Optima Insurance Brokers Pvt. Ltd.

Raising the foreign investment cap in insurance companies from 26% to 49% is inevitable, for the insurance industry to grow, according to the former chairman of the Insurance Regulatory and Development Authority (IRDA), Mr J Hari Narayan.

Mr Hari Narayan, who was appointed as a chairman of IRDA in 2008 and retired from the post in February 2013 after completing his term of five years, said that this is because there will not be enough capital available to fund the expansion of the insurance industry unless the foreign investment cap is raised.

In an interview with the CNBC-TV18 network, he said that there are two other reasons why the ceiling should be raised. He said: “One is, by increasing the FDI levels to 49%, we can straightaway expect an inflow of around US$1-1.5 billion or something of that order, and that will help boost our foreign exchange reserves.”

Secondly, capital of US$1.5 billion would be released from investors who have pumped INR250 billion (US$4.22 billion) worth of investments into the industry. “So that amount of fresh capital will be available in the hands of entrepreneurs who would then invest in various other opportunities which they see is appropriate,” he said.

Dismissing concerns that a foreign investor with a 49% stake could control an insurance company and thus the lifetime savings of a large number of Indians, Mr Hari Narayan said that insurance regulations are very strong in India.

“In the insurance industry, what we really regulate and regulate very closely is the availability of assets to back the entire liability of the insurance companies …This is true for the life industry and is also true for the non-life industry. And not only are the assets fully protected and carefully assessed with regard to the liabilities but in India, we also require insurance companies to maintain a margin of 1.5 times over their liabilities at any and all points of time. So, the question of anybody taking away the assets or going away just does not arise. The question of a Lehman-type collapse happening in the insurance industry just does not arise,” he said.

Speaking at the same interview, Mr Kshitij Jain, Managing Director and CEO of Exide Life Insurance (formerly known as ING Vysya Life), said: “ I think the industry over the last 12 years has attracted over INR330 billion of capital across all the private life insurance companies and I think it is an openly known fact that over the next five to 10 years, the industry requires as much, if not more, in terms of fresh capital to be able to fund its growth and expansion.”

Asked whether foreign players would flood into India when the foreign investment ceiling is raised to 49%, Mr Jain said: “Perhaps not. But in the mid to long-term, we would certainly be in a situation where a lot of foreign insurers should be very keen to invest in this market because over the long-term, our market continues to have very strong fundamentals and continues to be a very attractive space to be in.”

Mr Hari Narayan, noting the level of investment in the insurance industry in India to date already, added: “With regard to new insurance companies coming up, no, I don’t think so, I don’t think there is such an appetite at the moment.”

The Finance Ministry is currently considering an increase in the foreign direct investment ceiling in the insurance sector to 49%, subject to some restrictions including capping the voting rights of foreign shareholders.

The odds of the South Korean football team advancing to the last 16 teams in the World Cup tournament in Brazil currently stand at 55%, higher than the 48% predicted just prior to the same event in South Africa four years ago, according to the local insurance industry.

South Korea’s chances of making it to the quarterfinals and semifinals are forecast at 18% and 13% respectively, also higher than the odds of 16% and 6% laid out in 2010, reported the Chosun Ilbo.

Ahead of large sports events, insurance firms often forecast the likely performances of participating teams and individuals. This is because many businesses take out extra insurance policies to cover additional marketing costs during the events. For example, some businesses offer to provide 500 people with gift certificates worth KRW500,000 (US$489) each if South Korea advances to the quarterfinals.

Insurance companies base their premium rates on probabilities and statistics, with reinsurers usually calculating the probabilities.

Korean Re attributes South Korea’s improved chances in Brazil to the fact that the team has more favourable conditions now than it did four years ago. Statistics have shown that Russia, Belgium and Algeria, which the Korean team will face in the initial group stage, are weaker than its group rivals  four years ago. The 2014 World Cup takes place from 12 June to 13 July.

