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Private insurers are shutting their branch offices in small towns due to the lack of profits from these areas, leaving the only state-run life insurer, Life Insurance Corporation (LIC), to bear much of the burden of financial inclusion in the country..

LIC opened 1,313 offices during the financial year ended 31 March 2014 while private insurers closed down 732 offices and opened 166, taking the net reduction in offices of private insurers to 566 during the fiscal year, reported. .

The Economic Times citing the recently released 2013-14 annual report of the Insurance Regulatory and Development Authority of India (IRDAI). Private insurers had closed down 1,097 branches in the previous year to cut costs..

At the end of last March, of the total 11,032 total offices of life insurance firms in the country, LIC had 79.6% of its branches in small towns while its private peers had 57.95%. Instead of expanding their footprint — which calls for capital to set up new branches and investment in training of staff —life insurance companies are investing in technology to reach out to prospective customers and enable smoother issuance of policies..

Seeking to increase insurance penetration in the country, the central bank – Reserve Bank of India (RBI) – has issued final guidelines to allow banks to act as brokers for insurers, set up their own subsidiaries and also undertake referral services for multiple companies..

“Banks may undertake insurance agency or broking business departmentally and/or through subsidiary,…,” RBI said in its guidelines for entry of banks into insurance business. Banks are also allowed to set up subsidiaries and joint venture companies for undertaking insurance business with risk participation, it said. They can also act as corporate agents without seeking prior approval from the RBI. However, they will have to comply with guidelines of the Insurance Regulatory and Development Authority of India (IRDAI). .

The new guidelines allow banks to act as brokers permitting them to sell insurance policies of different insurance companies. The guidelines follow an announcement made by the former Finance Minister P Chidambaram in 2013-14 Budget. According to the final RBI norms, a bank can enter insurance broking only if their capital to risk (weighted) assets ratio is 10% and above, and the net worth of the bank should not be less than INR10 billion (US$162 million). In addition, the net non-performing assets (NPAs) of a bank should be less than 3% of overall assets to be eligible for insurance broking. Many public-sector banks will be rendered ineligible because of this clause. According to bankers, their priority is now to tackle the rise in NPAs and improve the bottomline, rather than venture into a new sector. Bancassurance currently follows a corporate agency structure. This means that banks sell insurance as a corporate agent and these regulations allow each bank to sell insurance products of only one life, one general and one health insurance company each..

Mr Amitabh Chaudhry, managing director and chief executive officer of HDFC Life, told Business Standard that unless mandated to do so, banks might not be interested in becoming brokers. He added it is less onerous to be a corporate agent than a broker. The chief executive of a mid-size private life insurer said that a bank’s ownership of a stake in an insurer would restrain players from taking the broking route. “Once these banks become brokers, they would not be in a position to push products of their group companies. Private insurers, which get almost 60-70% of their new business from parent banks, might see a sudden slump if their parent bank becomes a broker. This is not something the shareholders would approve,” he said. Top private insurance companies are backed by banks, which will find a conflict of interest in the broking idea. For example, ICICI Pru Life, SBI Life, HDFC Life, IDBI Federal, SUD Life, Kotak Life and IndiaFirst are backed by banks like ICICI, HDFC, SBI, IDBI, Federal bank, Bank of India, Union bank of India, Kotak Mahindra, Bank of Baroda and Andhra Bank. .

GMeanwhile, IRDAI is evaluating fresh rules for banks to act as intermediaries for insurers in the wake of the RBI guidelines and changes made last month to the insurance law through the Insurance Ordinance. The categorisation of banks (corporate agents), brokers and agents has been altered and all of them are termed as ‘insurance intermediaries’ under the Ordinance. With the change, all intermediaries can seek partnerships with multiple insurers. This change is expected to significantly benefit insurers that do not have a major bank alliance partner. These include Reliance Life Insurance, Exide Insurance, Future Generali, Birla, Bajaj, Aegon Religare, Bharti Axa, Shriram Life and Sahara Life..

