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Irdai pushes for better governance of insurance firms

Feb 16, 2016

Insurance companies may soon have to overhaul their boards with Insurance Regulatory and Development Authority of India (Irdai) emphasising on governance compliance norms.

The chief executive of a large life insurance company said the new norms are the first step towards motivating insurers to list on stock exchanges. “A stronger board is the maiden step towards listing on the exchanges. While we already have a strong system on the boards in the industry, it is the next step towards strengthening the structure,” he said on request of anonymity.

Irdai said the objective of new guidelines is to ensure the structure, responsibilities and functions of board of directors. It has asked shareholders to elect or nominate directors from various areas of financial and management expertise such as accountancy, law, insurance, pension, banking, securities, economics, with qualifications and experience that is appropriate to the company.

The regulator said the board of directors of an insurer belonging to a larger group structure should understand the material risks and issues that could affect the group entities, with attendant implication on the insurer. Currently, industry experts said, there is no particular difference between board of an insurer which is part of a larger group and others.

The board of directors is also required to have a minimum of three independent directors. As required under Section 149 of the Companies Act, 2013, there shall be at least one woman director on the board of every insurance company. This norm has not yet been followed by all insurers.

However, insurers which have less than three independent directors, have to ensure that they comply with this requirement within one year of the date of notification of these guidelines. As a matter of prudence, not more than one member of a family or a close relative of an independent director as defined in the Companies Act or an associate (partner, director etc) should be on the board of an insurer as independent director.

Irdai has prescribed a minimum lock-in period of five years from the date of certificate of commencement of business of an insurer for the promoters of the insurance company and no transfer of shares of the promoters is permitted within this period without the specific approval of the authority.

“Retired insurance company CEOs or managing directors will not be able to understand the business needs, but also provide expertise for decision making. Hence, boards will now have more number of such people,” said the head of a mid-size private general insurance company.

The board will be responsible for defining standards of business conduct and ethical behaviour for directors and senior management and also defining the standards to be maintained in policyholder servicing and in redressal of grievances of policyholders.

The board will be required to establish appropriate systems to regulate the risk appetite and risk profile of the company. It will also enable identification and measurement of significant risks to which the company is exposed in order to develop an effective risk management system.

Source: Business Standard

Irdai may make electronic insurance mandatory in some cases

Feb 12, 2016

Insurance regulator Irdai today came out with a proposal to make it mandatory for insurers to issue electronic policies if the sum insured exceeds a specified threshold for life, health and general products.

According to the draft proposal, electronic insurance would be mandatory if the sum insured for term life insurance and general insurance policy is Rs 10 lakh or more, and in case of health Rs 5 lakh or above. For policies other than pure term, the threshold is Rs 1 lakh or Rs 10,000 single annual premium.

The draft, on which comments have been sought by Irdai till February 26, also proposes mandatory issuance of electronic policy for motor insurance and individual travel insurance (overseas).

Under the amended Insurance Act, the insurers have the responsibility of issuing electronic policies above the threshold fixed by the Irdai.

In view of the mandate under the Act, the regulator has proposed Irdai's (Issuance of electronic insurance policy) Regulations, 2016 mandating electronic insurance policies beyond stipulated sum insured or premium limit.

"Every insurer shall issue in electronic form insurance policies that fulfil the criteria ... In terms of sum assured or premium. Electronic policies may be issued by the insurers either directly to the policyholders or through the registered Insurance Repositories," the draft said.

It further said that policies issued in electronic form should be deemed compliant only with digital signature.

"Only such policies shall qualify as e-insurance policies," Irdai has proposed.

The policyholders who wish to avail the facility of electronic insurance policy could do so by registering their choice with the insurer. There would be charges for the conversion.

Regarding discount on electronic insurance policies, the draft said an insurer could offer discount in the premium rates "in accordance with the rates filed under the Product Approval guidelines".

Creation of an e-proposal form similar to the physical proposal form has also been proposed.

Further, every insurer would mandatorily issue e-insurance policies in disaster prone and vulnerable areas.

Based on the information provided in the proposal form, the insurers may either accept or reject the proposal.

In case the proposal is rejected the insurers would have to communicate that to the prospect through e-mail.