The non-life insurance sector in India is expected to see a pick-up in growth in gross premiums in the current financial year ending 31 March 2015. Growth is forecast to be 15%, higher than the 12% reported for the financial year ended 31 March 2014.

The market has slowed compared to previous years. For instance, non-life growth was 19% in FY 2012-13 and 23% in FY 2011-12.

“The slowdown was driven by lower economic growth, reduced car sales, and lower hiring by companies which drive the corporate health insurance business. The growth momentum is likely to pick up in the second half of this year since the economic slowdown has bottomed out last year,” Mr Bhargav Dasgupta, managing director and chief executive officer of ICICI Lombard General Insurance, told the Financial Chronicle.

“I expect the growth of the non-life insurance sector to be around 15% in the current year driven by improvement in economic growth,” he added.

A senior official of state-owned Oriental Insurance said: “The non-life sector would grow by 15% in 2014-15 driven purely by health and motor insurance businesses.”

For FY 2013-14, gross premiums collected by all general insurers rose by 12.23% to INR 775.38 billion (US$12.88 billion), according to the Insurance Regulatory and Development Authority (IRDA). The four state-run general insurance companies collected gross premiums of INR 432.92 billion, an increase of 9.86% from a year earlier. The performance gave them a 55.8% share of the non-life market, marginally lower than the 57% market share chalked up for FY 2012-13.

Private-sector insurers saw business growing at a faster rate than for their state-owned rivals. They collected gross premiums of INR 342.46 billion for FY 2013-14, that represented an increase of 15.37% over the previous year.

For FY2013-14, motor insurance accounted for 46% of total gross premiums to remain the largest class of business, followed by health insurance which contributed 26%. Fire and engineering insurance had a 14% share, and was directly affected by the slowdown in the economy, postponement of capital expenditure and new infrastructure projects.

The life insurance industry in India saw an 11.6% rise in new business premiums for the financial year ended 31 March 2014 to INR 1,200 billion (US$20.25 billion), with the country’s only state-owned life insurer reporting a jump in such premiums while private-sector insurers suffered a decline.

The government-owned Life Insurance Corporation of India (LIC), which is also the country’s biggest life insurer, reported an 18% rise in new business premiums to INR901.24 million for the financial year, compared with FY2012-13. Private life insurers witnessed a 4% drop in new premiums to INR295.17 million. LIC increased its market share in first-year premiums by four percentage points to 75.33% in FY2013-14 from 71.36% in FY2012-13.

Lower renewal premium growth and lower product margins due to regulatory changes affected the profitability of some private life insurance companies in FY2013-14, reported the Financial Chronicle citing data from the Insurance Regulatory and Development Authority (IRDA).

The country’s largest private life insurer – ICICI Prudential Life Insurance – reported a 5% growth in net profit  to INR15.67 billion for FY2013-14. Bajaj Allianz Life Insurance saw its profits fall by 20% to INR 10.25 billion for the same financial year while Reliance Life  reported a 6% slide in net profit to INR 3.59 billion.

However, SBI Life Insurance posted a record profit of INR7.4 billion for the financial year ended  31 March 2014, an increase of 19% over the last financial year due to operational efficiency.

Mr Sam Ghosh, group chief executive officer of Reliance Capital, told Financial Chronicle: “The profits are slightly lower than FY13 as surrender profits have declined. Excluding surrender profits, profit before tax rose to INR2 billion in FY14.”

IRDA has revamped rules for unit-linked insurance plans (Ulips), traditional and variable insurance policies. It reduced the high surrender penalties, which had helped life insurers report good profits in previous years. Irda also cut charges and commissions levied on insurance products to improve returns to customers.

Insurance companies in India have raised premiums for hydropower projects across the country after flash floods last June in the northern state of Uttarakhand that led to huge claims.

Insurers like National Insurance, United India Insurance and Oriental Insurance have raised premium rates  for such projects, reported Economic Times citing industry sources. Insurance contracts for most hydroelectric projects are renewed annually during the first quarter of the financial year.

