Former LIC chairman TS Vijayan takes over as Irda chairman

NEW DELHI: Former chairman of Life Insurance Corporation, TS Vijayan on Thursday took over as the chairman of the Insurance Regulatory and Development Authority (Irda). He succeeds J Hari Narayan who completed his five-year term on Wednesday. ET had reported on January 9 that the government has selected TS Vijayan as the next Irda chief. The regulator in a statement said that TS Vijayan has taken over the charge as chairman from Thursday. Vijayan's appointment as the Irda chief is a sort of redemption as he was unceremoniously demoted to a managing director in LIC in May 2011 following allegations of financial irregularity during his tenure. An internal panel of the finance ministry had found irregularities in investments made by LIC. CBI Investigations did not confirm any of the charges.

Rs 71,000-cr worth life insurance policies surrendered in last fiscal

Large-scale surrender of insurance policies, particularly unit-linked insurance plans, has forced the regulator to examine the issue. Renewal of insurance policies is measured by a parameter called persistency. According to IRDA (Insurance Regulatory and Development Authority) data, in fiscal 2012 life insurers had to pay Rs 71,208 crore on account of surrenders (withdrawals), of which, LIC paid Rs 41,531 crore and private sector insurers, the balance. In fiscal 2012, ULIPs accounted for 68 per cent of the total surrender for LIC, and 97 per cent of the total for private insurers. “Though the industry has shown high growth rates in recent years, the persistency rates in the 13{+t}{+h} and subsequent months are not particularly healthy. “The persistence rate after the 61st month for many insurers is in single digits, whereas world over it is around 80 per cent,” said IRDA in a communication to all life insurers. Persistency measures the number of policies retained in the books of an insurer. If a lot of policies lapse (non-renewal), then it could be taken as a sign of mis-selling by insurers. Currently, life insurers are required to provide persistency ratio numbers (percentage of policies on which premiums are still being paid after their sale) to the regulator on an annual basis. However, industry experts say that there is an anomaly in the way each life insurers report their numbers. For example, some report persistency figures on a month-on-month basis while others report year-on-year. “There is a variation in the method of calculation of the persistency figures. So, the regulator may be looking at standardising the methodology to enable direct comparison among companies,” said Kotak Life actuary chief Sunil Sharma. “A standard definition of persistency is the most important metric to measure non-renewal of premiums in life insurance policies. Currently, companies calculate in ways which will give a better picture of their persistency ratio,” said a senior regulatory official. The regulator has asked the appointed actuary of the life insurer to analyse the persistency numbers, highlight the areas of concern and outline the proposed course of action that will be undertaken to address it.

Funds managed by insurance companies to touch Rs 30 tn: IRDA's J Hari Narayan

The size of funds managed by insurers in the country is expected to reach a whopping level of Rs 30 lakh crore in the next five years, marking a 70 per cent jump from current level, outgoing insurance regulator J Hari Narayan said today. "When the insurance industry was opened up in 2000, the total controlled fund was about Rs 1 lakh crore. It was Rs 8 lakh crore in 2008 and it is Rs 18 lakh crore now. That is how it grew. After five years, it will be about Rs 30 lakh crore,", Hari Narayan told PTI in an interview. He said he is favour of government hiking Foreign Direct Investment limit to 49 per cent in the insurance sector, leading to at substantial flow of funds into the capital- intensive sector. It is estimated the insurance sector would require at least Rs 30,000 crore in next five years to double its size. The government is yet to announce the successor to Hari Narayan, whose five-year stint as IRDA chief is coming to an end today. Former LIC chairman T S Vijayan's name has been proposed for heading IRDA but a formal announcement is still awaited. Under Hari Narayan, IRDA has taken several important steps, including guidelines for listing of life insurance companies on stock exchanges, doing away with third partymotor insurance pool and introducing portability of health insurance. The Indian insurance industry needs to give "proper" insurance cover for natural disasters and strengthening of reinsurance, the Insurance Regulatory and Development]Authority (IRDA) chief said. He said the regulator has submitted an approach paper on insurance cover for natural disasters to National Disaster Management Authority. "There are several things which could be addressed adequately. One is to give a proper insurance cover for natural disasters and catastrophes. It is recently that I could finish an approach paper which has been shared with the National Disaster Management Authority. "So that has to be taken forward. That's an important area. Secondly, a deeper strengthening of reinsurance products should take place. That's another one which needs to be done," Hari Narayan said. Quoting United Nations Environment Programme, 'The India Risk Survey 2012', by Pinkerton C&I India(P) Ltd and Federation of Indian Chambers of Commerce and Industry (FICCI), he said China, India and Bangladesh are ranked first, second and third respectively, in terms of the number of deaths caused due to natural disasters. In 2011, while China witnessed as many as 22 natural disasters, India witnessed 16, the report said. According to him, both insurance for natural disaster and reinsurance are interlinked. "Particularly, for natural disaster insurance, there has to be a good reinsurance system] in place," he said. "Suppose we have situation of a flood, like we had in Mumbai or some other place. Unless we have good reinsurance and systems in place it might be problematic for the Indian] industry. You can't address catastrophe unless you have strong reinsurance. Both go together," he said.

