Bharti AXA launched its SmartHealth critical illness product a few months ago which covers 20 critical illnesses at a reasonable premium. The company has also filed an application with IRDA for allowing a mediclaim product with lifelong renewal. Subrahmanyam B, vice president & head, health-vertical, commercial lines & risk engineering, Bharti AXA General Insurance, talks about his company’s current and future prospects
Moneylife: The Insurance Regulatory and Development Authority (IRDA) circular asks insurers not to reject claims mechanically. What do you feel?
Subrahmanyam B: Cashless is never a problem for customers. We come to know from the third-party administrator (TPA). Customers will not have to worry about it. It takes a maximum of two to three hours for approval in 95% of the cases, unless it is a complicated case. For reimbursement claims we allow claims filing within 30 days of discharge from hospital. We allow one week for intimation of hospitalisation. If there are genuine reasons for the delay, we are prepared to condone (the same). We take a sympathetic view of the situation based on its merit.
ML: You have been promoting SmartHealth critical illness product (even with TV advertisements). Why the blitz?
SB: Major illnesses like heart attack, cancer are happening at young ages of 35-40 years. It can be due to changes in lifestyle and increasing stress levels. Critical illness product can be offered on top of the standard mediclaim to deliver comprehensive health insurance. It helps to reimburse customers for expenses not covered by mediclaim.
SmartHealth critical illness covering 20 illnesses offers two options to be decided at the start of policy. One is indemnity of expenses for the illness and other is fixed lump-sum benefit.
ML: Bharti AXA Life recently came out with innovative triple benefit critical illness product. Will it compete with your product?
SB: Life insurance has 5%-10% (relatively small percentage) of its business in health products. It can be competition to some extent. I have not gone through the details; it may be complimentary to our product. Our agents are experienced with health products. It should not erode our revenues.
ML: Is there an attempt to explore synergies with Bharti AXA Life?
SB: Bharti AXA Life has been in business two to three years before us and has more branches. We have 145 points of presence in 115 locations across the country. We do share some offices, but not the office staff. We want to collaborate more in the future. Agents need a composite license to sell both life and general insurance products. Bharti AXA Life will have a good database of life insured to whom we can sell health, motor or home insurance; we have lot of customer information on motor and health insured which can help them to sell life insurance products.
ML: Why do less number of agents have composite licences?
SB: Getting a composite licence is not very tough. Agents may not dabble in both as it will take lot of their time. Some may want to focus on one or the other.
ML: You have filed for lifelong mediclaim. Do you offer any other product like top-up mediclaim?
SB: We have a product called ‘SmartHealth High Deductibles Insurance Policy’ which is a variation of a top-up policy. The benefit kicks in after a deductible threshold. Customers may have retail or group policy mediclaim. They can buy this policy with basic sum assured as deductible. The original policy responds first; this policy pays for expenses over the deductible amount. The product has low premium.
ML: Can you give us details of the new products in the pipeline?
SB: We will have an international health product which will have coverage abroad. Many Indians are spending few months of the year abroad and want cover in India as well as overseas.
Another innovative product will be a retirement health product. It is difficult to get proper mediclaim cover above age 60 at a reasonable price. Many have group cover at work and think about individual mediclaim only when they are close to retirement. It is at a time when earning capacity is down and mediclaim (for senior citizen) has sub-limits, restrictions, and low sum insured at much higher annual premium.
This product is targeted at individuals to pay the premium during working life, but the major benefit will kick in after retirement. There is a savings fund; the product is a variant of wealth management. There will be some cover during the working life which will be an add-on to the mediclaim (group or individual). The policy will continue after retirement at a low premium. The savings fund will be used to pay for any major expenses and provide a decent sum insured, post-retirement. It is easier for an individual to pay the premium during his working life than paying post-retirement.
