If No-Claim-Bonus (NCB) is wrongly claimed, your claim will be rejected and your policy cancelled. The agent is contractually not liable to you. Don’t fall into the agent’s trap of a false NCB lure. The company will wake up at the time of claim and uncover your wrongdoings
Amit Kumar (name changed) had played with the tune of an HDFC ERGO agent to secure 20% No-Claim-Bonus (NCB) even when he had one claim in each of previous two years when his car was insured by Royal Sundaram. In the fourth year, he went back to Royal Sundaram and was given 25% NCB. Only when Mr Kumar filed a claim, Royal Sundaram uncovered that the policyholder should not have got 20% NCB from HDFC ERGO and hence the policy currently underwritten by Royal Sundaram is not in good faith due to misrepresentation by Mr Kumar.
Brokers have more responsibility than agents in case of mis-selling. According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking Services, “We take the renewal notice from the client, but we also insist on a NCB confirmation letter duly signed by the client, especially from unknown clients. This is because the renewal notice is generated one to two months before the policy expiry. A claim can occur after renewal notice issuance and prior to the expiry of the policy.”
He added, “An agent represents the insurance company, so contractually the agent is not liable to the insured. In my opinion, this is purely Mr Kumar’s fault. Insurance contracts are contracts of utmost good faith. Let alone the good faith, Mr Kumar has purposely declared wrong NCB entitlement. So his case is weak.”
Sure, Mr Kumar is at fault by blindly agreeing to HDFC ERGO’s agent, but how did Royal Sundaram not know that Mr Kumar was their customer for two previous years with the same car and had made a claim in each year? In era of computerisation, it is almost certain that the insurance company knows or should know more at time of underwriting. Once the claim is filed, the insurance company goes in overdrive mode to scrutinize your NCB and it is indeed a perfect trap to proclaim that policyholder erred with NCB while buying the policy and hence no claim is payable.
When contacted by Moneylife, Royal Sundaram claims that HDFC ERGO had unearthed the fake 20% NCB and hence reduced policy term from 12 to 10 months. Interestingly, Royal Sundaram is unwilling to give that in writing to the policyholder. The only reason given for claims rejection is that the customer misrepresented the facts while buying policy with Royal Sundaram.
HDFC ERGO has maintained stoic silence when asked by Moneylife. If Royal Sundaram is true about its assertion, did HDFC ERGO take any action against its own agent who lured Mr Kumar to go for 20% NCB even though the agent was told by the customer that he has one claim in each of the previous years? The agent claims that he does not remember as he had sold the policy more than one year ago. How true, considering that it may be routine for this agent to bait a prospect with NCB manipulation!
According to Mr Kumar, “I tried to check with HDFC ERGO executives if they had intimated to me about the shortfall in the policy. They are saying that they are unable to retrieve the details and that they would have informed me by phone or letter. I am sure that I have not received any letter or phone or mail from them about the shortfall. I have not changed my address.”
Avahoot Mavlankar, says, “In normal course HDFC ERGO (new insurer) would confirm the NCB entitlement from the old insurer (Royal Sundaram), till this time the policy is already issued with NCB declared by the client. Now, HDFC ERGO would have got the reply from Royal Sundaram that client has made a claim and hence there is no NCB entitlement. So, there is NCB recovery amount due from the client. In normal course, HDFC ERGO would have sent the notice for the same on the policy address (which may be different from communication address). The insurer might not have received any reply from the client within the stipulated period, so the only option available to it is short binding of the policy i.e. adjust the recovery amount by curtailing the period of insurance. HDFC ERGO must have also issued endorsement to that effect.”
After the claims rejection by Royal Sundaram due to misrepresentation, the insurance policy is technically no longer valid. Mr Kumar did not get any response from the company about the status of the policy. He was kept in a limbo for few days until Royal Sundaram agreed with Moneylife that the issue needs to be closed to ensure that Mr Kumar is covered going forward.
Royal Sundaram agreed that they will make a decision on underwriting fresh policy or recover the NCB amount to continue with existing policy. If not, then Mr Kumar will not have any cover during the interim, which can be huge liability for him considering that he has been having accident almost every year! Mr Kumar, if your car driving is so bad, how dare you to go for NCB considering that you are financially well-to-do working in the IT field?
On 18 January 2013, Mr Kumar received email response from Royal Sundaram that the OD (Own Damage) portion of the policy stands cancelled with effect from 15 January 2013. Looks like the insurance company decided to cut-off business from Mr Kumar.
