The insurance regulator has proposed cancelling the licence of an agent if 50% of the policies sold by him/her are not renewed annually.
With many life insurers not able to retain customers due to mis-selling, Insurance Regulatory and Development Authority (IRDA) has proposed that licence of an agent be cancelled if 50% of the policies sold by him/her are not renewed annually, reports PTI.
"Where the average annual persistency ratio is less than 50%, the agency licence would not be renewed," IRDA said in a draft.
Mis-selling refers to sale of a financial instrument without fully disclosing the pros and cons of it to an investor.
In its proposal on persistency of life policies, IRDA says the minimum first-year premium income to be procured by an agent will be Rs1,50,000 per annum and the minimum number of policies per agent shall be 20 per annum. In case an agent fails to meet one of these two conditions, he will have to achieve proportionately more in the other norm to make up for the shortfall, it added. It also does not want spouses and close relatives of employees of insurers as agents.
In the last five years, persistency in the life insurance business has been on the decline and IRDA has attributed this mainly to mis-selling. Persistency is the percentage of business retained without lapsing or being surrendered. "There are several causes for the decline in persistency that are linked to agents. The primary one is mis-selling," IRDA says.
The IRDA data show that over 50% policies of many life insurers could not be renewed in FY10. Aviva Life could not retain 50% of its business from existing customers from the 13th month onwards in 2009-10, while HDFC Standard Life, ING Vysya Life and Kotak Mahindra was below the half way mark from 37th month onwards in renewal of policies that year.
IRDA says if policyholders buy policies on the basis of good and proper advice, they would not normally give them up unless there are unforeseen circumstances. "But where a policy has been sold without proper advice, for instance on the actual cost or instalments to be paid, they may have no option but to cease or reduce the premium," IRDA says.
The insurance watchdog suggests that insurers would have to ensure that intermediaries are trained well to ensure proper servicing of policyholders. It also wants a part of an agent's first-year commission be withheld to be paid later on good persistency.
It says the corporate agents route, excluding banking medium, has shown the poorest persistency rates in the first three policy years. "This indicates a scope to improve the quality of sales. However, again, to observe stable trends we would need data of a few more years," it adds.
Another cause of lapse linked to agents is high attrition.
"Where agents are groomed to become professionals and build a long-term career, attrition will be less and persistency would certainly be better. It is necessary to have an environment where agents take their career seriously," says the paper.
IRDA has asked various stakeholders and general public to submit their comments on these proposals by 31st July.
It says these proposals would help protect the interests of policyholders. “Due to selective withdrawals, lapses, average mortality of remaining policyholders will make premiums insufficient to cover the risk," it said.
Sidharth Rath, president, corporate banking (infrastructure business), Axis Bank, talks to Amritha Pillay on the challenges facing the infrastructure industry. This is the second part of a two-part series
Amritha Pillay (ML): The Planning Commission has an outlay of $500 billion worth of investments in the infrastructure space. What is your outlook on this planned investment?
Sidharth Rath (SR): The indications are that more or else, these investments are on track. We will see what comes up.
ML: ICICI Bank's private equity arm plans an infrastructure fund. Axis Bank, on the other hand, is trying to exit from its infrastructure PE fund. With such contradictory actions by two main private banks, what is your view on private equity investments in infrastructure?
SR: We plan to remain invested in it, and we are committed to the fund. We are not exiting from the fund; we are exiting only from the management side, with the thought process of how to make it more efficiently managed. In general, the opportunities are huge for private equity investments in the infrastructure space. In the next Five Year Plan, the government has planned another $1 trillion investment in infrastructure. Obviously, there is a huge demand for equity.
ML: Last month, the Insurance Regulatory and Development Authority (IRDA) has decided to allow insurance companies to invest in India Infrastructure Debt Fund bonds. To what extent will this facilitate more investments in infrastructure?
SR: Investments through insurance companies will definitely help bring in more liquidity and boost financing. Thus, infrastructure projects will have access to one more source (of funds), which would be a long-term one, as insurance companies will remain invested for a longer period of time.
ML: How financially viable do you think projects based on the PPP model are, especially those which are aimed more towards development and less promising on returns? Does the offered viability funding really make such projects attractive?
SR: The viability gap funding is given to make these projects financially viable. Only if it is viable, one appraises it and then the bank lends to the project. If it is not viable, then banks will demand a higher level of equity. This is how it is worked out. In certain projects, the developers bid for viability gap funding. When a developer is bidding, he bids keeping in mind the returns that he is expecting. In some projects, wherever there was a grant given, the projects have done decently well.
