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How will the merger of public sector general insurers impact the industry?

Mar 06, 2018

The government proposes to merge National Insurance, United India Insurance and Oriental India Insurance into one company. We spoke to experts about the challenges this can raise

Naresh Makhijani, partner and head, financial services, KPMG in India

The merged entity will control about one-third of the total non-life insurance market in India.... Such a merger may result in a monopoly-like situation with low focus on customer service. It also leads to concerns about ‘too big to fail’ due to the continuous operating losses reported by these entities. India is a highly under-penetrated market. Apart from penetration, the non-life insurance industry requires huge transformation in product portfolio and operating models. Currently, crop and health insurance hardly exists; there are very few micro agents and most public non-life insurers rely on individual agents for product sales; and digital penetration is low. In light of these transformation priorities, concentration of business in the hands of only a couple of public insurance companies may limit customers’ options.

This is notwithstanding that the synergies shall bring in a lot of efficiency in operations, claims management and technology platforms. This synergy shall certainly improve the combined ratio by 5-7%.

Premanshu Singh, chief executive officer,

Government has announced the merger of three big public insurance companies in India, which is likely to be completed by the end of the next fiscal. Currently, these three major players hold a combined premium book of more than Rs40,000 crore and contribute around 30% to the market of non-life-insurance. This merger will definitely reduce competition and at the same time improve the sector’s overall profitability.

This is going to facilitate improvement of solvency levels, which are currently lower than the limits prescribed by the insurance regulator for these companies on an individual basis. Underwriting discipline will also be achieved and risk retention will be enhanced.

However, the biggest challenge in this mega-merger would be technology. All the insurers are currently using different technology platforms, which will have to be brought in sync.

The current technology can be used efficiently to overcome this challenge. Other smaller issues could be the terms and conditions of employment, salaries, and others in the upcoming merged entity. Ensuring a smooth renewal and claim settlement process, keeping in mind the huge database of customers of the merged entity will also pose a challenge. They will have to strive for a complete cultural convergence.

The easiest solution would be to maintain status quo for a few years after the merged entity comes into existence.

Dinesh Chandra Khansili, ‎executive director, Institute of Actuaries of India

Though public sector general insurers are governed by Irdai rules and most of the products are of shorter term, health insurance products can be of longer terms and there could be a long tail of claims. Products sold by insurers would be different and hence, servicing the products with varied characteristics could be a challenge for the single entity. Importantly, investment parties would be different even though Irdai investment norms apply. The infotech systems would be unique and thus a holistic integration could be a challenge. Merger of physical assets could pose a daunting challenge. The products sold by individual companies, with their terms and conditions to be honoured, could be a servicing challenge. The reinsurance system, which is visible for general insurers, could be a challenge and expectations would need to be managed in this regard. Brokers play a big role in general insurance as do third-party administrators. This too could pose a challenge eventually. The optimum use of resources, processes, and investments would actually benefit customers. The terms and conditions of a policy would be honoured and hence, existing customers would not be adversely impacted. Rather, it is expected that better efficiency in claim settlement would be achieved for longer-term products, though limited investment efficiency may be had.

Rajiv Kumar, MD and CEO, Universal Sompo General Insurance

Merger of the three public sector general insurance companies in India should be seen as strengthening the reach of non-life insurance products in an underinsured market.

Considering the competition between the three is cut-throat, the amalgamation will shift the attitude and efforts on to one singular objective, which would be to bring under its fold maximum number of uninsured people and assets. The merger is beneficial from the government’s point of view as it would reduce competition among the public sector general insurers and going forward they will be regarded as a single entity.

But subsequently, this will also create a monopolistic situation and will increase their bargaining power (for co-insurance, reinsurance) and private insurers may have to take account of this.

The merger will also lead to a challenge of addressing the excess workforce in the public sector general insurance companies.

However, things will be clearer once the road map for this merger is made public, which is likely to happen soon.

The competition will now intensify among all insurers and general insurance companies will have to turn their focus to addressing the insurance needs and servicing the uninsured markets in rural India. Given all the positive aspects of the merger, the actual benefits will only be achieved based on the agility and efficiency of implementation for the same.

HC: Genetic disorders need cover’

Feb 28, 2018

In a significant judgment, the Delhi High Court on Monday termed “unconstitutional” discrimination in health insurance policies of individuals with genetic disorders.

