accounts) arenot only unreconciled but

also irreconcilable.

In the earlierparts of thisseries, we haveseen the variousaspects of ‘purerevenue’ itemsappearing in thegeneral insurer’sfinancials. In thispart, what will bediscussed are the

items appearing in the Balance Sheets,which are essentially ‘capital’ in nature.

The financials of any enterprisealways consist of three importantsegments – (a) Profit & Loss account for aperiod, which is the statement from whichwe can know the operational results ofthe enterprise; (b) Balance Sheet as on adate, which details what the enterpriseowns (assets), what it owes (liabilities)and consequently what it is worth (owners’funds); and (c) Cash Flow Statement,which spells out how physical funds haveflowed in and out.

A fundamental postulate ofaccounting theory is the delineationbetween Capital and Revenue items.However, in practice, there can besituations of overlap between these two,resulting in the Profit or Loss as shownnot being what it actually is and theBalance Sheet items worth being differentfrom what they appear as. And the extentof this practical overlapping is whatnormally puts the ‘true and fair view’certification of the auditors under strain.

With this brief intro, let us see someof the components of the Balance Sheet,those which are less noticed and much lessanalysed, with specific reference to thepublished Balance Sheets of insurancecompanies.

Insurance companies’ Balance Sheetslook innocuous, at the first glance, withthe figures dovetailed from the variousschedules attached. (Staid items likeShareholders’ Funds, Reserves andSurplus, Fixed assets etc. do not need anydetailed dissertation.)

When we come to Current Assets andCurrent Liabilities, it will become

necessary to put the schedules concernedunder the magnifying glass, to understandwhat the individual balances couldbroadly contain within them. In theabsence of availability of any furtherbreak-up of the balances in the form ofsub-schedules, it is indeed difficult tofathom what could have been parkedunder the hazy sub-headlines.

For instance, every company will showboth in Current Assets and CurrentLiabilities, the balances with “otherpersons/entities carrying on insurancebusiness.” Insurance, being a globalbusiness by nature, is all about spread ofrisks far and wide and hence every insurerparts with certain a shares of his premiumwith other insurers, by way of co-insurance(where the preference of the customerplays a role) as well as by reinsurance,

both at home and abroad. Reciprocally,he also accepts risks ceded to him. Thewider the spread, the better it is for all.

However, such transactions betweeninsurers (and reinsurers) mostly takeplace by way of correspondence andaccounting entries only. While the BalanceSheet items refer to the ‘net’ balances ason a date, the corresponding effect shouldhave gone to the revenue. There arealways some transactions pendingaccounting for want offull information and especially whenthe number of transactions is huge,there can beunderstandabledifferences inbalances betweenentities havingsuch transactions.

If periodicalreconciliations

take place and such pending items areaccounted for in the way they should be,then there will be some excuse in hidingbehind the concepts such as going concernand consistency.

But, in reality, such reconciliationsnever happen and balances are alwaysallowed to mount, with differences everswelling, resulting in massive sums thatshould have found their rightful places inthe revenue accounts and in the P&Laccounts of the insurance companies beingheld captive in ‘Capital’ accounts. (Forinstance, a claim settled by company Aon behalf of company B is debited tocompany B without charging it off toRevenue and because full details are notmade available, even the company B doesnot account it as claim).

Though, every insurance company hassuch transactions with hundreds of theircounterparts across the globe and suchproblems are not unique to our country orour insurers alone, certainly it is no excusethat “Due to / Due from Insurers”continues to be a perpetual legacy. Thefinancials of the PSU insurers for 2002-03 in these accounts show the followingfigures and a fairly good portion of themare not only unreconciled but alsoirreconcilable.

Forgetting the reinsurers abroad, thePSU companies cannot even claim thatthe balances among the four of them arereconciled and differences identified foraccounting. (It has to be acknowledgedthat in certain regions, sincere attemptsare made to have inter-companyaccountants’ meetings to thrash out co-insurance accounting issues). So, it isanybody’s guess that how much of the‘revenue’ is in such ‘capital’ accounts andconsequently why the operational resultsshown are not what they actually are.

