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LIC's networth crosses Rs 18,00,000 cr mark

LIC's networth crosses Rs 18,00,000 cr mark
Thu, 16 Jan 2014 03:47:49 -0700
The public sector insurer increased its market share to 94 per cent in the life insurance market in December
By STAFF REPORTER
India's public sector insurance behemoth Life Insurance Corporation of India (LIC), which has over 2 crore policy holders, has crossed the Rs 18,00,000 crore networth mark, which is more than the total networth of all government banks, including State Bank of India. 

According to sources in December, the public sector insurer increased its market share to 94 per cent in the life insurance market, thanks mainly to an aggressive push of its old basket of products which expired on December 31 under the new Irda norms. For the entire year, LIC's market share has now risen from 74 per cent to 85 per cent. The insurance behemoth collected Rs 8,500 crore first premium in December alone.

LIC's networth was calculated by an internal team, which worked out the "embedded value" – a term referred for companies’ valuation in the insurance parlance. LIC is the biggest institutional investor in the local stock market.

Embedded value of an insurance firm is basically the returns plus profits that the company expects to earn from the policies that it has sold in the market and the premium that it expects to generate from each policy sold over its period of tenure. HDFC Standard Life is the only other life insurance company in India to come out with its embedded value.
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RBI’s move to withdraw pre-2005 currency notes is anarchic

The Reserve Bank of India vide Press Release dated 22 January, 2014 advised that currency notes issued prior to 2005 would be withdrawn. From 1 April, 2014 public are advised to go to any bank whether they have account with it or not and get notes issued in 2005 or thereafter in exchange. 

No questions or proof would be asked till 30 June 2014 when one approaches the banks for such exchange. However from 1 July 2014, one has to give proof of identity and address should he require more than ten pieces of pre-2005 Rs 500 or Rs 1,000 notes to be exchanged. 

The RBI has advised people not to panic at this action and that the pre-2005 notes can be easily identified because they simply do not bear the year of minting on their backs whereas notes issued in 2005 or thereafter bear the year on their backs. 

The RBI is silent on many issues. What is the intention underpinning this move? Surely no demonetisation is on cards because even from 1 July, 2014 one can avoid the inconvenience of having to give proofs of identity and residence if he is prepared to go to as many bank branches as warranted. 

To wit, suppose he has 20,000 Rs 500 notes, all that he has to do is to go to 2,000 different branches of banks in India and surrendering at each bank exactly ten notes for exchange. He can even allocate this disagreeable work among his family members and friends whom he trusts. In the event, one is at a loss to understand what exactly is sought to be achieved by this potentially disruptive move. 

One can visualise the scene easily. Come 1 April, 2014 there would be serpentine queues at the cash counters of bank branches. The cashiers would have to look with magnifying glasses at each note surrendered given the fact that the year is printed in smallest font possible. More aggrieved by the move would be the common folks especially senior citizens whose eyesight is not so good. 

The RBI has said that the old notes ie those issued prior to 2005 would be legal tender. For how long? Well, this aspect has been kept open-ended. Let us say the deadline is in due course set as 31 December, 2014 which would mean from 1 January, 2015, pre-2005 currency would no longer be legal tender. Now the entire economy would be in turmoil. 

People hitherto have been counting notes given to them in a banking or trade transaction besides of course displaying their knowledge real or pretended of telling between a fake and real currency. They would now have to do another thing — see if the notes given to them are post 2004 and for this purpose those endowed with poor eyesight may have to carry a magnifying glass in their pockets at all times. Each note has to be carefully checked. Those with poor eyesight would feel this extremely challenging and inconvenient. 

One can say by the deadline date more than say 95% of old currency notes would have been surrendered to the banking system but there is an outside chance that some of the notes no longer legal tender are still in circulation. People don’t like to take chances. They would not be reassured by the official position that all old currencies have been flushed out. 

The RBI’s disruptive move begs the most important question — why this anarchic financial move when so much leeway has been given to the black moneyed people? One could have understood had no wiggle room whatsoever had been given. But exception given upto 10 high denomination notes of 500 and 1,000 is bound to be lapped up with alacrity. The leg work involved in going to more than one branch would hardly deter them when it has not deterred them for avoiding TDS. Bank branches are required to deduct tax at source on interest from term deposits only if the interest from a branch exceeds Rs 10,000 during a financial year. 