Nifty is ranged between 5,070 and 5,160
The market ran out of steam today after notching up gains of 5% last week. Reliance Industries was the top loser, following reports that the company plans to suspend drilling activity till it completes a review of its exploration and production activities in view of declining oil & gas output. Although the Nifty opened in the positive, made a higher high and higher low, the index ended marginally in the red. Today’s fall has been on nine days’ low volume of 48.01 crore shares (including today) on the National Stock Exchange (NSE).
Although the global indices are showing positive signs, it is not helping the domestic market sustain the upmove. We may see the Nifty move between 5,070 and 5,160. In case the index closes below 5,070, we may see a substantial correction. On the upside, the Nifty has to close decisively above 5,170 and then 5,220.
The domestic market opened higher, tracking its Asian peers which were in the positive in morning trade. The Nifty opened at 5,156; 21 points higher from its previous close and the Sensex rose 93 points to resume trade at 17,176. The indices touched their intraday highs in initial trade itself with the Nifty going up to 5,160 and the Sensex rising to 17,189.
However, the sharp fall in the Reliance Industries’ stock price despite positive quarterly results pulled down the oil & gas sector and resulted in the market venturing into the red at around 10.50am. The benchmarks continued to trade in the negative, with the market falling to its day’s low around noon. At the lows, the Nifty went down to 5,085 and the Sensex to 16,928.
Minor recovery attempts were shot down by selling pressure, keeping the market lower. The indices witnessed sideways movement in the post-noon session, ignoring the good set of quarterly numbers declared by mortgage lender HDFC. Finally, the market closed lower with the Nifty down 14 points at 5,118, and the Sensex settling at 17,025, a fall of 58 points.
The advance-decline ratio on the NSE was almost balanced at 813:869.
The broader indices had a mixed closing with the BSE Mid-cap index down 0.01% and the BSE Small-cap index settling with a gain of 0.22%.
The top sectoral gainers were BSE Auto (up 1.58%), BSE Consumer Durables (up 1.50%), BSE Bankex (up 0.60%), BSE Realty (up 0.52%) and BSE Fast Moving Consumer Goods (up 0.19%). The major losers were BSE Oil & Gas (down 2.29%), BSE Capital Goods (down 1.37%), BSE Power (down 1.18%), BSE PSU (down 0.69%) and BSE TECk (down 0.55%).
The Sensex leaders were Tata Motors (up 4.50%), Maruti Suzuki (up 2.39%), DLF (up 1.53%), Sterlite Industries (up 1.51%) and Bajaj Auto (up 1.27%). The key losers on the index were Reliance Industries (down 3.88%), NTPC (down 2.63%), Jaiprakash Associates (down 2.17%), BHEL (down 2.11%) and Larsen & Toubro (down 1.98%).
Tata Motors (up 4.42%), Cairn India (up 3.73%), Ambuja Cement (up 2.65%), Maruti Suzuki (up 2.38%) and DLF (up 2.12%) were the main gainers on the Nifty. The top five Nifty losers were RIL (down 3.90%), BPCL (down 3.03%), SAIL (down 2.96%), NTPC (down 2.89%) and BHEL (down 2.43%).
Markets in Asia settled higher on expectations of good earnings reports and hopes that the debt crisis in Europe will ease as the Group of Twenty (G-20) leaders last weekend endorsed part of the emerging plan to avoid a Greek default, boost banks and prevent the contagion from spreading.
The Shanghai Composite gained 0.37%; the Hang Seng surged 2.01%; the Jakarta Composite climbed 1.76%; the KLSE Composite advanced 1.59%; the Nikkei 225 rose 1.50%; the Straits Times gained 1.27%, the Seoul Composite jumped 1.62% and the Taiwan Weighted settled 1.40% higher.
Back home, institutional investors—both foreign and domestic—were net sellers in the equities segment on Friday. Foreign institutional investors offloaded stocks worth Rs94.04 crore and domestic institutional investors pulled out Rs237.85 crore from stocks.