“Last year’s Uttarakhand tragedy has completely changed the risk perception of hydropower plants for insurance companies. In response to tenders of power companies seeking quotation for reinsurance, insurers have asked for double or triple the earlier rates for power projects,” a senior power ministry official told Economic Times. The premium amount varies for each project depending upon factors like its location, size, company’s background and extent of risk coverage.

An executive with National Insurance said that his company was forced to hike premium rates because insuring hydroelectric projects has become riskier. “The projects get damaged every year during the monsoons. But damage claims during last two years have risen sharply. Last year’s Uttarakhand episode has compelled us to change our assessment.”

Uttarakhand sought INR138 billion (US$2.3 billion) from the central government for reconstruction and relief work as a result of the floods which killed around 5,700 people. Insurance losses were estimated at over INR 30 billion.

India’s insurance regulator has been cracking down on insurance companies which highlight their market rankings in advertisements. Insurers have been sent notices by the Insurance Regulatory and Development Authority (IRDA) to remove statements in their ads that made claims about their position in the market with respect to premiums and claim settlements.

The insurance companies have also been advised to follow the code of conduct prescribed by the Advertising Standards Council of India, reported the Business Standard.

IRDA regulations bar insurance companies from producing ads which might be misleading or which make unfair comparisons between companies and their products. The companies have also been advised to follow the code of conduct prescribed by the Advertising Standards Council of India (ASCI).

“No claim of ranking by an insurance company, as regards its position in the insurance market, based on any criteria (like premium income or number of policies or branches or claims settlements etc) is permissible in any of the advertisements,” the regulations stipulate. For instance, an insurer cannot say in its ads that it is the No.1 insurer in the market or settles claims in the quickest time.

A senior executive of a private non-life insurer said: “Though the ads showing the ranking of an insurer may be factually correct, since the ranking is based on data and figures given out by IRDA, the regulator is ensuring that no such rankings are mentioned in public ads. This is to make sure that prospective and current policyholders do not make any false assumptions based on these claims.”

However, the ads can contain ratings given by external agencies. Any claim of rating/award should be based only on those declared by entities which are independent of the insurance company and its affiliates, said IRDA. However, an insurance company and its affiliates should not procure services from such independent entities so as to get a rating/award.

An IRDA official explained that customers might not be fully aware of the exact criteria used by the company in making claims about its rankings. It would thus not be fair to publish such ads in the market.

China and India, the world’s biggest population giants, are facing a cancer crisis, with smoking, belated diagnosis and unequal access to treatment all causing large-scale problems. Public awareness of cancer risk remains extremely low, tinged by either fatalism or a misplaced faith in traditional medicine to tackle the disease.

In a major report, published in The Lancet Oncology, more than 40 specialists warn that Asia’s two emerging giants are facing huge economic and human costs from the disease.

In China, cancer now accounts for one in every five deaths, ranking second only to cardiovascular disease as the most common cause of mortality, according to the study.

Sixty percent of cancer cases in China are attributable to “modifiable environmental factors,” including smoking, water contamination and air pollution, it said. The experts recommend that an urgent and ongoing effort should be made to reduce pollution in China’s air, water and soil.

But funding is also an issue. China currently spends only 5.1 percent of its national income on health care — roughly only half the rate of European countries — and just 0.1 percent of this spending goes specifically to cancer. Patients in China also need to pay for most cancer treatment themselves, which can lead to catastrophic health care bills, while urban areas have twice as many cancer care beds than rural areas, even though half of China’s population live in the countryside.

In India, around one million new cancer cases are diagnosed each year, a tally that is projected to reach 1.7 million in 2035. Deaths from cancer are currently 600,000-700,000 annually, although this figure is also forecast to rise, to around 1.2 million.

The study showed that while incidence of cancer in the Indian population is only about a quarter of that in the US or Europe, mortality rates among those diagnosed with the disease are much higher.

Diagnosis is a problem, with a lack of cancer care in the north, centre and east of the country forcing many patients to travel long distances for treatment, and often to live in very harsh conditions. In rural India, more than three quarters of private practitioners, who are often the first personnel to whom people sick with cancer turn to for treatment, have no medical qualifications, the report said.

