IRDA wants insurers to take active interest in firms they invest in

The insurance regulator wants insurers to become more active on issues related to corporate governance in listed companies.

The move assumes significance as insurance companies hold significant stakes in listed Indian entities. Life insurance companies manage assets of over Rs. 19-lakh crore, with Life Insurance Corporation of India (LIC) being the largest domestic institutional investor managing assets of over Rs. 13-lakh crore.

TS Vijayan, Chairman of the Insurance Regulatory and Development Authority (IRDA), at a recent seminar in Mumbai said: “It is time insurance companies looked at the corporate governance practices of companies in which they are investing.

“I believe these practices will come so that investment managers of insurance companies can get the best returns while ensuring safety of the investments for policyholders.”

According to reports, the capital market regulator Securities and Exchange Board of India (SEBI) has been in discussion with IRDA urging it to ask insurers to be more vigilant with regard to corporate governance of companies.

Currently, while SEBI has issued norms for mutual funds governing their voting record, there are no norms for insurers on improving corporate governance in listed companies.

In 2013, the Finance Ministry had asked LIC, which is seen as a passive investor in many companies despite holding significant stakes, to place nominees on boards of all companies in which it has significant investments to help protect shareholder interest.

The Chief Investment Officer of a large private life insurance company said that over the last year, insurance companies have been more active investors and have started exercising their voting rights in a bid to protect the interests of policyholders.

In July, in a rare case of investor activism, shareholders rejected the compensation payment in excess of prescribed limits to three directors of Tata Motors.

Risk-based solvency

Vijayan also said that a committee formed by IRDA has submitted a report on risk-based solvency norms.

“The solvency regime at present does not give any appropriate credit for appropriate risk strategy in arriving at solvency. In contrast, the risk-based solvency margin regime will explicitly incentivise insurers to adopt a comprehensive risk-management framework for capital requirement,” said Vijayan.
Source: http://www.thehindubusinessline.com/

IRDA may allow 5-year insurance policies to ease renewal hassles

You may soon have a way out of the annual car insurance renewal hassle, replete with the pesky calls and haggling over the amount.

The insurance regulator is considering a proposal to allow insurers to offer policies with a one-time, five-year cover and is expected to issue fresh guidelines on such long-term products. These policies could come cheaper, too. "Some insurers have submitted proposals in this regard and we are evaluating them. We can start with such policies in the two-wheeler segment first," said an official with the Insurance Regulatory and Development Authority (IRDA), adding that based on the experience, similar products for commercial vehicles can be launched.

The regulator also aims to use this long-term policy cover to promote insurance, especially in rural areas. "Several companies have pointed out that insurance renewals are not happening, so if we have a long-term product right at the inception, it may also promote the insurance culture," the IRDA official said. As per the latest data, insurance penetration in the country declined to 3.96% in 2012-13 from 5.2% in 2009-10. General insurance penetration in the country stands at 0.78%. The premium underwritten for the motor segment in 2012-13 was Rs 29,777 crore.

The move comes when the government is looking to open the insurance sector and allow 49% foreign direct investment. There are 17 private sector and four PSU general insurers in the country. According to a report by KPMG, the under-penetration is driven by lack of overall financial awareness, lack of understanding of general insurance products, low perceived benefits and propensity to purchase insurance based on reactive drivers such as insistence by financers and statutory requirements.

General insurers also feel that such a product will boost the renewal business, which is quite low in rural areas. "The regulator should look at allowing a longterm cover for commercial vehicles such as tractors and mini utility vehicles. These can be further linked to the registration and fitness certificate," said a CEO of a private general insurer, requesting anonymity.

A senior official with a PSU general insurer said some issues need to be sorted out before such a product is rolled out. "For example, you need a mechanism to factor in the 'no-claim bonus' and subsequently the pricing of such a policy," he said. There are also concerns about the possible liability on such insurance products exceeding the premium received.

At present, there are 10 lakh outstanding motor third-party claims involving an amount of about Rs 22,000 crore. Customers, though, may not complain, given the hassles of renewal every year, when they are bombarded months before the policy is to expire.

Source : http://articles.economictimes.indiatimes.com/

Irda issues draft guidelines for insurance marketing firms

Paving the way for a new distribution channel, the Insurance Regulatory and Development Authority (Irda) issued draft guidelines for insurance marketing firms on Wednesday.

An insurance marketing firm is an entity that will be allowed to market insurance policies along with other financial products such as mutual funds that are approved by financial sector regulators, Irda said.

To sell these products there will be two kinds of licensed individuals: an insurance salesperson, who will be responsible for soliciting and marketing insurance products alone, and a financial service executive, who will handle other financial services, such as offering financial advice, sale of mutual funds and the national pension system, or NPS.

These licensed individuals will have to obtain the necessary qualifications and licences from the respective regulators. To become an insurance salesperson the individual needs to have passed Class 10 and needs to clear the insurance brokers examination. Insurance agents are not eligible to become insurance salespersons, and the latter can’t cross over to become agents unless their licences as salespersons are active

.

Financial service executives will need certification from regulatory bodies. For instance, to sell mutual funds, they will need to be certified by the Association of Mutual Funds in India (AMFI). For distributing NPS, they will need to be certified by the Pension Fund Regulatory and Development Authority (PFRDA), and for sale of financial products regulated by the Securities and Exchange Board of India (Sebi), they will need to obtain registration as investment advisers under the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013.

In case of insurance, salespersons will be involved in soliciting insurance policies, but their remuneration will not be commission-based. According to the draft rules, they would be paid a fixed amount and a performance incentive that may be over and above this. The role of the salespersons will lean more towards being a broker in the sense that they will need to keep the interest of their customers paramount.

“Insurance marketing firms will have a fiduciary responsibility towards customers. These are neither insurance brokers nor insurance agents, but a new channel of distribution,” said P. Nandagopal, chief executive officer and managing director of IndiaFirst Life Insurance Co. Ltd. “Insurance brokers in retail currently operate like multiple corporate agents, and having one more distribution channel that is allowed to sell multiple insurance policies may improve this practice. A new distribution channel is a welcome move,” he said.

To be an insurance marketing firm, a company will need to have at least Rs10 lakh of net worth at all times and will have to buy a professional indemnity insurance policy that is equal to four times the business turnover of the marketing firm. The licence will be given for three years.

According to the draft, insurance marketing firms will be allowed to charge commissions as per the Insurance Act. In addition to this, these will also be able to charge a fee on account of marketing expenses, expenses towards infrastructure and performance-based incentives.

Irda will take feedback till 15 April.

Read the entire draft here:

http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo2249

Source : www.livemint.com