A lot needs to be done to build the credibility of the insurance business. For a start, IRDA should set up a fund for protection of policyholders. Insurance companies can play their part by responsibly settling claims promptly
At the end of every advertisement released by every insurance company, you read the following words: ‘Insurance is a subject matter of solicitation.’ It essentially means that insurance has to be requested or asked for, not sold. But in real life, our experience is different. Only in the case of motor insurance do we ask for an insurance cover, as without insurance cover the transport authority refuses to register the vehicle in the first instance, and for subsequent years it is legally required to have at least a third-party liability policy, without which, it is illegal to drive the vehicle on the road. All law-abiding citizens, therefore, normally ask for an insurance cover and it is a thriving business for insurance companies, due to the increasing number of vehicles being sold in our country.
In the case of all other forms of insurance, it is generally hard-selling by the insurance agent that generates an insurance policy. Nevertheless, whatever be the attraction of an insurance policy, it is up to us to decide whether we need insurance or not and nobody can influence our decision. Once we decide to go for any kind of insurance, basically there are two important criteria that influence our decision, and here comes the role of the Insurance Regulatory and Development Authority (IRDA).
The first and the most important criterion is to know how credible is the insurance company, how safe it is to rely upon their word, and whether we can be certain about getting our money back when the event covered by the insurance happens.
Till a few years ago, we hardly asked these questions, because we had only public sector companies, namely LIC of India for life insurance and four public sector general insurance companies for all other types of general insurance. As they are owned and managed by the Government of India, we took for granted that it is safe to rely on them and we parted with our money without raising an eyebrow.
But with the opening of both life and general insurance, we are now flooded with more than three dozen companies in the private sector, owned and operated by known and unknown industrialists of our country and their tribe is growing every year. It has helped in generating competition, providing choice to the consumer and product innovation, which are no doubt in the best interest of the insuring public. But this has created the problem of selecting a safe and secure company, which will deliver the goods when the time comes, and will not go down under.
A few days back, I happened to read in a reputed business paper, in their Q&A series, the following question and answer under the heading Insurance.
Question: Does it make sense to buy insurance from multiple service providers? I want a term insurance for Rs50 lakh. I am considering ..... (a private sector insurance company) for Rs25 lakh and ..... (a public sector insurance company) for Rs25 lakh. The reason for considering ..... plan (of the private sector company) is because it is cheaper, while ..... (the plan of the public sector company) is trustworthy and will remain solvent.
Answer: The IRDA has laid down strict guidelines on the solvency margin and the functioning of insurance companies in India. Hence you can be rest assured that all insurance companies will pay the claim in case of an unforeseen event, provided the insurance policy is not acquired by suppressing material facts or giving incorrect information. You can buy multiple policies from different life insurance companies, but you must disclose the same in the proposal form.
The moot question is how far the private sector insurance companies can be considered as solvent and whether the IRDA guidelines are enough to protect the interest of the policyholder for all times—good and bad times to come. The agents who approach you for insurance never know the financial strength of the insurance company, whose product they are selling, except that they brag about the foreign partner who, they say, is a strong company in the country of its origin.
Can we really believe that compliance of IRDA regulations is a guarantee for honouring all commitments made by an insurance company? Past experience, however, does not inspire any confidence in this respect and there is a need to find a way out of this predicament.
During the recent financial turmoil in the West, one of the biggest insurance companies in the world was on the brink of collapse and if the US government had not bailed out the company, there would have been total chaos in the world of insurance, causing irreparable damage to the industry.
Nearer home, we have seen the collapse of CRB Capital Markets, which operated under stringent regulations, but failed under the very nose of SEBI, whose regulations are supposed to provide protection to investors. I realised the agony of those unfortunate investors who had invested in this group’s ventures only when I read an advertisement of a notice regarding payment to fixed depositors/bond holders of CRB Capital Markets Ltd (in liquidation), published in The Economic Times of 3 May 2011, by the Court Appointed Disbursement Committee. It has been almost 15 years that CRB has collapsed.
So, the fact remains that regulation or no regulation, there is no guarantee that all insurance companies will fair well for all times to come. With the value system in the corporate world being what it is, with the level of corporate governance being periodically questioned, with the bureaucracy stooping so low as to allow their kith and kin to fly planes without proper licence, there could be a slip between the cup and the lip and IRDA could be helpless at times to prevent mishaps in the insurance industry as well. However, this is not a reflection on the soundness of any of the existing companies, nor does it imply that some companies are better than others.
Then how can IRDA protect innocent policyholders who contribute their hard-earned money to buy an insurance policy in the hope that their future would be secure in the hands of the insurance company which issued the policy, with several conditions written in small print that few can read, much less understand.