Let Baba Ramdev not exult and open the bubbly err... the amla bottle because the quasi demonetisation scheme, as it were, warts and all, does not target only high denomination notes namely 500 and 1000 but currency notes of all denominations including 5, 10, 20, 50 and 100,  unless the Finance Ministry and RBI are working on a secret plan of demonetisation and would give in exchange denominations other than 500 or 1,000, come 1 April, 2014. Should that happen the RBI would have on the all fools day pulled off the most brilliant if cunning plan ever which of course would be marred by the leeway discussed above —exchange of high denomination notes upto 10 at any branch without any questions being asked. 

If this is what the plan is, it should forthwith close the loophole and say even one note has to be explained for, come 1 July 2014. Black moneyed people may also hit upon another counterblast — start accumulating small denominations notes right away. Who knows in the run up to 1 April, 2014 the country might witness shortage of small denomination notes. They may even be bought at a premium.

Read more at: http://www.firstpost.com/economy/rbis-move-to-withdraw-pre-2005-currency-notes-is-anarchic-1354085.html?utm_source=ref_article
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A single product covering all basic needs of insurance will help increase the reach of insurance: vijayan

HYDERABAD, JAN. 8:  
A single product covering all basic needs of insurance will help increase the reach of insurance, said T.S. Vijayan, Chairman, Insurance Regulatory and Development Authority.
In his keynote address at the seventh global insurance summit organised by Assocham here on Wednesday, Vijayan said the present practice of separate policies to cover life and non-life risks would leave the customer with no option but to take multiple policies.
“This is very cumbersome and appears to be one of the major roadblocks in increasing insurance coverage. Though IRDA has allowed tie-up of life and non-life insurers to offer micro insurance products, there has been no significant progress in this area,” he said.
The micro insurance, intended to provide insurance to low-income groups, covered more than 139 lakh with 50 lakh policies during 2012-13. “However, we observe that micro insurance business has low persistency and claim ratios,” he said, adding that lack of awareness and effective communication with the customer were causing this problem.
“The claims payment procedure should also be simple and transparent to ensure timely payment of all eligible claims. Identifying cost-effective ways of distributing insurance cover would be the key to success in increasing the insurance coverage among low-income groups,” the IRDA chief said.
In his inaugural address, Andhra Pradesh Governor E.S.L. Narasimhan said making insurance simple and understandable was a major challenge for the industry. He asked insurers to be more humane and reasonable while settling claims.
P. Nandagopal, Chief Executive Officer, IndiaFirst Life Insurance and Chairman of Insurance Council, Assocham, said mass marketing methods should be designed for make insurance available to the low-income groups.
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13 lakh insurance agenst call it quits, having license but not doing business

Of 37 lakh valid life insurance agency licenses in India, only 24 lakh agents are active, says IRDA.
More than 13 lakh agents (35% of total valid agency licenses) in India have left distribution of life insurance policies, shows Insurance Information Bureau of India’s (IIB) report. IIB has been set up by IRDA to compile and analyze the data.
       Experts attribute this decline to recruitment of non-serious individuals and reduction in commission structure.
Pankaj Mathpal of Optima Money feels that laxity in agent’s recruitment process is a major reason behind exodus of life insurance agents. He says that some private insurance companies often recruit unskilled people to achieve their internal targets. Such agents, after acquiring a few clients from their family and friends circle, usually leave the profession. He stressed the need of recruiting committed agents who want to opt for distribution as a full time profession.
“For last three years, agent commissions have fallen drastically due to regulatory constraints which has made many agents to discontinue their distribution business,” says Subrat Mohanty, Head Distribution, Bajaj Allainz Life Insurance. He expects that dropouts of agents will persist since new products come with a reduced commission structure and higher transparency. On the flip side, only serious players will continue with the new model thereby reducing mis-selling and ensuring better quality service, he added. According to the study, the number of agents increased in certain states like UP, Bihar, West Bengal and Chhattisgarh which had proportionately less agency penetration.
Further, it shows that top 50 districts account for close to a third of life insurance agency licenses in the country. These districts have 26% of the total insurance offices.
In addition, the penetration of insurance agents in these districts is more than 7 agents per thousand population whereas bottom 120 districts have an average penetration of less than 1 agent per thousand population. Agency penetration is defined as the number of valid life insurance agency licenses per thousand population.
Penetration of agents-Of 611 districts, Chandigarh, Goa and Delhi have recorded highest agency penetration while Meghalaya, Bihar and Lakshadweep witnessed least penetration.
On under-penetration of agency in small districts, IRDA has said, “While appetite for insurance could be relatively low among the low-income segments, thereby causing under-penetration of agency, it is true that the poorer states/districts could also suffer from additional disadvantages such as non-availability of qualified agent-candidates in these locations, problems of access requiring the candidates to travel very far for agency training and tests, low ticket sizes and agency recruitment costs and viability issues for life insurers.”
Also, the study shows that there are many districts in the country with population well above a lakh but having no life insurer’s office.
“Many private insurers usually not prefer to open branches in small cities and districts since they chase  bigger ticket sizes,” said Mathpal. Mohanty said that it’s not viable for insurance companies to carry out branch operations in small cities due to higher recruitment and operational costs.
Mohanty, however, said that FM has recently allowed insurance companies to open branches in small districts having population of upto 10,000 without prior approval of IRDA. This move is expected to boost penetration of life insurance industry in such areas, he added.