IRDA slaps Rs 50 lakh fine on SKS Microfinance

Insurance regulator Irda today imposed Rs 50 lakh penalty on SKS Microfinance which collected extra funds, apart from the premium, as a corporate insurance agent without proper disclosure to policy-holders. As per the order of Insurance Regulatory and Development Authority (Irda), a micro finance institution (MFI), which also operates as a corporate insurance agent, can't collect more amount than the premium charged for the policy on behalf of an insurance company. SKS Microfinance acted as a corporate agent of Bajaj Allianz Life Insurance Company Ltd. "In the instant case, the MFI has not collected any 'premium' amount from its members, however they were collecting 1 per cent of the loan amount as "Death Relief Fund" fee," said the order dated February 19. "Presumably this fee was applied to the premium. The documents establish that the premium is only about 0.55 per cent of the loan amount and not 1 per as charged for the so called death protection fee," it said. Thus the MFI has levied a charge more than the premium in violation of clause, it said. "Considering the violations committed by the MFI and keeping in view the work being done by the MFI in the micro insurance sector, the authority hereby directs the MFI to remit a penalty of Rs 50 lakh...," it said. The regulator also said that penalty should be remitted by the company within a period of 15 days from the date of receipt of this order. The order further said the MFI is barred from collecting service charge from its members under provisions existing provisions. "Following this spirit, it is clear that about half of the amount charged is actually service charge and was not disclosed to the members as additional cost. Hence, this is certainly a deliberate lapse on the part of the Master Policy Holder," it said.

Spur Deposits: Banks to government

MUMBAI: Any lobbying for lower tax rates seeking level playing field with competition will probably benefit only the lobbyist. But when the banking sector wants taxes on deposits lowered to make them on par with other assets, the beneficiaries are banks, depositors and borrowers. The banking sector, which has been at the receiving end of tax proposals for years, is perhaps staring at a crisis with growth in deposits falling to a decade's low, which is constraining them to lower interest rates even after RBI has nudged them to do so by cutting the key lending rate. While some banks have selectively cut rates, more recently, Axis BankBSE 0.61 %, Oriental Bank of Commerce, Corporation Bank and Dena BankBSE -0.53 % have raised rates in select tenors. "We have given a wishlist that there should be a level-playing field between the non-bank savings instruments and banks. We have asked for a facility to float tax-free and infrastructure bonds. We have also requested that interest on longterm deposits where the tenure is more than five years and where interest is not drawn out but taken on maturity should be treated as capital gains," said SBIBSE 0.06 % chairman Pratip Chaudhuri. Banks, adjusted for mandated government bond holdings under statutory liquidity ratio, are lending more funds than they are getting as deposits. The incremental credit-deposit ratio at more than 77% could worsen the asset-liability management of banks.

LIC exposure issue:A matter of legal interpretation, says IRDA

Insurance Regulatory and Development Authority (IRDA) today said the government's recent move to allow LIC to own up to 30 per cent in a listed company is a matter of legal interpretation. "The issue is a matter of legal interpretation. Our view is that LIC should be treated at par with all other private insurers. But the government was of the view that there were certain provisions, only applicable to LIC (as per LIC Act)," IRDA Chairman J Hari Narayan said here on the sidelines of 15th Global Conference of Actuaries by Institute of Actuaries of India. Talking about expectations from Budget, he said IRDA has recommended Exempt Exempt Exempt (EEE) for long-term products and tax authorities allowing general insurance companies to maintain reserves. Narayan, who will retire this week, said the regulator is looking at the issue on SKS Microfinance. "SKS Microfinance was a group manager of group insurance polices. The amount they charged under administrator cost was higher. It was a lack of adequate communication and we are looking in to it," he added.

Govt. may introduce FDI in insurance broking sector up to 26%

The government is all set to include granting permission for foreign direct investment (FDI) up to 26% in the insurance broking sector under the automatic route in the consolidated FDI policy scheduled for a review in March this year. According to the sources close to the development, the policy would make the FDI issue through a press note entry clear. The department of economic affairs (DoEA) has referred the matter to department of industrial policy and promotion (DIPP) to make necessary amendments in the FDI policy. The FDI policy is currently silent on the issue, but Reserve Bank of India (RBI) has so far not objected to such investment on the advise of Insurance Regulatory and Development Authority (IRDA). The insurance regulator has allowed FDI up to 26% in broking and issued licences on the basis of insurance brokers regulations 2002. This regulation applies same principles for broking as is applicable for the insurance companies where provision for 26% FDI is available both in regulations and FDI policy. Mr. Akash Gupt, ED, tax and regulatory practise, PwC India said, “The move shall rationalise the long standing dichotomy between the treatment accorded to insurance companies and insurance intermediaries under the FDI policy. Insurance broking, falling under the latter category, has been categorised as ‘other’ financial services (outside the list of 18 permitted activities), thus, requiring prior FIPB approval irrespective of the extent of FDI.” “This issue is long pending with the government. It needs a clarification as IRDA allows 26% FDI in broking considering it an insurance activity. Any clarity on this issue is a welcome step as investors are showing keen interest in the sector,” said Krishan Malhotra, head of tax and expert on FDI with corporate law firm Amarchand & Mangaldas. Under the current consolidated FDI policy, DIPP has allowed entry to insurance business only and has not mentioned any intermediary services, including broking for getting FDI under the automatic route. It is now expected DIPP 2012 circular would be modified to include broking as one of the permissible areas for getting FDI.