The only solution to this problem is for IRDA to formulate a detailed plan of action and implement a Policyholders’ Protection Fund, to which every insurance company authorised by it should contribute every year from the premium received by them, and this Fund should be independently managed by the trustees appointed by IRDA. The objective of this Fund should be to compensate policyholders in the event of failure of an insurance company, in the country, to honour its commitments. This Fund should be constituted on the lines of the Deposit Insurance Corporation, set up by the Reserve Bank of India to protect depositors in the event of a failure of banks in the country. IRDA will be blessed if it takes up this matter in right earnest and puts in place an organisation independent of the insurance companies that will bring lasting benefits to the large number of policyholders in this country.
The second criterion people use to decide to go with an insurance company is the record of prompt settlement of insurance claims. The insured will be always worried over the delay in the settlement of claims, as the purpose of insurance will be defeated, if the claims are not settled promptly and unduly delayed, putting the policyholder into considerable financial strain and inconvenience.
While the insurance company benefits from delaying the payment for whatever reasons, the insured suffers both, the financial loss and the mental agony, which cannot be quantified. No insurance company worth its name will admit delaying settlement of claims; rather every insurance company will proclaim that they will ensure that all claims will be settled promptly, subject to claims being in order. Though there are certain regulations directing payment of interest for delayed settlement, beyond the stipulated period, they are skewed in favour of the insurer, giving them lot of flexibility to delay payment.
Recently, one of the readers of Moneylife wrote to the editor, describing how when he submitted his policy—with all necessary documents—to a public sector insurer for payment, he was informed that they required 10 days processing time to settle the claim, which by no means can be considered reasonable. And he could do precious little to get back his money earlier.
While considering how to put an end to this perennial problem faced by policyholders, I was reminded of an incident told to me by a friend, residing in London. When a breadwinner of an NRI family died in London, the family members, that is the wife and two daughters, were in great sorrow. However, a well-wisher of the family informed the insurance company about the death of the person to whom it had issued a life policy. Hearing the news about the demise of the policyholder, the insurance company dispatched one of its representatives to the residence of the deceased, got all the claim forms filled and signed by the claimants within three days of death. Perhaps the most surprising part of the story is that the insurance company delivered the cheque for the claim amount within seven days of the death of the insured person. The payment included the policy amount as well as the interest on the policy amount for seven days. Whether payment of interest on the policy amount from the date of death was a voluntary gesture on the part of the insurance company or a mandatory requirement under the local regulations is not known, as the incident happened over 15 years ago. But the fact remains that the insurance company earned goodwill and customers through these acts, which are commendable and praiseworthy.
Every insurance policy contains an assurance to pay the amount insured on the happening of a certain event, whether it is accident, fire, death or whatever. This is inscribed in all policies issued by the insurance company. Technically, therefore, the amount becomes due on the happening of an event, and from that day, the amount due under the policy belongs to the assured and or his heirs in the case of a life policy, though actual payment of money may take some time, after completion of legal formalities. Based on this principle, every insurance company should pay interest on the policy amount from the date of happening of the event, even without asking for it. Legally, ethically and practically, the insured is entitled to interest on the amount due for the period till the payment is done, for the simple reason that on the date of the event happens, a liability arises on the part of the insurance company to pay the insured amount to the assured.
The two steps suggested above may appear to cast a considerable burden on the insurance companies in the short term, but taking a long-term view of the industry and the need to develop trust and confidence in the concept of insurance in our country, it will go a long way towards developing this industry on healthy lines and serve the cause of policyholders and the insurance companies equally and admirably. Because only then will one be able to see the general public asking for insurance without any hard-selling, in keeping with the maxim ‘insurance is a subject matter of solicitation’.
(The author is a banking and financial consultant. He writes for Moneylife under the pen name ‘Gurpur’.)
A two-member Supreme Court bench, while terming the high court’s judgement “as something strange,” said the partition of the land was ordered despite none of the parties to the dispute seeking it
New Delhi: The Supreme Court today stayed the Allahabad High Court’s verdict dividing in three parts the disputed Ram Janmabhoomi-Babri Masjid site in Ayodhya, terming as “something strange” the judgement although the parties had not asked for trifurcation of the land, reports PTI.
The court, while staying the 30 September 2010 judgement of the Lucknow bench of the high court, ordered status quo at the site.
A bench of justices Aftab Alam and RM Lodha, while terming the high court’s judgement “as something strange,” said the partition of the land was ordered despite none of the parties to the dispute seeking it.
While directing that there shall be no religious activity on the 67 acre land, acquired by the central government adjacent to the disputed structure, the apex court bench said the status quo shall be maintained with regard to the rest of the land.
In the wake of the court’s order, prayers at Ram Lala’s make-shift temple at the disputed site in Ayodhya would be going on as usual.
The Lucknow bench of the high court had in September last year passed the verdict directing partition of the 2.77 acre on which the disputed structure once stood into three parts among Muslims, Hindus and Nirmohi Akhara.
“A new dimension was given by the high court as the decree of partition was not sought by the parties. It was not prayed by anyone. It has to be stayed. It’s a strange order,” the bench said.
Expressing surprise over the high court’s verdict, the bench observed, “How can a decree of partition be passed when none of the parties had prayed for it.
