News . Views . Reviews

Impossible to say which is the best insurer in India

Feb 22, 2018

I am often asked who the ‘best’ insurers are? I try to dodge that question because the answer requires a detailed analysis of what one is looking for. When Alice in Lewis Carroll’s stories asks which way she should go, the Cheshire Cat wisely replies, “That depends upon where you want to get to.” Insurer selection, however, would have flummoxed the Cheshire Cat because in insurance, even if you know where you want to get to, it is hard to get the data that helps you find your way.

Let’s say that you want an insurer who has the best claims record. For that you must know the claim settlement rates by product, claim payment times, claim complaints, extent of litigation, who wins the legal cases and how often the insurer pays interest on late claim payment. Some of this information is available but much of it is not, or is available in aggregate form. For example, you can get overall claim settlement rates but these are not published by product. Details of litigation are not available though I’m sure an enterprising analyst could go to all the district, state, consumer and ombudsman courts to put this together. There are other relevant areas where no information is available. For example, in the quality of policy placement. This is an important consideration because every single insurance buyer is impacted. The requirement here is to measure items such as clarity of coverage, error-free policy contracts and timely endorsements, but there is no public information on these.

The Insurance Broking Association of India (IBAI), where I am a director, decided to address this lack of synthesized information by developing a robust measure of an insurer’s performance on policyholder-friendly metrics. The focus was on general and health insurers where brokers distribute over 25% of insurance. Life insurers and new insurers without a long track record were excluded from the study. Brokers represent clients through a formal mandate; typically, they work with several insurers and get a privileged view into insurance processes such as placement, grievance handling and claims that are required to evaluate an insurer’s performance. We identified four criteria. Claims and grievance were given the highest weightage of 40%, followed by policyholder and broker orientation, quality of policy placement and domain knowledge. Each criterion was further split up into smaller measures. Overall, 40% of the total score was based on quantitative information from public disclosures and 60% on a broker survey. The survey was introduced to capture feedback on measures where public information was unavailable or not consistently measured across insurers. The design was such that no single measure or survey result could swing the overall outcome. We got responses from 150 brokers and the survey was filled out by their founders, directors or senior executives. The results showed wide variation among insurers, from a high of 88% to a low of 13%. There was strong correlation between the quantitative assessment and survey results.

The top quartile general insurers were recognized and awarded earlier this year. They were, in alphabetical order, Bajaj Allianz, Future Generali, HDFC, ICICI Lombard, Iffco Tokio, New India and Tata AIG. This exercise will be repeated each year to be an additional perspective for the industry and buyers. Not all awards are created equal. I have been on some juries where assessment has been extremely superficial. Readers would do well to consider only those awards seriously that have been peer-reviewed, have a quantitative foundation, do not require payment and are objective. Such awards nudge companies to improve and focus on policyholders. On a separate note, there are some headwinds for the industry coming up. All bank accounts need to be linked to Aadhaar by 31 March 2018 to remain operational. Over the years, the Electronic Clearing Service (ECS) mandate has been used widely by the industry to collect renewal premiums automatically. If these ECS mandates become invalid because of lack of Aadhaar linkage, there could be substantial unintended insurance lapses, which is terrible for policyholders.

The other development that would have significant implication is the introduction of the National Health Protection Scheme. There are many cost estimates but my assessment is that the scheme will cost far more than what is budgeted for. Most likely this scheme will be larger than the entire health insurance industry today. When fully implemented, it will mean that over 10 million more people may want to be hospitalised in private hospitals. Health insurers and hospitals will need to significantly scale-up to participate in this scheme and ensure that they are a part of the government’s implementation plan. The large number of current and proposed public listings suggests that scrutiny of an insurer’s financial performance is likely to increase significantly. The markets will look carefully for the source of profits. In the case of general insurers, this is typically due to investment rather than underwriting. Such scrutiny will put pressure on insurers to increase premiums, which in turn, will impact customers.

Finally, a new chairperson of the Insurance Regulatory Development Authority of India (Irdai) will be announced shortly. Given the highly regulated nature of insurance, all eyes are on North Block.