Source: Business Standard

Budget 2016: Un-tax my insurance, requests the average insurance buyer

Feb 12, 2016

“Unbreak my heart”, crooned Toni Braxton in a clever play on words. Unfortunately there is nothing too clever about the tax regime on insurance in India. World over, insurance and pension funds are the long term drivers of the economy, bringing in capital for the core sectors of the economy. Insurance and pension funds are long term in nature, and these industries promote thrift and sound financial ideals in a population.

Consider the following two facts:

1. Today India needs massive and consistent funds in the infrastructure space to promote growth and reduce poverty. While banks play an important role in extending credit lines, it is insurance and pension funds that fund government initiatives and invest in long tenure instruments, providing a powerful source for government outlays.

2. India has no social safety net. Most of the population is left to the vagaries of employment and the weather. Rising health costs have bankrupted homes and loss of loved ones has destroyed families. The insurance and pension industries attempt to fill this gap, a gap appreciated by the prime minister himself in the recently rolled out Bima Yojanas.

It therefore follows that the government must be doing everything in its capacity to encourage this inflow into insurance and pension funds. Sadly, this does not appear to be true. While on the one hand the government encourages investment in the insurance sector, on the other hand it taxes the products so heavily as to make the business difficult to do. Let us consider the issues one by one.

Service Tax: By its very definition this tax must be applied if a service is offered. To apply service tax on annuity or pension premiums and protection premiums (term life, health and so on), is a travesty of the tax. The cover provided is a product: why should that be taxed, pushing up the cost of ownership by almost 15 percentage points? One can understand tax being applied, if a service is sought on the policy, like an address change or the like and the company charges a fee for effecting the change. Pushing up the cost of ownership of a protection product, especially in a country that has virtually no state-sponsored safety net is illogical. By the same logic, one should be paying service tax on the entire amount invested in a mutual fund rather than (as is currently done) on the management and advisory fees!

Taxing Policy Returns on Maturity: For long, insurance policy maturity returns were not taxed. A few years back, these were bought into the tax net for short duration policies. The ostensible reason was to prevent money laundering – although it defeats me as to why a smart person would launder money through an insurance policy. Insurance policy returns are lesser that what a savings bank account will offer you, primarily because most (up to 80%) of the premiums are invested in government securities offering guaranteed but fairly low returns. On the one hand the returns to the policyholder are low and he has already indirectly contributed to the economy through his premiums being invested. To add insult to injury, he is taxed on the meagre outcomes as well! Should we not at least consider bringing it on par with long term mutual funds (which have no taxes) or bonds, where after three years there are no taxes?

Income Tax on Annuity and Pension Payouts: To me this represents the abdication of reason. Differential tax treatment on pension payouts is a critical need both to encourage long term savings and to provide an inflation-protected means of living to senior citizens. If revenue is the sole consideration, exemptions up to specified amounts must be provided. We can introduce an age cut-off, say 60 years by which most Indians retire, before which proceeds will be taxable. After the age of 60, proceeds should be tax exempt. The benefits to the government in terms of long term funds collected and to the citizenry in terms of alleviation of post retirement penury are immense. Some wisdom in this aspect will actually increase investments providing long term investible funds for the nation and also provide a much needed fillip to the insurance industry that is currently suffering from a prolonged bout of distress in terms of business performance.

Rationality in taxation can encourage behaviour changes and even lead to an increase in savings rates. Lack of vision and the inability to go beyond immediate revenue considerations is almost always a dangerous combination. A combination of service tax and income tax is a double whammy that will have long term repercussions on an industry that is the life blood of long term finance needs.


Irdai recommends waiver of service tax on insurance premium

Feb 10, 2016

Insurance sector regulator Irdai has recommended waiver of service tax on the premium amount being paid by policyholders in order to have a level playing field with other financial products, a top official said today. It has also suggested extension of tax-break on pension products of life insurance companies on lines of that introduced by the Centre for additional investment of Rs 50,000 under National Pension System (NPS) last year.

"Every year, government asks us to submit our recommendations before the Budget. So this year too we have submitted our recommendations before the government. "We want that there should not be any service tax imposed on the premium investors pay for the insurance policies," Irdai Member (Life) Nilesh Sathe told reporters here on the sidelines of an event organised by Association of Insurance Claims Management (AiCM).