The country’s largest two-wheeler maker Hero MotoCorp today said it will soon start selling the first ‘Hero’ branded bike to be launched after the break-up of Hero Honda last year—Impulse—in the Indian market at Rs66,800 (ex-Delhi showroom). The company is positioning the new 150-cc bike as a dual-purpose bike that can be used for both normal commuting as well as off-road adventure. The stock lost 0.04% to close at Rs1,993 on the NSE.
JSW Energy has started commercial operations of the fourth 300MW unit at its power plant at Jaigad in Maharashtra’s Ratnagiri district from Sunday. The entire 1200MW power plant is now fully operational and supplying power to the state grid, the JSW group company said Monday. The stock jumped 2.20% to close at Rs51.20 on the NSE.
J Kumar Infraprojects has bagged various work orders aggregating Rs183.39 crore. The first work order worth Rs145.69 crore is from CIDCO. The company has bagged the second work order from Pune Municipal Corporation worth Rs24.70 crore. It has also bagged piling work orders from various parties worth Rs13 crore. The stock fell 0.60% to end trade at Rs148.40 on the NSE.
Similar ‘enhanced’ funds have had mixed success so far. Many mutual fund houses offer slightly tweaked variants of index funds, by including an element of active management, promising better performance than the underlying benchmark. Often, they fail in this objective
Baroda Pioneer Sensex Plus Fund will allocate 80% to 100% of assets in equity-related securities covered by the Sensex, including derivatives, and invest up to 20% of the assets in securities other than those covered by the Sensex including derivatives. It also wants the flexibility of investing up to 20% in debt, including money-market instruments with ‘low’ to ‘medium’ risk profile. Investment in derivatives may be made up to 50% of the net assets of the scheme. The scheme will not invest in securitised debt. Baroda Pioneer Sensex Plus Fund is essentially looking for a lot of flexibility around the core idea of index investing. Will such flexibility lead to higher returns?
Index funds are merely supposed to mimic the returns provided by the underlying benchmark index such as the Sensex or the Nifty. Essentially, these funds are expected to follow the passive investing route, buying and holding stocks in the index in the same proportion as the index. However, many mutual fund (MF) houses offer slightly tweaked variants of index funds, by including an element of active management. They promise to deliver better performance than the underlying benchmark and other index funds, by tweaking the portfolio underlying the benchmark index, or by altering the weightage assigned to each constituent of the index or moving between cash, bonds and derivatives. This is called ‘enhanced’ indexing. Such funds invariably have the term ‘plus’ or ‘advantage’ attached to their names, indicating that the fund manager intends to offer something extra—that is, returns superior to the underlying index. Sadly, the ‘extra’ bit ends with the name itself. Most often, they fail in this objective.
Take for instance, LIC Nomura MF Index Fund-Sensex Advantage Plan Fund which has made an ass of investors. Launched in December 2002, this fund has yielded returns of 14% since inception, whereas its underlying index, the BSE Sensex, earned 20% over the same period.
Since inception, LIC Nomura MF Index Fund-Sensex Plan and Nifty Plan Funds have provided returns of 15% and 13% respectively, while their underlying indices, BSE Sensex and S&P Nifty, have managed to deliver 20% and 19% returns over the same period. The HDFC Index Fund-Sensex Plus Plan is one of the rare few that has so far managed to live up to its mandate. While its benchmark, the BSE Sensex, has provided 19% returns since its inception, the fund has managed to deliver 22%.
Enhanced indexing defeats the very purpose of an index fund by substantial underperformance relative to the benchmark. It thus translates into a huge tracking error, which is appalling for a fund that is only tasked with following the broader index. Will Baroda Pioneer do any better? It faces a tough task because it is relying on only 20% of the fund being able to make a substantial difference to the total fund performance.
For instance, in any given period of time, if the market has given a return of 15%, the fund will fetch 12% return (minus costs) for the 80% part of its portfolio. Now if it aims to get an overall return of 17%, where will that extra 5% come from? From the remaining 20% part of the portfolio (minus costs). This is a tall order because 5% from the 20% of the portfolio means a 25% return.