Author: Kapil Mehta is co-founder of


Third party insurance for car: Here is why you should worry if you don’t have comprehensive policy

Feb 20, 2018

According to the Motor Vehicles Act 1988, it is mandatory to have a Third-Party Motor Insurance for your vehicle in India. While Third Party Insurance is mandatory, a Comprehensive Insurance policy is not. Moreover, a Comprehensive policy — which comprises of two major components, Third Party cover and Own Damage cover – is always higher priced than a Third Party cover.

This explains why a majority of people in India rely only on Third Party Insurance and do not go for a Comprehensive cover. However, why is a Comprehensive Insurance policy essential? That’s because there are certain important things which a Third Party Motor Insurance policy does not cover. Let’s understand Third Party Insurance a bit more.

Third Party Motor Insurance

In a Third Party Motor Insurance policy, there are 3 parties involved:

1. The first party is the insured person

2. The second party is the insurance company, and

3. The third party is the person who claims damages on being injured by the insured person.

Under a Third Party Motor Insurance Policy, the insurance company enters into an agreement with the insured person to indemnify him/her on being held legally liable or sued in the court of law for the damage or bodily injuries or death of a third party or third party property while using his/her vehicle. In simpler terms, “it helps in meeting the financial expenses towards the medical treatment of the third party or meeting the third party vehicle repair costs in the event of an accident. It helps you in avoiding a financial loss in such stressful situations,” says Devendra Rane, Founder & CTO,

Thus, Motor Third-Party Insurance is referred to as ‘third party’ cover since the party benefiting from it is neither the policyholder nor the insurance company, “but a pretentious third party which might have received death/disability or property loss because of the insured. Hence, such a cover helps in covering up the legal liability of the insured towards this third party,” informs Animesh Das, Head – Product Strategy, ACKO General Insurance Company.

Also, the coverage offered by a Third Party Insurance Policy is cost-effective as the premium rate is lower. IRDAI defines the price of the product every year. Given higher accidents and losses, the price has seen a hike of 5-10% every year. It is expected the price may be revised in March 2018 again.

Here we are taking a look at what a Third Party Motor Insurance policy covers and what’s not covered by it.

What’s covered under Third Party Motor Insurance

1) Death of third party: A Third Party Insurance Policy covers the death of any third party due to an accident with your vehicle. “The compensation has no limit, and the case is reported to MACT (Motor Accident Claims Tribunal). Do note that while lodging an FIR, it is essential that the FIR includes the driver’s licence number and witnesses’ name and details (if any),” says Das.

2) Accident leading to disability: Accidents that lead to the disability of any third party are covered. The compensation is Rs 2,00,000 in case of total disability and Rs 1,00,000 for partial disability.

3) Property Damage: Property Damage of any third party is also covered. The compensation is Rs 7.5 lakh for cars and commercial vehicles, and Rs 1,00,000 for two wheelers

4) Owner-Driver cover: It covers owner who drives the car in case of an accident up to Rs 2,00,000 for car and commercial vehicle & Rs 1,00,000 for bikes. “This is a mandatory cover with any third party policy. The charges are Rs 50 for two-wheeler and Rs 100 for car and commercial vehicles. The owner-driver cover can only be taken by individual users and not by an organization,” says Das.

What’s not covered under Third Party Motor Insurance

1. Damage to your Own Vehicle: When you cause an accident with your motor vehicle like, say, your vehicle is involved in a collision with another person’s vehicle or it collides with another person’s property like a house. During such an accident whatever damage happens to your own insured vehicle, the cost of its repairs is excluded from the payment made by your insurance company under a Third Party Motor Insurance Policy.

2. Cover against injuries you suffer in an accident: This exclusion is in continuation with the above exclusion. Here the injuries that you as an owner and driver of the vehicle sustain during an accident against are completely excluded from payment by your insurance company. This includes everything, from major hospitalization or surgery to even minor day-care procedure.

“In short, any cost involved with treatment related to you from an accident while driving your insured vehicle with a Third Party Motor Insurance Policy is not payable. However, death and permanent disability is covered by a Personal Accident Cover for the owner driver which is a mandatory cover,” says Rane.