Justice Prathiba M. Singh said a person suffering from a genetic disorder needed medical insurance as much as others. Genetic disorders have been the source of debate in the health insurance sector.

Most policies have exclusionary clauses that deny clients’ claims if they suffer from such disorders. The verdict could open up a large number of ailments as claimable under medical insurance.

“The exclusionary clause of ‘genetic disorders,’ in the insurance policy, is too broad, ambiguous and discriminatory — hence violative of Article 14 of the Constitution,” Justice Singh said. The court directed the Insurance Regulatory Development Authority of India to re-look at the exclusionary clauses in insurance contracts and ensure that insurance companies do not reject claims on the basis of exclusions relating to genetic disorders.

Justice Singh highlighted that there are different types of genetic disorders and even common diseases like diabetes and cardiac diseases could be included in the broad definition.

“In effect, it would mean that large swathes of population would be excluded from availing health insurance which could have a negative impact on the health of a country,” she remarked.

The High Court’s verdict came on a petition filed by United India Insurance Company Limited challenging an order passed by a trial court here directing it to honour the medical claim of a person who was suffering from genetic disorder.

The client was suffering from hypertrophic obstructive cardiomyopathy (HOCM).

The court said HOCM is not necessarily genetic in nature and the treatment for the same was primarily to prevent “sudden death”. Unless there is testing, it cannot be conclusively held to be genetic in all cases, the judge said.

In its order, the court noted that in the insurance policy issued to the man, no genetic testing was undertaken before hand.

“Unless and until there is a proper genetic test in accordance with a strict regulatory mechanism, and the cause of the disorder is attributable solely to a genetic condition, the classification is too broad,” the judge said.

The court remarked that insurance companies are free to structure their contracts based on reasonable and intelligible factors which should not be arbitrary and in any case cannot be ‘exclusionary’.

Insurers may ink reinsurance treaties for FY19 based on existing guidelines

Feb 26, 2018

Insurance companies are likely to sign reinsurance treaties for the coming fiscal based on the existing guidelines, as the draft policy on reinsurance put out by IRDAI may take some time to shape up.

The insurance regulator had constituted an expert committee on reinsurance in May 2017, based on which it had proposed the draft regulations. It had invited comments and suggestions on the draft.

According to a senior official at a state-owned general insurance company, there have been a series of discussions (on the draft) and the revised version is yet to take shape.

Insurance companies are required to commence their annual reinsurance programme at the beginning of every financial year (starting April 1). The insurers are also required to submit their Board-approved Reinsurance Programme along with retention policy for each forthcoming fiscal to IRDA atleast 45 days before the commencement of the financial year.

According to Sasi Kumar Adidamu, Chief Technical Officer, Bajaj Allianz General Insurance, the reinsurance guidelines, which are currently in the draft form will review the stakeholders’ feedbacks and suggestions and follow a certain process before getting fructified into final regulations.

“In India reinsurance treaties (for a given year) are renewed with effect from April 1. In case, the proposed reinsurance draft guidelines are not effective in time, the industry will have to follow the existing reinsurance regulations, which are enforced currently,” Adidamu told BusinessLine.

The draft guidelines have prescribed a specific order of preference for placement of reinsurance business in India, wherein GIC Re is likely to retain first preference followed by foreign reinsurance branches (FRB) in India and lastly the cross-border insurers. They also suggest that the risk can be placed with the Indian reinsurer and FRB without cession limits.

Certain sore points

It is to be noted that a certain section of the industry has criticised the draft and suggested that it would be against the interest of the ultimate policy holder, the country’s insurance market, and would pose a ‘huge systemic risk for the Indian market as a whole’.

According to Insurance Brokers Association of India, prescribing a specific order of preference for placement of reinsurance business in India would lead to extreme form of anti-competition.

“Individual and corporate policyholders’ cost, coverage, service will get severely compromised and innovation in wordings, products severely constrained,” the association observed.

However, industry experts point out that there is not ‘much difference’ in the draft reinsurance guidelines proposed and the one existing at present from the ‘operational point of view.’

“Reinsurance guidelines should balance between insurers’ obtaining competitive pricing, getting adequate capacity and protecting policyholders,” R Chandrasekaran, Secretary General, General Insurance Council, said.

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.

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