General insurance premiums are unlikely to harden this year despite record high catastrophe claims in India last year, as reinsurance rates have cooled internationally because of a flood of liquidity in the market and fewer calamities worldwide, according to industry executives. .

“International rates have softened by 10-20% during the treaties (reinsurance contracts) that have come up for renewals now,” The Economic Times reported, citing a senior executive of state-run General Insurance Corporation. “There are claims in the aviation sector but not big enough to harden the rates,” the source added. .

While there were fewer catastrophe claims globally last year, the situation was different in India. The Kashmir floods last September and Cyclone Hudhud in October on the east coast led to a higher number of claims in the local market. But their impact on premiums will be offset by the lower international rates, say the executives. .

Reinsurance capacity in the international market has increased with the entry of new players and that should also help keep the rates low, said Mr KK Mishra, Chief Executive of Tata AIG General Insurance. Another factor is liquidity. Big global reinsurance firms have raised around US$14 billion by issuing catastrophe bonds in 2014. .

Global reinsurers such as Munich Re and Swiss Re renew two thirds of their annual treaties with various non-life insurers in January, and the rest in April and July. In the Asia-Pacific, including India, renewals are typically effective from 1 April.

General insurance companies have put a proposal in front of the Insurance Regulatory Development Authority (IRDA) to bring down fraudulent third party claims and cut losses.

As per the proposal, the insuree at the time of taking insurance shall be required to mention the names of all the people who would be driving the vehicle. In the event of an accident the insurance companies will be held liable for the claim only where the vehicle is driven by any of the persons mentioned in the list provided at the time of buying the policy. Meaning thereby if any person, other than that mentioned in the list, is driving the car, the claim would be rejected. Also, the insurance premiums will go up depending on how many names are mentioned in the list. This may pave a way to the general insurance industry to boost their profitability as the industry is nowadays facing losses due to the either fake third party insurance claims or poor underwriting standards .

Insurance underwriting is primarily based on the analysis of claim experience by different portfolio sectors that relate to premiums and exposures. It includes how much coverage should be given to the client, how much premium he would pay for it, and whether the company should even insure the person. In underwriting, eligibility of customer to receive the insurance is analyzed. It involves measurement of risk of giving a client a policy and the rate at which the company should charge the client for that risk. This is a difficult task as current data is to be used for future use and the time period for which the data can be used is tough to determine or speculate. There has been an increase in fake third party claims in the last few years. These fake claims cost insurance companies 10-15% of the premium incomes. In the year 2010-11, incurred claims ratio of motor insurance was 102.69% compared to 84.51% for the year 2009-10. The loss ratios will be 213% for the current year, meaning thereby, for every Rs. 100 premium earned by the insurance companies, they would be paying Rs. 213 as claims. The finance ministry has asked Public Sector Undertakings to increase motor insurance premium to minimize their third party motor insurance losses. The losses of the state-run general insurance companies was Rs. 87, 604 crore for the year 2010-11 as compared to Rs. 85, 501 for the year 2009-10. .

In the exposure draft on Insurance Regulatory and Development Authority (Places of Business) Regulations, 2012, IRDA has proposed to make it compulsory for insurance companies who have completed 10 years of business to open not less than 25% of its new places of business in places having a population of less than 1,00,000. IRDA has asked to increase the presence of insurance companies in the rural areas. The insurance companies are condemning this move saying that there is no business opportunity in the areas with less than 1,00,000 population. According to IRDA, non-life insurance penetration in the country is 0.7%8 of the Gross Domestic Product. Insurers have said that underwriting is difficult as they don’t have external source data of customer behaviour. Various factors come into picture whilst underwriting such as, driving violations, driving history, accident claims history, vehicle maintenance, credit rating of client, purpose for which vehicle is to be used etc., as no external data source to verify driver behavior is available in India, it is difficult to determine premiums of customers. Now, the insurers are thinking about using the data from the credit bureaus, Regional Transport Office, and police record to determine the insurance premium of their clients. Even CIBIL is in talks with the insurance companies to share its data with them so that they can use that data to decide the premium prices for new and prospective customers. CIBIL is also in process to approach IRDA with this, who is considering having a separate credit bureau for insurance. .