ML: Banks have already committed a large chunk to infrastructure. Another large chunk has been disbursed to telecom companies. The disbursements on the infrastructure front have not happened due to various project delays. Will there be liquidity issues once these disbursements start?
SR: (The) liquidity crunch should not be an issue. The disbursements will not happen at one instance, they will be phased out. Infrastructure projects have an implementation period of two to three years. Some of the larger power projects might take more time. The disbursements would not be bunched up like the telecom disbursements, which had to be completed within a particular time limit.
The paltry addition to the investor community since March 2008 has finally woken up SEBI. Its solution of ‘demat lite’ skirts the main issues
The chairman of the Securities and Exchange Board of India (SEBI), CB Bhave, has advised National Securities Depository Ltd and Central Depository Services Ltd to start offering 'no-frills' demat accounts to investors, according to a business daily. The idea is to widen the retail investor base in the country.
The no-frills accounts will be targeted at investors, who do not transact on a regular basis. The report states that the depositories may put restrictions on no-frills demat accounts in terms of value and volume. They may impose a limit on the number of deposit instruction slips offered and the maximum number of such transactions allowed. If any demat account holder transacts more than the prescribed limits, that account will be treated as a regular one, the report states.
The current system is wired to charge high fixed expenses to demat holders. But this call for low-expense accounts may be a half-hearted investor-friendly move and is a bit ironic. This is a system that Mr Bhave himself helped create in his previous role as the head of NSDL! And successive SEBI chairmen, including Mr Bhave, have alienated retail shareholders as a result that the retail investor population has shrunk.
At the formation of NSDL, Mr Bhave was instrumental in pushing through a separate NSDL Act when NSDL is very much a part of the capital market structure and should have come solely under SEBI regulations as are the stock exchanges or registrar and transfer agents.
NSDL's website proudly announces that more than one crore demat accounts are now registered with it. That is hardly a milestone after eliminating multiple folios. A closer look at the picture reveals that the growth in demat accounts has now been slowing down almost to a point of stagnation in the recent past, even as the Sensex has crossed a 30-month high.
Moneylife ran through NSDL data on the number of demat accounts registered with it on a monthly basis from January 2005. We looked at the average quarterly number of such accounts over this period. At the beginning of this period, the average quarterly growth in demat accounts was quite healthy at 5%. This was the time in the extended bull market period between 2003-07 when the market rally was gathering steam and catching the fancy of investors. However, by the September quarter of 2006, this growth had slowed down to a trickle and continued till the September quarter of 2007. The average quarterly growth in demat accounts during this period stood at a mere 1%.
NSDL registered the highest quarterly growth in demat accounts in the March quarter of 2008, when the Sensex had reached the summit of 21,000. This single quarter alone saw an addition of nearly 10 lakh investor accounts in the system.
Since then, however, the investor account additions have slowed down to a trickle. Although the markets witnessed a dramatic turnaround in fortunes from March 2009 and clawed back to almost 80% of their value from the earlier peak, investors have not been enthused. This is evident from the fact that the average quarterly growth in demat accounts has been a paltry 2% during this period. By the way, NSDL has a vigorous investor contact programme under which Investor Depository Meets are conducted through the length and breadth of India to spread the gospel of capital markets and depository.
One of the reasons for the poor growth in NSDL accounts is market volatility, which has put off investors in the past two years. But there are other reasons as well. One is high demat charges and another is SEBI's lack of empathy with investors, often leading to anti-investor moves. NSDL ensured compulsory demat of shares, which delivered huge savings to companies, cleaned up the archaic and corruption-prone system of transfer and registration of shares.
But investors complained of high demat charges and companies, which benefited hugely by having their share transfer department virtually abolished, were not asked to share the cost. The high demat charges have not only deterred small investors but have persuaded many wealthy individuals who are long-term investors with large holdings in blue chip stocks to hold on to their physical shares.
They find demat charges are too high. SEBI's inability to keep the market free from manipulation and ensure fair trade practices have also put off investors from the stock markets. When there have been allegations of malpractices by intermediaries, the market regulator has relied on stock exchanges to handle them while the stock exchanges pushed investors into an arbitration process, which has been mainly detrimental to the interests of investors. It is these fundamental issues that have deterred investors from entering the market, that need to be resolved if demat has to spread. Lowering charges will help but not that much.