“Court has done something on its own. It’s strange.
Such kind of decrees cannot be allowed to be in operation,” the bench said while staying the high court’s verdict.
“It is a difficult situation now, the position is that it (the high court verdict) has created litany of litigations,” the bench observed.
Although the appeals filed by various Hindu and Muslim religious organisations pertained to only 2.77 acre of disputed land, the bench, however, also ordered status quo on the 67 acre of land adjacent to the disputed site.
The bench was hearing a batch of appeals filed by Nirmohi Akhara, Akhil Bharat Hindu Mahasabha, Jamait Ulama-I-Hind and Sunni Central Wakf Board, besides the one filed on behalf of Bhagwan Ram Virajman.
The Wakf Board and Jamait Ulama-I-Hind have submitted that the high court’s verdict should be quashed as it was based on faith and not on evidence. They have contended that the court has committed an error by holding that the demolished Babri mosque stood at Lord Ram’s birth place.
They have contended that claims of Muslims, Hindus and the Nirmohi Akhara over the disputed site were mutually exclusive and could not be shared.
“It was nobody’s case in the high court that the Muslims, Hindus and Nirmohi Akhara were in joint possession of the disputed premises. The claims of the three sets of plaintiffs were mutually exclusive in the sense each set of the plaintiffs claimed the entire property as its own and no one sought a decree for partition of the property,” the appeals have said.
The Hindu Mahasabha, on the other hand, has sought only partial annulment of the majority verdict of the high court, which ruled handing over one third of the disputed site to Muslims.
It has sought the apex court’s endorsement of the 30th September minority verdict by justice Dharam Veer Sharma who favoured handing over of the entire land to the Hindus.
“The judgement dated 30 September 2010 by justice SU Khan and justice Sudhir Agarwal should be set aside to the extent that one third of the property in dispute has been declared in favour of Muslims and to allot share to them in the decree,” the Hindu Mahasabha has said in its petition.
It has appealed to the apex court “to maintain the judgement passed by justice Dharam Veer Sharma” as the effective verdict.
A three-judge bench of the high court’s Lucknow bench had passed three separate judgements on 30th September with the majority verdict holding that the area covered by the central dome of the three-domed structure, where the idol of Lord Rama is situated, belongs to Hindus.
While justices Khan and Agarwal were of the view that the entire disputed land should be divided into three parts—one part each to Sunni Waqf Board, Nirmohi Akhara and the parties representing ‘Ram Lala Virajman’, justice Sharma had held that the entire disputed area belongs to Hindus.
Earlier, Delhi MLA Shoaib Iqbal had also filed the appeal in the Supreme Court which refused to entertain it, saying the petition ‘is misconceived, hence dismissed”.
The surge in trading volumes and a heavy fall in the shares on a day when the company announced a loss after market hours was being viewed as an unusual event to the market surveillance authorities and accordingly, they have begun a preliminary probe
New Delhi: SKS Microfinance today said it will welcome any enquiry from the Securities and Exchange Board of India (SEBI) to probe the issues leading to a fall in its share price, while asserting that it has not heard anything so far from the regulator or the bourses, reports PTI.
The statement came in the midst of a sustained fall in shares of the country’s only listed microfinance company for the second straight day.
A 20% fall in SKS Microfinance’s share price on Friday, hours ahead of the company's fourth quarter results and after reports of its target share price being cut by more than half in an equity research report, is said to have come under the market regulatory authorities' surveillance lens.
The shares fell further today and were trading 16.99% down at Rs275 at 1330 hours, after hitting its 52-week low of Rs 272.50 apiece on the Bombay Stock Exchange.
Commenting on reports of a possible SEBI probe into the sharp fall in SKS Microfinance stock, a company spokesperson said in a statement: “The company wishes to reiterate that it has not heard anything from either SEBI or the exchanges in this matter.”
The company, however, added that “an analyst report was released and flashed by the media prior to the board meeting to announce earnings on 6th May (where the company was unable to respond due to the earning announcement).”
Asserting that it has not heard anything so far from SEBI or the stock exchanges about any probe, the company said: “SKS Microfinance would welcome any enquiry by the regulator to investigate the circumstances leading to the fall in the share price.”
The 20% fall on Friday was coupled with about a 10-fold surge in the stock’s trading volumes, prompting the bourses and market regulator SEBI to consider a probe.
Sources had said the surge in trading volumes and a heavy fall in the shares on a day when the company announced a loss after market hours was being viewed as an unusual event to the market surveillance authorities and accordingly, they have begun a preliminary probe.
The matter is being probed for a possible breach of insider trading rules or hammering by a bear cartel, sources added.
The fall coincided with a strong upward trend in the market, when the BSE Sensex rose by over 300 points, and happened a couple of days after the RBI said that bank loans to microfinance lenders would be categorised as priority sector lending.
The stock witnessed heavy trading volumes today as well, with a total traded quantity of more than three times what was seen on Friday by early afternoon at the two exchanges.