Government of India is also proposing a separate Motor Vehicle Insurance and Compensation Legislation regarding the increase of third party premium, fixing the third party claim, obligatory underwriting of third party risk, delay in claims, compensation amount, fraudulent claims etc. The Motor Vehicles Act does not prescribe any claim limit for motor accidents, whereas the Motor Vehicles (Amendment) Bill suggests a cap of a maximum compensation of Rs. 10 lacs by the insurance company. Anything more will have to be paid by the owner. Though IRDA, in March, had notified a 5-20% increase in the motor third-party premium applicable from April 1, 2012, the Calcutta High Court quashed it in June after transporters filed a writ petition in the court. Whether the IRDA would approve these proposals is the big question. If this proposal becomes a reality, it would create havoc for the common man and would be downright harsh. The Indian society is such, where neighbours borrow from neighbours things, from sugar to cars. Anyone with a valid driving license can borrow a relative’s or friend’s vehicle. How exhaustive can a customer make his list? Increase in number of people in list also increases premium. Asking a person to make a restricted list about who can drive his car is unreasonable. .

Motor insurance contributes to one third of the premium income for the non-life industry. Also, it has been experiencing losses and has a high ratio of claims payment. But shifting its failures to the shoulders of the policyholders by charging them with an increased premium and restricting them is not the way to boost itself. Insurance companies should work towards enhancing and improving its underwriting standards and research methods rather than putting the burden of their losses on the innocent customer, who already pays high premium rates. .

Car manufacturers and auto parts suppliers are contemplating buying insurance policies that would insulate them from product recall risks, ahead of the Indian government passing legislation that will make such recalls mandatory in the domestic market.

The new Motor Vehicles Act is likely to be tabled in the ongoing session of Parliament. Among other things, the law will also penalize auto makers for manufacturing and selling defective vehicles, increasing the overheads of car makers and auto parts suppliers, reported the Livemint news website.

Such insurance covers are prevalent in mature auto markets such as the US and Europe; in India, in the absence of a recall policy, the number of firms opting for such cover for the domestic market, has been far and few in between, said experts.

In July, 2012, industry lobby, the Society of Indian Automobile Manufacturers, introduced a voluntary code to cajole vehicle makers to recall defective cars. Since then, close to 600,000 cars and utility vehicles have been voluntarily recalled by auto makers in India.

However, while general insurers see auto recalls as a growing opportunity for them to sell their products, they are unlikely to jump in without a careful deliberation of the risk factors, said executives. “Once the legislation in India is passed, the rules will be more stringent, and we as an insurer will have to rework the terms and conditions for providing such covers,” said Mr G Srinivasan, Chairman and Managing Director of New India Assurance, India’s largest state-run non-life insurer.

The firm, said Mr Srinivasan, will look at the standards of auto makers and vehicle parts companies, their quality control, and the best practices they follow, before underwriting the risk on insurance products in this segment.

Companies in India with export commitments have been acquiring product liability insurance, including a cover for product recall. Auto parts maker Motherson Sumi Systems, which generates 85% of its revenue from outside India, is covered for recall and liability, said Mr G N Gauba, Chief Financial Officer of the firm.

Wipro founder Azim Premji’s Premji Invest, a family office specialising in private equity and venture capital investments, will purchase a 1 per cent stake in India’s HDFC Standard Life Insurance for Rs 185 crore, valuing the firm at Rs 18,500 crore, two people with direct knowledge of the development said..

