VANTAGE POINT

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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.



IRDAI asks insurers to transfer unclaimed money to senior citizens’ welfare fund

Feb 12, 2018

Insurers will have to transfer unclaimed amounts of policyholders for a period of more than 10 years as on September, 30, 2017, to the Senior Citizens’ Welfare Fund (SCWF).

The transfer should be made on before March 1, 2018, the Insurance Regulatory and Development Authority of India (IRDAI) said in a circular to all insurers.

The regulator had directed the insurers to adhere to the accounting procedure for transfer of the funds into the SCWF issued by the Budget Division, Department of Economic Affairs, Ministry of Finance.

Thereafter, every financial year, the process laid down in the SCWF Rules 2016 shall be followed.



Competitive bidding for Modicare will lead to underquoting: Star Health CMD

Feb 08, 2018

Chennai: Private sector health insurer Star Health started its government backed insurance policies with Andhra Pradesh when YS Rajasekhara Reddy was the chief minister. It then signed up Tamil Nadu and managed the ambitious state government scheme. When AIADMK was elected to power in 2011, it was forced out as the government wanted a state owned insurer. Now, with Narendra Modi government announcing the largest medical insurance plan, by volume, in the world, V Jagannathan, CMD of Star Health says that pricing the policy and linking it to PDS (ration card) should be the starting point.



Excerpts: Star Health has vacated the government administered insurance space after starting it. Do you see yourself making a re-entry in that space?

We will surely enter in government sponsored insurance space. As regards Tamil Nadu, the restrictive tender to PSU companies made us not to participate. As regards Andhra Pradesh, the government has started administering the scheme by themselves through a trust.



The claims in government sponsored schemes are said to be very high making them unviable for private players. What is your suggestion for better claims management?

I do not agree with this. The profit depends on how the scheme is administered and the premium rate.



What do think should be the pricing of Modicare policies?

The pricing will be critical . I feel that a maximum of Rs 2000 for every family will be a good price for Modicare policy.



Based on your experience in AP and TN what are the areas that should be fortified before launching this (Modicare) program?

Treating Hospitals must enter into a tie up with insurers on rates agreed for each procedure. To check if hospitals are adhering to these rates, a robust vigilance set up will be necessary in addition to a well-developed IT system which will help in surveillance and analytics.



There are talks of use of Aadhaar for this rollout. Can you suggest the cheapest, yet effective rollout mechanism of this?

As Aadhaar does not give income level, ration cards (coloured cards currently in use ) for BPL families can form the basis for effective rollout of the scheme. For future use, a system should be ushered in to capture income level of a person in Aadhaar card.



Can you elaborate on the Ration Card over Aadhaar. How do you think this should work?

Aadhaar as of now does not provide for income limit. This will be an impediment to select the targeted coverage group. But the ration card provides the income limit.



Should other similar schemes like RSBY be subsumed by Modicare?

Yes. There should be one policy for all government funded insurance schemes. Multiple schemes will only add to the confusion besides bring in distractions.



Since the scale of the project is mammoth, do you suggest a consortium approach to effective roll out?

Each company can be earmarked some areas on a draw of lot basis so that selection can be avoided. If the process goes through bidding, under-quoting can happen and eventually the scheme may suffer.

Source: The Times of India



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