"There is a service tax on maturity where along with bonus, sum assured is also taxed. This is in contrast with the banking system where only interest is taxed, not the principal amount," he said.

Speaking on Irdai's suggestion for extension of tax-break on pension products of life insurers, he said, "We also want that like NPS, for which the government has permitted tax-break on additional amount of Rs 50,000 investment, the same tax-break should be extended to the insurance sector too."

"Life insurers also have pension plans and if they get the tax-break facility on the lines of NPS, then there would be level playing field to the sector," he added.

In Budget 2015-16, the government had announced income tax relief on additional investment of Rs 50,000 as contribution to NPS under the Section 80CCD.


The secret behind making savings on your health insurance policy and taking informed decisions in the future

Feb 02, 2016

Health Insurance in India is one of the many ignored necessities. IRDA's estimate suggests that only 21.62 crore people, i.e. 17% of India's population, were covered by health insurance at the end of March 2014. This number is very depressing because, in a country where diseases are in a rapid rise, only 17% of the population is insured. What could possibly be the reason?

Awareness! There is a lack of awareness about health insurance in India and most people consider Health Insurance as an added financial burden on their scarce livelihood. However, what people fail to understand is that this little investment can save people from a major financial crisis in future. The Hindu states that "Families meet almost 70% of their health expenses out of their own pockets, placing a considerable financial burden on poor households, often pushing them deeper into poverty."

The prime motives behind health insurance are protection against health crisis and savings. A well-informed buyer can save on his health insurance policy. Here are some tips you need to know:

Take Advantage of Your Employment:

If you are not particularly interested in buying a health insurance (and if you have real valid reasons to do so), you can take advantage of the fact that you are working. Never deny insurance from your employer because this is the cheapest way to get insured. Moreover, most organizations offer group health insurance wherein you can cover your children, spouse or parents. This helps you and your immediate family get a decent coverage while not having to pay premiums.

Put a step forward as early as you can:

A basic logic works behind this. The younger you are, the healthier you are considered to be and lesser would be the premium. Insurance premiums increase with age. Get a health insurance plan at a young age while you are still fit. With the progression of age, you are likely to face health issues which might become an obstacle in your insurance plan and the entire protocol of pre-existing diseases comes into play. The eligibility for getting in insurance without hassles declines with age. So better be prompt and begin early to save on health insurance.

Research the market before making a decision:

The typical Indian mentality follows the extremes. It either wants something that is the cheapest or something that is most expensive because we find expensive synonymous with good. However, in case of insurance, the cheapest policy might not be the best nor can the most expensive one guarantee proper protection. There's no ideal health insurance plan. There are only suitable plans. Every individual has different needs and different life conditions. A cost-effective policy is that which gives you a decent coverage in less premium without compromising on the sum insured. To find the most suitable plan, you need to research the market and evaluate various options figuring out the most convenient.

Choose a top up instead of a new policy

If you want to be insured with a critical illness cover apart from the individual policy you own already, go for a top us instead of buying a different cover altogether. This saves your premiums and provides adequate coverage. Moreover, choose for a critical illness cover only if you fall into the category of middle aged because a young individual is not much in need of a critical illness cover.

Insure your family

If you have a family, and you wish to get your family insured, it is advisable to get your family insured with a floater plan instead of choosing individual plans for your family. In a floater policy, the sum insured will be jointly available for every individual of the family in a single premium payment.

Act smart with floater insurance

A floater insurance policy calculates the premium based on the age of the eldest member. If you cover your parents under a floater, you are likely to be paying a higher premium because it will be calculated based on your parent's age. It is advisable to take a separate policy for your parents. It will also help you save taxes on both.

Now that you know the secrets, you are an informed customer. Ask your provider for details before you buy the policy. You can try health insurance online from HDFC Ergo, which is a premier insurance company in India. Also, before choosing a health insurance policy, look out for providers who help you with detailed policy documents and provide customer support to assist you in taking informed decisions about your policy. Go ahead and research to get covered with the most suitable health insurance policy.

(This article has been written by Utkarsh Sahu, who writes for various tech mags and admires technology with paradigm-shifting attributes.)

Source: Business Insider

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