Rs. in crores

Head United New National Oriental TotalIndia

Due from 337.75 705.56 277.83 187.76 1,508.91other insurersDue to 192.72 602.86 127.44 91.42 1,014.44other insurers

For 2002-03

��


The author, who used to work with thenationalised general insurance industry,is a practicing Chartered Accountant.In this series he discusses the process ofanalysing the balance sheet of a generalinsurance company.

A long form audit reportlike in the case of banks,

can be introduced byIRDA to make it

obligatory on the part ofthe auditors to report on

several such issues.

The statutory auditors, however,seemed to have ‘reconciled’ to this maladyand are reporting this nonchalantly yearafter year. As many of the readers of thefinancials do not realise the impact, noserious questions are asked from anyquarter.

There is another item called asAgents’ balances, both in Current Assetsand in Current Liabilities. There is noofficial sanction in the Insurance Act orfrom IRDA that insurance companies canhave running balances with agents. In fact,no agent is authorised to collect any moneyon behalf of the company. At best, therecan be one month’s commission dues thatmay stand as credit balances. Or therecould be continuing aberrations of whathas long since been prohibited viz.,balances under Agents’ bank guarantees.

But the actual extents of suchbalances (shown below) defy suchperceptions. Whether these balances arewhat they are really supposed to be orwhether the head of account is aconvenient parking place for several para-revenue items, pending (for how long?)accounting as revenue etc. are but keptclosely guarded secrets.

Earlier, we discussed the unreconciledbalances in ‘inter-company accounts’shown under ‘Amounts due to / due fromother insurance companies.’ Even this,perhaps, we can understand to someextent as there has to be necessarilyinvolvement from the other companies forsuch reconciliation attempts.

However, in the matter of such non-reconciliation of balances, charity does notbegin at home. There are alwaystransactions of (a) claims settled - mostlyMarine Cargo and Motor Third Party (TP)claims - by one office of the company onbehalf of the other and (b) expensesincurred on behalf of another office. There

are eternal issuesof non-reconci l iat ionbetween offices ofthe samecompany and atany point of time,s i g n i f i c a n t

amounts stand wrongly ‘capitalised’ inthese accounts, commonly called InterOffice Accounts. (There are a few otherissues in the Balance Sheets about whichwe shall see in the next issue.)

In view of the sheer size of the balancesheets of the PSU companies, these items,though normally coming under intensescrutiny of the statutory auditors, do notget commented on adversely and, asalready mentioned, auditors are quitenonchalant about them.

It is, of course, the earnest belief ofthe author that the new generationregulations on accounting and financialreporting, as they evolve further inthe days to come, will address suchissues also.

A long form audit report like in thecase of banks, can be introduced by IRDAto make it obligatory on the part of theauditors to report on several such issues.The industry, both in the public andprivate sectors, which manages largeportions of public funds, will have to bekept on toes always in terms of accountingand, consequently, accountability.

Send your articles to: Editor, IRDA Journal, Insurance Regulatory and Development Authority,Parisrama Bhavanam, III Floor, 5-9-58/B, Basheer Bagh, Hyderabad 500 004 or e-mail us at [email protected]

AND BADWe welcome your experiences.Tell us about the good and the bad you have gone through and your suggestions. Your insights arevaluable to the industry. Help us see where we are going.

GOOD

Rs. in crores

Head United New National Oriental TotalIndia

Agents’ 1.61 59.56 1.54 (netted) 62.71Balances (Dr)Agents’ 19.00 28.39 22.20 20.05 89.65Balances (Cr)

For 2002-03


��

FAIR!The Federation of Afro-Asian Insurers and Reinsurers(FAIR) and NIA, Pune, held a seminar on “RiskManagement and Loss Prevention” on March 12 and 13at the latter’s campus at Pune.

L to R: Mr. L. P. Mehta, Editor, Asia Insurance Post, Dr. K. C. Mishra,Director, NIA, Dr. Ezzat Abdel Bary, Secretary General, FAIR,Mr. J. R. Joshi, Ex-Member, Governing Board, NIA, Mr. P. C. Ghosh,Chairman, GIC and Mr. H. Ansari, Chair Professor (General Insurance),NIA look on as Mr. T. K. Bannerjee, Member (Life),IRDA lights the lamp to inaugurate the seminar.