3. Cost of Personal Belongings in the Insured Vehicle during an Accident: Third Party Motor Insurance Policy also absolves your Insurance Company from the responsibility of paying for the cost of your personal belongings like laptop or mobile phone or jewellery or luggage or even cash and other valuable items which might be present in the insured vehicle which has met with an accident.

“If the vehicle meets with an accident and you leave it unattended or forget to lock it and your personal belongings get stolen from the vehicle, you cannot claim for such a loss and the insurance company will reject it outright. However, the same can be availed with a ‘Loss of Personal Belongings’ add-on cover with a Comprehensive motor insurance policy,” informs Rane.

4. Pay-out for a Replacement in case of Theft or Total Loss: Suppose your vehicle gets stolen, or your vehicle meets with a major accident or catches fire or gets crushed and is completely destroyed or mangled beyond the repair – Insurance companies call it a ‘Total Loss’ case. Under such circumstances, a Third Party Motor Insurance policy does not offer any pay-out or benefit for replacing your damaged vehicle.

This is a huge point of difference between a third-party policy and a comprehensive cover. A comprehensive policy will pay you back the sum amounting to the IDV you had chosen while buying a policy, whereas a third-party policy will pay you nothing. This amount for any car will go in lakhs, and can be a big financial loss.

5. Other General Exclusions: Other general exclusions under which a Third Party Motor Insurance Policy does not pay any benefit are:

a. Driving the vehicle under the influence of intoxicating substances like alcohol, drugs, etc.

b. Driving the vehicle without a valid driving licence.

c. Deliberately creating an accidental loss, or a deliberate event or intentional act created for causing an accident.

d. Contractual liability claims and driving the vehicle outside the prescribed geographical area.

e. Any damage to the motor vehicle due to an act of war, actual war, damage from nuclear material/ weapons, invasion, foreign enemy action, terror attacks, civil war, mutiny, rebellion, hostilities, radiation or are not covered.

“You need to remember that these exclusions are by and large common for any insurance policy whether you buy a third-party or comprehensive policy. These exclusions are kept in place to ensure a fair usage of the policy between customer and the insurance company,” says Rane.

Experts say that an insurance policy document is an important document. Here, even a simple asterisk can be the difference between claim acceptance and rejection. Don’t, therefore, ignore the statement that you would have heard countless times on commercials – read the policy document carefully.

Insurers must provide right solutions to expand market, say experts

Feb 14, 2018

There is a need to highlight the need for insurance and provide right solutions to spread awareness and increase its penetration, according to industry captains.

A galaxy of industry captains and insurance regulators from South Asian countries deliberated on a wide range of aspects during the International Insurance Conference and the Fourth South Asian Regulators’ meet hosted by the Insurance Regulatory and Development Authority of India (IRDAI), which concluded here on Sunday.

“Reach out to people and explain what kind of insurance is required. We cannot slacken efforts to reach more people to spread insurance,” Arijit Basu, Managing Director and CEO, SBI Life Insurance, said in a panel discussion on the role of consumer awareness in enhancing insurance penetration.

Noting that even though about 30 crore people had life cover in the country, Basu said the sum assured was way below the needs. It is not about buying insurance once, but sustained premium payment is also vital. “We can lock in the customer for 15-20 years if combined efforts are made...” he added.

Winning the trust of customers is vital not just for insurance penetration but also to post “good quarterly results by doing the right sale,” Basu pointed out. According to Ritesh Kumar, MD and CEO, HDFC Ergo General Insurance, distribution should be strengthened by making the agents technology savvy and increasing their numbers.

Currently, there are about two million agents in life insurance and 3.60 lakh in non-life. “We need to go out into rural areas to spread awareness about general insurance,” he said. While life insurance penetration in the country is at 3.49 per cent, that of general insurance is less than 1 per cent, with some segments like home insurance having a very small customer-base.

Big push

Hemant Bhargava, Managing Director, LIC, said government schemes such as Prime Minister’s Jeevan Jyothi Bima Yojana, Suraksha Bima Yojana, Fasal Bima Yojana and the recently announced National Health Insurance scheme have brought insurance to the forefront.