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applicable service tax on IRDA sarvises

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According to experts, sarvice tax would have an adverse impact on life insurance

From January 1, 2014, insurance policy will get costlier as the government widens its service tax purview to include insurance policy premiums paid by policyholders.

The tax rate will be different for different products. On term products and unit-linked insurance policies, in which charges on mortality and administration only, it will be 12.36 %; while on traditional products it will be 3.09 %, as most of the premium goes into savings. 

Confirming the separate collection of service tax, Mr. A.K. Sahoo, Executive Director, LIC and Chief of South Central Zone, told that final guidelines on the modalities of service charges to be levied on the risk premium (excluding savings component) would be out in about a week. 

“With the complete switch-over to the new product norms from January 1, all the companies have to include this in the new design norms clearly spelling out the exact details of taxes”, Mr. Sahoo said. 

According to experts, it would have an adverse impact on insurance, which is basically a social security instrument. 

“When the penetration of insurance is still low, this may discourage people from buying life insurance,’’ said Mr. P. Nandagopal, CEO, India First Life Insurance Company. 

There have been requests from the industry to waive service tax on life insurance after it was announced in this year’s Budget proposals. 

Even the Insurance Regulatory and Development Authority (IRDA) has requested the union finance ministry for removal of service tax. Insurance should be more tax-payer friendly, it said.
 
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LIC most consumer friendly; says IRDA

India’s largest insurer the Life Insurance Corporation (LIC) of India has outperformed its competitors in private sector in most parameters used for measuring consumer friendliness. The state-run insurer had fewer lapses, higher claim settlement ration and no penalties from the insurance watchdog.

The claim settlement ratio of the company in fiscal year 2013-14 is 97.73%, an up by 0.31% from 97.42% in previous fiscal. During the FY’ 13, the percentage of claim rejections was only 1.12% compared to 1.30% earlier. 

Whereas, the private sector players witnessed a dip in claim settlement ratio to 88.65% in FY’ 13 from 89.34% in the previous fiscal. When compared to Life Insurance Corporation of India, the private sector insurers have repudiated more number of claims. The percentage of repudiations by private insurers was 7.85%, almost unchanged from previous fiscal 7.82%, the regulator said in the report. 

Also, in terms of persistency, the state-run insurer scores better with a lapse ratio of only 5.6% as against private life insurance companies from 17% to 42%. The only exception is HDFC Life Insurance, which has a lapse ratio of 5.6%. 

In terms of number of policies sold per agent, in FY’ 13, LIC agents sold an average of 29 policies, but agents of private insurers managed to sell only an average of 3 policies

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Now IRDA Looking At Grievance Redress System For Agents Posted on January 3, 2014 by P Kumar

In a move that can benefit lakhs of insurance agents, the Insurance Regulatory and Development Authority (IRDA) is considering setting up of a grievance redress system for agents.
Currently, there is no recourse available for insurance agents in case of any issue with the insurers. Therefore, a separate system to handle complaints from agents would make sense given the large number of agents both in the life and non-life sectors working for 48 life and non-life insurers operating in the country.
There has been significant improvement in resolving customer related grievance in the last couple of years after introduction of a call centre and real-time complaint monitoring system by the regulator.
As agents play an important role in business, they should also be provided a hassle-free functional environment for insurance growth, said IRDA.
The issues for agents are many and varied. There are operational issues such as procedures to be followed in policy revivals. This makes difficult for an agent who is answerable to the policyholder.
Similarly, attention is not being given to renewal business. They are chased till a new proposal is closed and after that little attention is paid. Agents say if there is a place where they could voice all these problems effectively it augurs well for the entire insurance sector.
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