INAUGURATIONThe new conference hall of the National InsuranceAcademy (NIA), Pune was inaugurated on March 11,2004. The Academy has launched a two year MBAcourse for Indian and international students from theforthcoming academic year.

L to R: Dr. K. C. Mishra, Director, NIA, Mr. S. B. Mathur, Chairman,LIC and Mr. R. K. Vashistha, MD, LIC at the function whereMr. C. S. Rao, Chairman, IRDA, cuts the ribbon to inaugurate thenew conference hall of the NIA.

Fill this form and send it to us.

Name : __________________________________________Designation : __________________________________________Company/Organisation : __________________________________________Nature of business : __________________________________________New Mailing Address : __________________________________________

____________________________________________________________________________________

Phone : __________________________________________e-mail : __________________________________________

Website : __________________________________________

Our Address :Editor

IRDA JournalInsurance Regulatory and Development Authority

Parisrama Bhavanam, III Floor5-9-58/B, Basheer Bagh, Hyderabad 500 004

or e-mail us at: [email protected]

Change of Address ?

...for a unit-linked policy to besuccessful, the pre-requisite is that the

policyholder is well-informed. The risk oninvestment is entirely borne by the

investor...Internationally, such plans areconsidered very safe and capital intensive.

With markets opening up in India, thefuture lies in these products.

Mr. S. B. Mathur,Chairman, LIC

People who are truly sickfrom asbestos and the workers at

companies caught in the ever-expanding litigation web all are

waiting and hoping that Congressfinishes their job this year.

Mr.Robert E. Vagley, President of the AmericanInsurance Association on a bill in the US Senatethat would end personal injury lawsuits filed by

victims of asbestos instead of compensating themfrom a $ 124 billion trust fund supported by the

asbestos and insurance industries

The international insurance market hadjacked up premiums after September 11.With no major international losses and

excess capacity in the internationalmarket, we are today operating in a soft

market.

Mr. H. S. Wadhwa,Chairman and Managing Director,

National Insurance Company

A nightmare bill for asbestos victims,and a simple bail-out bill for the

asbestos industry.

An attorney who has represented morethan 1,000 asbestos victims commenting

on the same bill.

To me the question of theenvironment is more ominous than

that of peace and war. We will haveregional conflicts and use of force,

but world conflicts I do not believe willhappen any longer. But the environment,

that is a creeping danger. I’m more worriedabout global warming than I am of any

major military conflict.

Mr. Hans Blix, following his assignmentas chief weapons inspector in Iraq

“ ”Obesity usually stems from a

lifestyle choice. Society has dealtwith smoking through a variety ofmeasures including education and

persuasion. Confronting obesity is nowan equally pressing task, calling for a

combined and determined effort from allparties... Unless the prevalence ofobesity is brought under control,

consumers will bear the ultimate cost. Asconsumers’ Body Mass Index goes up,

so too will their premiums.

Mr. Ronald Klein, Global Head ofPricing at Swiss Re’s Life &

Health Business Group

Events

RNI No: APBIL/2002/9589

3 - 5 May, 2004Venue: PuneFinancial Derivatives by National Insurance Academy (NIA),Pune

10 - 15 May, 2004Venue: PuneAgricultural Insurance by NIA

17 - 18 May, 2004Venue: PuneCyber Laws by NIA

17 - 22 May, 2004Venue: PunePrevention of Insurance Frauds by NIA

24 - 29 May, 2004Venue: PuneRegulations & Frauds in Insurance Sector by NIA

27 -28 May, 2004Venue: Hong Kong5th Conference on Alternative Risk Transfers in

Asia with Captives Workshop

6 - 8 June 2004Venue: Kuala Lumpur, MalaysiaLOMA Strategic Issues Conference

6 - 9 June 2004Venue: BermudaWorld Insurance Forum 2004

7 - 12 June 2004Venue: PuneHealth Care Management by NIA

14 - 15 June, 2004Venue: TaipeiConstruction & Engineering Insurance Conference

16 - 19 June 2004Venue: TaipeiIFRIMA, FAPARMO & RMST International Risk &Insurance Management Conference

1- 48 pages (may issue for pdf) - irdaonline.org · editorial board: c.s.rao p.a. balasubramanian...

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