Insurance, not loan waivers, can pull the poor out of debt trap

Feb 13, 2018

Debt waivers need not always pull the poor out of debt traps, according to research by Dean Karlan, professor at Northwestern University, and co-authors. They conducted field experiments in India and the Philippines, wherein selected small-scale entrepreneurs had their existing debt paid off. Some of them were also given financial education. The aim was to free them of the debt trap. However, the researchers found that most of the subjects went back to borrowing at high rates within six weeks. The authors ruled out the possibility that sustained borrowing is voluntary and profit-maximizing.

Instead, they found that income shocks and unavoidable consumption often forced their subjects to return to borrowing. The authors suggest that insurance against income shocks, rather than ad hoc debt relief, may be a better way to fight the debt trap.

The probability of college-educated men in the US finding high-paying jobs has declined since the 1980s while it has increased for women, according to a new National Bureau of Economic Research (NBER) paper authored by Guido Matias Cortes, assistant professor at York University, and co-authors.

By high-paying jobs, the authors refer to jobs in the top 25% bracket of occupations or jobs that require cognitive skills such as problem-solving. They argue that the improved chances for women landing such jobs is partly owing to the increased demand for social skills at the workplace. Research indicates women might be better at skills such as communication and working together. Thus, the percentage of college-educated women holding such high-paying jobs has increased from 54.2% in 1980 to 57.8% in 2014. At the same time, the percentage of male graduates employed in such jobs dropped from 66.2% to 61.4%. The rise in probability of women graduates finding high-paying jobs is all the more remarkable because the supply of women graduates rose at a faster pace than men.

Personality traits of managers can have a large impact on the fortunes of firms, argues a new research paper which examines micro, small and medium firms in Vietnam. Smriti Sharma and Finn Tarp, researchers with the United Nations University’s World Institute for Development Economics Research, find that managers with higher “locus of control” and innovativeness are associated with higher revenue for firms.

“Locus of control” is a psychological concept which indicates how much individuals believe that outcomes in their life are within their control.

On the other hand, risk aversion is positively correlated with the adoption of safety measures, although it is also associated with lower revenue.

Contrary to conventional belief, banks are not more opaque than other firms, suggests new research by Fabrizio Spargoli and Christian Upper from the Rotterdam School of Management. They compared data on returns from trade in stocks by corporate insiders in US banks with those by other firms.

If banks were indeed opaque, then stock purchases by senior bank officials should have been followed by rise in equity prices. Conversely, insider stock sales should be followed by a drop in stock prices. In other words, if banks are opaque, then bank officials would have better information on the future performance of their institutions than outside investors. However, authors’ analysis suggests that banks are no more opaque than other firms. Specifically, stock sales by bank insiders were not followed by negative stock returns.

Central banks will most likely continue to have an important role even in the age of digital money, argued Agustín Carstens, general manager, Bank for International Settlements (BIS) in a recent speech. BIS is the bank of central banks. He cited history to argue that money needs to have a basis of trust, supported by some credible institution. To illustrate, before the Federal Reserve was created in the US in 1913, the monetary system was often rocked by crises of credibility, as between 1837 and 1863 when many banks issued their own currency. Specifically, he cast doubts on the efficiency and safety of the distributed ledger technology, which forms the basis for cryptocurrencies. He predicts that credible money will continue to arise from central bank decisions taken in public interest.

Govt's health scheme needs realistic pricing

Feb 12, 2018

Actuarial pricing will make the government’s National Health Protection Scheme (NHPS) sustainable in the long run, said panellists at the Business Standard Insurance Round Table held on Thursday.

Discussions around the health insurance scheme were the major talking point at the Round Table, considering the scale and ambition of the project. Finance Minister Arun Jaitley announced the NHPS policy during his Union Budget speech of 2018-19, under which 100 million families, or 500 million individuals, would be provided a health insurance cover of Rs 500,000 for the price of Rs 1,000 to Rs 1,200 per family per year.

“We do have concerns on the pricing of the scheme, as reported by the papers, because only actuarial pricing will make it a sustainable scheme,” said Alice Vaidyan, CMD of General Insurance Corporation of India.