The Securities and Exchange Board of India (SEBI) has said that the top 100 companies listed on India bourses must establish risk management committees immediately, to comply with revised corporate governance standards which it released last week. All other companies have to implement the revised corporate governance norms by 1 October.

The capital market regulator said that the rules are applicable to insurers, banks and financial institutions to the extent that they do not clash with any regulations of their respective primary regulator, that is the Insurance Regulatory and Development Authority and the Reserve Bank of India. The rules are not applicable to mutual funds, SEBI said.

The risk management committees identify, evaluate and mitigate all risks associated with business, interest rates, currencies and other challenges companies face.

In its circular last week, SEBI said that the boards of these companies have to define the roles and responsibilities of the committee and may delegate monitoring and reviewing of the risk management plan to the panel.

For insurance companies, according to a biennial survey of insurance risks conducted by the London-based independent think tank, Centre for the Study of Financial Innovation, and the international accounting and advisory firm, PwC, that was released last August, business practices and quality of risk management are among the top risks that the Indian insurance industry at present faces. Other major risks are regulation, natural catastrophes and quality of management.

Companies in India have been snapping up D&O insurance policies to cope with new provisions in the Companies Act that kicked in on 1 April, so as to obtain protection in case their directors or senior executives get embroiled in allegations of fraud or mismanagement.

“We have seen a significant uptick in D&O policy sales ever since the new Companies Act sections were unveiled in November. Companies, which have taken this policy, are increasing their cover,” Mr Sushant Sarin, Senior Vice President – Commercial Lines of Tata AIG General Insurance, told the Hindu Business Lines. The number of policies sold has grown by 25-30 percent this year, and more sales are expected in this class of business.

The new legislative provisions set stiff penalties for auditors, directors and top managers if the company they work for is accused of fraud or mismanagement. “Penalties, which were in hundreds and thousands of rupees, now run into lakhs (hundreds of thousands),” said Mr Jamil Khatri, Global Head of Accounting Advisory Services at KPMG.

Mr Sarin said that listed companies, particularly from new-age sectors such as IT, entertainment, communications and biotech, opt for a higher cover as their stock price is more volatile than, say, that of a manufacturing company.

The sum assured on D&O policies starts from INR10 million (US$164,000) rising to INR5 billion. Premiums vary from INR50,000 to INR100,000 for the minimum cover to about INR20 million to INR30 million for higher covers. “While limits vary from industry to industry, companies tend to take 10-20 per cent of their turnover as cover. The base (premium) rate comes to around 0.2 percent, and again it depends on the kind of risk and industry the companies are in,” said Mr Sanjay Datta, Chief of Underwriting and Claims at ICICI Lombard General Insurance.

Private-sector health insurers cover nearly 65 percent of Indians who have health insurance but are beaten by state-owned insurers which command 61 percent of health insurance premiums, according to a study by The Associated Chambers of Commerce and Industry of India (Assocham), an apex trade association in India.

In terms of distribution channels, individual agents bring in the majority of medical insurance business with a 72.9-percent share, said the study which is titled “Health Insurance in India: A review”. However, direct business is the major contributor in terms of premium collection with about 37-percent share, followed by individual agents (31.6 percent) and brokers (21.4 percent).

Referrals constitute a meagre 0.1 percent in terms of both the number medical insurance policies sold as well as insurance premiums collected.

Assocham Secretary General, Mr D S Rawat, said that private health insurance will continue to grow in terms of covering the non-vulnerable, the middle class and higher income segments of the population that can afford to purchase it, reported the Press Trust of India.

The study added that addressing the coverage gap is a huge challenge for the insurance industry because of low public spending on health along with high levels of informal or unorganised labour, a large dispersed rural population, high levels of poverty and few providers serving the poor.

The study suggested that the government’s priorities in healthcare financing must be to meet the basic objectives of affordability, reach and quality of services.