The stake sale is the preliminary step to taking the company public, they said. This will mark the billionaire’s entry into the insurance business, one of the two people cited above said, adding, “They might look at hiking the stake going forward.” The deal is expected to be announced this week. Edelweiss Securities is the exclusive advisor on the transaction.Premji Invest, with assets worth more than $2 billion under management, has been investing in high-growth listed and unlisted companies in India as well as growth-stage companies in China and the US with a focus on consumer, technology, financial services and healthcare..

The fund has been aggressive in the last few years, stepping up its pace of investments. In October, it put Rs 350 crore in payment services provider FSS that is backed by PE funds Jacob Ballas and NYLIM. Before that, it had invested in FabIndia and Future Lifestyle in retail, Flipkart and Snapdeal in ecommerce, NSE in financial services, and Manipal Group and Health Care Global (HCG) in healthcare. HDFC Life, in which British insurer Standard Life owns 26 per cent and and the rest is held by Housing Development Finance Corp, has more than 500 branches and one of the largest sales forces among non-state peers. It is also the oldest private life insurance company in the country with more than Rs 50,000 crore of assets under management..

“The life insurer might look at listing once the regulations regarding public offers by insurers are cleared by the regulators,” said an investment banker with knowledge of the development. “The investment by Premji Invest is a pre-IPO one.” Prakash Parthasarathy, chief investment officer at Premji Invest, did not respond to an emailed questionnaire, while Amitabh Chaudhry, managing director and CEO of HDFC Life, did not respond to calls and messages on his cell phone. The Narendra Modi government is resolved to get the insurance bill passed by Parliament to raise overseas investment limit to 49 per cent from 26 per cent. That will help capital-hungry insurance companies raise capital and fund expansion. India’s insurance industry has been struggling with low subscription levels. Even after 14 years of opening up the sector for private participation, only about 3.2 per cent had life insurance in the country in FY2013, down from 4.6 per cent in FY2009..

However, “We believe that the key structural drivers, namely underpenetrated market, favourable demographics, high savings rate coupled with better policy holder friendly products and an expected recovery in the economy can provide impetus to the industry,” said an ICRA report on the sector. “At the industry level, we expect growth of around 10 per cent on an annual premium equivalent or APE basis in FY15 and 12-15 per cent over the next few years as the operating environment improves further.” Annual premium equivalent is a common measure of ascertaining business in the life insurance industry. It’s the sum of the regular annualised premium from new business and 10 per cent of the first single premium in a given period. Global insurance and financial services companies are bullish about the future of India’s insurance industry as many overseas firms want to raise their stakes in local ventures once the law is changed..

Fewer than two of every 100 senior citizens in India are covered under public and private health insurance, even as the population of elderly people is growing significantly and is forecast to hit almost 300 million in around two decades.

The elderly population, aged more than 60 years, is projected to constitute 18.3% of the total population in 2050, up from 7.7% in 2010, according to the United Nations. Their population will grow to 112 million by 2015 from 72 million in 2000, reported the Times of India.

However, health insurance penetration among this population remains significantly low in India. A recent study by Deloitte shows merely 1.6% of elderly population is covered under public and private insurance schemes. “This low insurance penetration amongst the elderly is further exacerbated by inadequate coverage provided to the insured, in terms of both amount and type of services covered,” the report states.

According to World Bank estimates, India’s healthcare spending as a percentage of GDP is among the lowest in emerging markets. During 2012, India spent a total of around 4% of GDP on healthcare, whereas Brazil and China spent 9.3% and 5.4%, respectively.

Currently, there is a lack of emphasis on insurance cover for the elderly. Most private players do not want to cover the elderly in their plans because the expenditures are high as compared to premiums earned, experts say. Restrictive conditions further reduce the attractiveness of existing options. For instance, several policies do not cover care for common age-related ailments such as cataract or asthma. Insurance schemes often also have pre-existing conditions as eligibility restrictions or require an additional premium to cover such people.