Actuarial pricing is used to develop premiums (pricing) with the aim to cover the total losses from underwritten risks, and provide future benefits payable to beneficiaries. It involves estimating the future cost of a specific type of policyholder, so that the price arrived at not only attracts more customers but also provides adequate coverage, resources, and profits.

The panel comprised General Insurance Corporation CMD Alice Vaidyan, New India Assurance CMD G Srinivasan, HDFC Standard Life MD & CEO Amitabh Chaudhry, SBI Life Insurance MD & CEO Arijit Basu, Religare Health Insurance MD & CEO Anuj Gulati, and Marsh India Insurance Brokers Country Head & CEO Sanjay Kedia.

The panellists delved deeper into some of the main challenges in implementing such a policy. At the scale envisioned, the challenges relate to pricing, effective health care networks, value delivery, fraud detection, risk management, and sustainability over the long run.

While pricing, enrolment, and processing of claims were important, the underlying health care network and workforce in the country requires large-scale reform and improvements, the panellists opined. But leaders of the insurance industry remain optimistic.

G Srinivasan, CMD of New India Assurance, believes that the scheme will eventually bring in the infrastructure. “As money comes in through insurance claims, hospitals and the wider network will come up in smaller areas,” he said.

“The second challenge of abuses that tend to happen in these mass schemes is something that insurers will ensure is controlled,” he said. There should be a good technology platform, and that there must be adequate controls on the quality of health care, he added.

“When we look at the incidence rates, the average claims sizes and so on, what was earlier estimated to be a Rs 750 to Rs 800 per family annual premium, is now settled at Rs 300-Rs 350 premium. That’s the beauty of the law of large numbers working in your favour,” said Anuj Gulati, CEO and MD of Religare Health Insurance.

Going forward, the capital allocation needed could be much higher for the scheme than envisaged, said Sanjay Kedia, country head and CEO at Marsh India Insurance Brokers.

“We know that health inflation, as a thumb rule, is 50 per cent more than consumer inflation, and these programmes do not only need a cost allocation in terms of the health inflation index, but also in terms of user awareness,” Kedia said.

The Budget has created a tax arbitrage between unit linked insurance policies (ULIP) and mutual funds as mutual fund investors have to pay 10 per cent tax on long-term capital gains, whereas ULIP investors do not.

“I think the nature of products - ULIPs and mutual funds – is very different. Hence, tax arbitrage is unlikely to lead to a shift in investors. You can compare a traditional endowment funds and ULIP, but you cannot compare ULIPs with funds as ULIPs give you a good return and an insurance cover which is a part of the product,” said Arijit Basu, MD and CEO of SBI Life Insurance.

Insurance CEOs also felt that mis-selling in the industry had come down drastically.

“The data is clear that insurance companies have done a solid job to curb mis-selling. Insurance companies recognise mis-selling is bad for business. And the best way of curbing mis-selling is to keep the product simple,” said Amitabh Chaudhry, MD and CEO of HDFC Standard Life Insurance.

According to the panellists, there is room for everyone to grow in this market, even when foreign competition is increasing presence in the country.

Insurance companies are also increasingly taking help of reinsurers to spread their risks.

“We have faced natural calamities, we faced thousands of crores of loss, but through reinsurance we have been able to address these issues. We have a long history and we know how to insulate ourselves from concentration risk. We spread our risk, that’s the beauty of insurance,” said Srinivasan.

The panellists also said the younger population was driving the growth in insurance sector because of its higher awareness level. Online sales are also increasing.

With six insurance companies getting listed on the bourses in the past year and a half, CEOs felt that there was a greater need to educate investors and analysts on the nature of their business and how to value it.

“As more and more of us get listed, there is a huge job for us to educate the retail investors,” said Chaudhary.

Vaidyan said it was a challenge in educating analysts about the nature of the business because reinsurance is a B2B business.

Public sector insurers also highlighted that there was a perception difference between them and the private sector players.

Srinivasan said there was an anti-public sector bias in the market. “It is wrong to paint all public sector companies with the same brush,” he said, adding in insurance, government interference was much lesser than in banking.

Basu felt that the market is ownership agnostic. “Corporate governance or the manner in which companies are run, is very important. So the market is not looking only at ownership, it is only one of the factors,” he said.

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