Two new pages

Hello friends!

I have put up two new pages in the blog. One is IRDASPEAK and Life Insurance Glossary. The first one will be updated with relevant announcement/ news/regulation etc. While the other will act as a tool to help discuss the details of some industry jargons.

Hope you like it.

IRDA levies a penalty of Rs 1.47 crore on HDFC Life

IRDA imposed a hefty fine of Rs 1.47 Crore on HDFC Standard Life Insurance Ltd for violation of various regulatory provisions. IRDA had conducted an onsite inspection at the premises of the Insurer. Such inspection is carried on once in 3-4 years. IRDA issued a show cause notice to HDFC life; to which it replied and after a personal hearing the penalty was levied.

The insurer made highly excessive payments for marketing expenses and advertising campaigns to its corporate agents namely HDFC, HDFC Bank, HDFC Securities HDB Financial Services. The purpose of the regulation that has been violated here is to ensure that no additional payments should be made to the corporate agents other than commission legally allowed. Many insurers indirectly make payments to the corporate agents in guise of marketing expenses/ sales promotion/ training/infrastructure support/ advertisements campaigns etc. Such payments are often not supported by any material considerations in return. The burden of this extra payment naturally falls on the policyholders who fall prey to expensive products and malpractices during sale of insurance. IRDA imposed a penalty of Rs. 35 lacs  - Rs. 5 lac each for 7 instances of violations.

Insurer allowed soliciting insurance business through unlicensed entities. The company submitted that some duly licensed Specified Persons (selling agents in Corporate Agent setup) were operating with multiple codes for the purposes of ease in reporting and maintaining data. IRDA did not accept this and concluded that unlicensed and perhaps untrained people have sold policies to common public! - Penalty of Rs. 5 lacs.

In case of home loan protection policies, the insurer had put a 90-day waiting period exclusion clause in its product approval application (called File & Use application). As per this clause, under the policy, if the life insured dies within 90-day waiting period, the claim would not be paid even if otherwise eligible. IRDA approved the product and directed the company to remove the said clause before using the product for sale. The company removed the clause albeit after some delay. In 21 cases, the death claims were rejected on the basis of this exclusion clause. IRDA imposed a penalty of Rs. 5 lac each for 21 cases and also directed insurer to pay the rejected claims - Penalty of Rs. 105 lacs!!

IRDA has sent strict signals to all insurers after its penal actions against big names in life insurance space like ICIC Prudential Life and now HDFC Standard Life.

The mood of the regulator can be gauged well from the following quote in the penalty order -

"A penalty of this nature is a regulatory necessity in order to impress upon management of any insurance company that regulatory prescriptions have to be complied with at all times and failure to do so will entail appropriate regulatory action… - J Hari Narayan, Chairman IRDA."

Who’s who of Indian Life Insurance Industry

Currently there are 24 Life Insurance companies licensed and operating in India. Due to its prolonged monopolistic presence in the sector, Life Insurance Corporation (LIC) has the largest market share. As per the new business figures (Individual) of FY 2010-11, around 63% of the new business premiums is collected by LIC followed by ICICI Prudential 6.6%, SBI Life 5.8%, HDFC Standard 4.2%, Reliance Life 3.2%. The remaining market share of 17% is shared by 18 life insurers.

On the group front, LIC collected new business premiums of Rs. 34,241 Crores which constitutes around 79% of the total group premiums in the industry. The next in line were SBI Life 6.5%, ICICI Prudential 5.7%, Bajaj Allianz 2% and HDFC standard Life 1.3%.

The market share is steeply skewed in favour of LIC. This indicates that not only LIC is the major player in the sector, it still manages to maintain the confidence of the policyholders. Further the government backed entity has a responsibility to service a large populace in the years to come. This was one of the reasons why the Finance Ministry and the IRDA Chairman were keen on increasing private participation in the pension / annuities sector. Let’s talk about it sometime later.

I want to draw your attention to one more important point. In spite of the opening of the life insurance ten years back, the private players are still struggling to garner investors/policy holders’ confidence. The figures show it quite right. Only 17% is shared by 18 life insurance companies!!

The life insurance industry is still in its nascent stage of evolution. There are many more initiatives and policies being designed to increase customer satisfaction.

Technorati Tags: Share in Life Insurance Industry,Life Insurance,Individual business,group business

A Brief History of Life Insurance in India

Protection for your loved ones

As a concept, life insurance is said to have originated in England in 17th century in view of increased economic activity in the pre-Industrial Revolution period, especially that of the deep sea ships. It is said that underwriters used to meet at the Lloyd's Coffee House, to strike deals.

In India, the life insurance companies started surfacing in early 18^th century. However it was only after the enactment of the British Insurance Act in 1870, that the companies like Bombay Mutual, Oriental, Empire of India, Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance etc were seen on the Indian shores.

A series of legislations thereafter shaped up the life insurance business as we see it now. Prominent among them being the nationalisation of the life insurance sector primarily on account of rampant unfair trade practices and a motive to channelise the abundant savings in the economy towards securing goals of nation building. The government established the Life Insurance Corporation of India (LIC) in 1956 by merging 154 Indian and 16 foreign insurers plus 75 provident societies.

The LIC enjoyed a clear monopoly in the next five decades till the pressures of currency devaluation and distorted Balance of Payments position necessitated the measures of liberalisation and privatisation. On recommendation of the Malhotra Committee, in the year 2000, the insurance sector in India was opened to the private players and an independent regulator, Insurance Regulatory and Development Authority (IRDA) was established to oversee the governance and the development of the sector. Currently, there are 24 life insurance companies in India; and many of them are a product of joint venture with foreign insurance giants.

Welcome!!!

Hello Friends!

This blog is created with an intent of creating awareness about Life Insurance and its complex yet essential aspects.

Today, the fruits of the post-liberalisation era are distinctly visible. There is a dynamism in the people that is worth appreciating. With rising standards of living and rising disposable incomes uncertainties have also risen. Quite naturally, life insurance has emerged as a handy tool to ensure protection against unforeseen perils and also a trustworthy investments vehicle.

However, one must not forget that life insurance is a highly specialised matter. A cue may be taken from the very fact that the life insurance sector was fully controlled by Government for nearly 50 years! It is only in the last ten years that the sector was opened up for competition from the private players. Moreover, a separate regulator IRDA has been entrusted the governance of this sector.

The very nature of a life insurance contract makes it even more difficult for a common man to understand the cost that he is incurring and the benefits accruing to him. This has attracted malafide activities with a view of quick buck.

Although the regulatory mechanisms for the benefit of policyholders are in place, I believe a prudent, informed buyer is what it takes. After all, self-help is best help!!