India’s stalled civil nuclear power programme with foreign participation is set to get kickstarted with public-sector insurers agreeing to create the INR15-billion (US$242 million) insurance pool without insisting on inspection of facilities or support from foreign reinsurers. Abroad, insurance pools insist on inspecting nuclear facilities.

The issue of the insurance pool has been holding up the country’s nuclear power programme since 2010. Under Indian law, besides the plant operator, equipment suppliers are also liable in the event of an accident or mishap up to INR15 billion. This has deterred foreign equipment suppliers from entering the sector, reported the Hindu Business Line.

According to a senior GIC Re official, domestic insurers have now agreed to go ahead with the nuclear insurance pool without insisting on inspection of facilities. The official said that the four domestic insurers — New India Assurance, Oriental Insurance, National Insurance, and United India — can provide cover of up to INR7.5 billion.

GIC Re is looking at overseas nuclear pools for the balance amount. The official said: “We have written to many foreign reinsurers and have made it clear that there will be no compromise on the issue of inspection.”

Further, with the central government accepting the responsibility of providing support as the “insurer of the last resort,” GIC Re is all set to create the country’s first nuclear insurance pool.

The issue has gained urgency as Prime Minister Narendra Modi is understood to have asked his officials for a quick resolution of the issue to facilitate the realisation of an India-US nuclear deal ahead of US President Barack Obama’s visit to India in January.

At present, nuclear reactors in India only have insurance cover for zones that are outside the area of radiation and reactors. The proposed pool will cover material damage and the civil liability arising out of any harm to the hot and cold zones of nuclear plants.

State-owned Indian Oil Corporation (IOC) has taken a mega insurance cover of INR50 billion (US$810 million) for each of its 10 refineries, setting a new benchmark for other domestic oil refining companies.

According to insurance industry executives, IOC renewed its cover last month with a consortium of insurance companies led by United Insurance that will cover damage resulting from fire or any natural calamity, loss of profit occurring due to business interruption and any other damage to property, plant and machinery, reported The Economic Times.

However, loss limit – the initial loss incurred due to damage to the property and which is borne by the company – is pegged at INR50 million. The co-insurers include New India Assurance, National Insurance and Oriental Insurance.

According to the terms of the insurance policy, IOC is to pay a premium of INR552.8 million per annum, marginally higher than the INR542.7 million it paid last year. Industry experts said that rates have been soft in the international market as there is a lot of capacity among underwriters who are sitting on surpluses, which helped IOC to get a good deal.

IOC received a good rate also because insurers have not incurred any claim from the company in the past few years.

The company operates refineries spread across the country with a combined refining capacity of 65.7 mmtpa (million metric tonnes per annum).

General insurers are seeking a maximum limit of INR1 million (US$16,263) on motor third-party liability claims arising from road accidents.

For vehicle owners who want additional cover, an option for additional liability limit cover has been proposed. This additional cover will be for over and above the basic INR1-million policy.

In their feedback to the government on the issue, the insurers backed their call for a ceiling on third-party liability claims by citing high losses arising from such cover. The losses are estimated as exceeding INR120 billion, reported Hindu Business Line.

Mr R Chandrasekaran, Secretary General of the General Insurance Council which represents non-life insurers, said that the Council has submitted its recommendations to the government in connection with proposed amendments to the Motor Vehicles Act.

At present, the liability amount is decided by the courts and can be unlimited. In case of road accidents, compensation as high as INR200-250 million have been awarded.

Insurers feel that a liability cap will help insurers not only in bringing down huge losses, but also in lowering third-party motor insurance rates. Third-party motor insurance rates have been rising annually at the rate of almost 25%.

“A cap on liability will ensure that insurers can estimate the losses and look at appropriate pricing of policies. This is currently difficult to ascertain due to the unlimited liability,” said Mr Vijay Kumar, chief technical officer (motor insurance)at Bajaj Allianz General Insurance.

Third-party coverage is mandatory by law for both commercial and personal vehicles, and the insurance premium in this segment is decided by the Insurance Regulatory and Development Authority.