Though mid-cap schemes have the potential to generate high returns if invested at the right time, the fund management of Pramerica MF has yet to prove itself. Besides, the market is not cheap right now
Pramerica Mutual Fund plans to launch a new scheme, Pramerica Midcap Opportunities Fund, according to a draft offer document filed with the Securities and Exchange Board of India (SEBI). This open-ended equity scheme will predominantly invest in mid-cap stocks and a smaller portion will be invested in small-cap and large-cap stocks. According to the asset allocation disclosed, more than 65% of the scheme corpus would be invested in stocks that are within the market-cap range of the benchmark index—CNX Mid-cap Index. The remaining would be invested in liquid and debt instrument and stocks that have a market-cap above and below the market-cap range of the benchmark.
Pramerica entered into mutual fund business in 2010 and just has one equity scheme—Pramerica Equity Fund—which was launched in December 2010. The scheme has delivered an average performance and has been able to generate an asset size of just Rs32.62 crore. With no long-term track record the fund management has yet to prove itself.
Small- and mid-cap schemes were the top performers over the last one year. These schemes outperformed the large-cap and multi-cap schemes. However, these schemes tend to do well over a market rally. If the market takes a plunge, investors’ wealth can just get decimated. Mid-cap schemes present an opportunity to invest in companies that are yet to be identified by the market and such companies offer higher growth potential. Therefore, the fund manager needs to do his job well in identifying mid-sized companies that have the potential to join the league of large-cap companies. But, as mentioned, the returns from these schemes tend to be highly volatile. If you are hell-bent on buying a small- or mid-cap scheme, go for the ones which have a reasonable past record and have seen some major market swings at least.
The scheme will be managed by Brahmaprakash Singh, who joined the fund in September 2012 and Mahendra Jajoo who has been with the company since November 2010. Together they have nearly 40 years of experience in the capital markets.
Additional scheme details
Exit Load: If the units are redeemed/switched out on or before 365 days from the date of allotment - 2%;
If the units are redeemed/switched out after 365 days, but on or before 730 days from the date of allotment - 1%;
If the units are redeemed/switched out after 730 days of allotment – Nil
Minimum investment amount
Initial Purchase – Minimum of Rs5,000 and in multiples of Re1 thereafter.
Additional Purchase - Minimum of Rs500 and in multiples of Re1 thereafter
Espirito Santo Securities has reduced FY13 estimates but retains bullish FY14 views. It also finds asset quality has deteriorated while CASA ratio has improved along with growth
Espirito Santo Securities (ESS) feels that Federal Bank, the Kerala-based regional bank with a strong management team, will face difficulties till March 2013 but is bullish over the longer term—till March 2014. It has It has said that the bank is worth Rs601 per share, or 1.4 times the projected book value. The report said, “While we reduce our FY13 estimates by 10%, our FY14 estimates have broadly remained stable”. Federal Bank reported 4% increased net profit to Rs210 crore for the December quarter, which was 13% below ESS’s estimates.
One of the main reasons for the downgrade was the deterioration of the bank’s asset quality, in terms of ‘slippages’ and quality of the loan book. ESS found out that as much as Rs2.15 billion (Rs215 crore), and that too was from a single creditor—NAFED. The bank restructured its loan book to the tune of Rs217 crore in the third quarter alone. Earlier, ESS had expected a far bigger number—Rs350 crore. Further, incremental ‘slippages’ were recorded at Rs136 crore, which is marginally lower than Rs147 crore in the September quarter. Net non-performing assets (NNPAs) increased by as much as 48% on a quarter-to-quarter basis. This suggests that the bank will need to do something extraordinary to stem the rot even though some loans were recovered.
As of third quarter ended December 2012, the 31% of the loan book was in the retail segment while the SME segment also contributed to 31% of the loan book. The remainder was taken up by the corporate sector.
The high growth was driven by retail and small & medium enterprises (SMEs) segments, two of the key segments for any bank. Retail advances grew by 23.6% year-on-year (y-o-y), surprisingly most were gold loans! On the other hand, the SMEs segment saw a solid 29% y-o-y growth rate and up 22.7% in the corresponding period last year.
As far as liabilities are concerned, the bank’s CASA ratio improved to 29.5%, mostly driven by more customers opening and depositing more money in their savings account. The bank did this without increasing the savings rate, according to ESS, which is an impressive feat. Current Account-Savings Account (CASA), is a ratio that measures the relationship between current accounts and savings account. If there are more current accounts, the bank will benefit as costs for current account is virtually nothing, whereas Federal Bank has to pay interests on savings accounts. It is used to measure cost of funds.
Despite higher slippages and asset deterioration worries, ESS feels that Federal Bank will do fine. It said, “Federal Bank has started to see the results of its transformation efforts and investments in the franchise over the past two years is started to yield results”. However optimistic this sounds, investors must also keep an eye on the asset books given that 2013 will be a difficult year and dependant on many external factors.