The Year That Was: Insurance not in good health

New ULIPs that are hardly better than the old ones, the ban on ULPs, and mediclaim policyholders hit by the cashless imbroglio. It’s been a tumultuous ride for insurance customers in 2010

Given the frequent headlines about various interventions by the Insurance Regulatory and Development Authority (IRDA), you can be faulted for thinking that 2010 has been the year of the insurance customers. But customers were battered by a variety of blows as well. Frankly, customers can trust insurance companies and agents at their peril. They need to be constantly vigilant. This was the story in 2010 as well.

First came the spat between the IRDA and the Securities and Exchange Board of India (SEBI) over who should regulate ULIPs-a cross between insurance and investment. SEBI looked at it as an investment and sent notices to insurance companies asking why they should not be regulated by SEBI because they were running what can be interpreted as collective investment schemes. IRDA won that battle but it came down heavily on the insurance companies and changed the rules regarding ULIPs. Were the new ULIPs any better? Not quite. (Read The New Old Ulips)

In an extremely candid comment to Moneylife in Hyderabad in August, J Hari Narayan, chairman, IRDA said, "The insurance industry has made a mistake in marketing insurance as investment. It is a risk product." (Read “The insurance industry has made a mistake in marketing insurance as investment. It is a risk product”)

But ULIPs have been the main source of revenue for insurance companies all these years. The new framework of ULIPs substantially reduces the profitability of companies and agents. As a result, agents are less motivated to sell ULIPs. The life insurance industry recorded a 50% dip in new business premium income in November. This was mainly because of the changes in the ULIPs which make them less enticing. The pension ULIPs offering 4.5% guaranteed returns also have few takers. As a result, insurers have already shifted to selling traditional plans like endowment plans and money-back plans.

For insurance companies too, selling traditional plans means more profits now. A lot of them were making money from high surrender charges so far on ULIPs. Now, IRDA has capped the surrender charges drastically. The change in the business is evident from the dwindling number of hoardings that exhibited ULIPs, and fewer branches and agents. Moneylife met insurance agents and found that traditional plans are getting a boost as they are more profitable for both insurers and agents.

Policyholders are persuaded to buy the more opaque traditional plans now. Strangely, even though the IRDA chairman hinted at mis-selling of ULIPs, the regulator doesn't want to touch traditional plans. According to Mr Hari Narayan, "Traditional plans are not broken, so why fix it? They have been around for so many years and there is no need to make changes." The increase in lock-in period for ULIPs from three to five years has given impetus to single premium ULIPs. The insurance component in them is much lower compared to that for regular premium ULIPs.

IRDA has taken a big step in banning Universal Life Plans (ULPs). ULPs were totally anti-consumer. For instance, Reliance Life insurance swallowed a hefty 80% of the first-year premium as allocation charge for some policies. Apparently, 40% of Reliance Life Insurance's new business premium came from sales of ULPs during the June quarter. The new guideline renames ULP as variable insurance products (VIP). It charges first-year premium allocation of 27.5% which is certainly not going to make it attractive.

On the general insurance side, customers were hit by the withdrawal of cashless facility by PSU insurance companies when they found cases of gross overcharging in hospital bills. But IRDA refused to actively intervene, leaving Mediclaim policyholders in the lurch.

Government-owned insurers rolled out the preferred provider network (PPN) concept to continue the cashless facility at hospitals that agree to their pricing for 40-odd procedures. Even though the network boasts of over 450 hospitals-in the metros-that have acceded to their price list, the majority of corporate hospitals in Mumbai have stayed away from PPN. Unfortunately, in India, there is a supply side constraint of quality hospitals and hence it is no surprise that corporate hospitals don't feel the pinch of the withdrawal of the cashless facility. Interestingly, the insurers applied the PPN concept to only individual policyholders.

Call it corporate muscle power or the lure of future business, insurers still bend over backwards to take care of group insurance policies. This is despite the fact that they suffered huge losses in group insurance during 2006-2009. Government-owned insurers suffered a loss of Rs417 crore on individual mediclaim policies and Rs622.49 crore on group mediclaim policies.

Government-owned insurers have decided to float their own third-party administrator (TPA) for better management of claims by reducing the high-claims ratio. This comes after the reputation of TPAs was tarnished by allegations that with an eye on profits they were compromising their role by encouraging high claims, working hand-in-glove with some hospitals. TPAs were slapped from both sides, with hospitals alleging that TPAs delay in making payments to them. Future Generali Insurance launched Future Generali Health (FGH), an in-house cell for servicing health insurance clients, to gradually replace TPAs. They join insurers like Bajaj Allianz and ICICI Lombard who rely on their own claims department.

Some insurance firms also continued with dubious practices through the year. Reliance General Insurance jacked up the premium in Reliance HealthWise mediclaim by almost 500%, which put off customers. This, at a time when the general insurance sector is expanding and no other company is exhibiting negative growth. After being labelled as the cheapest policy for three years, Reliance General attributed the increased premiums to a rise in illnesses and the inflationary trend in medical costs. IRDA approved the steep hike much to the agony of policyholders.

With portability still a distant dream, policyholders cannot easily change insurers because pre-existing conditions will be disallowed by the new insurer for four years. Policyholders have been writing complaints to different authorities without success, and more importantly they haven't heard from the insurance regulator. It's surprising, considering that the regulator had put out a lot of advertisements in newspapers this year, urging policyholders to get in touch if their grievance were not resolved by insurers. Well, as we said, insurance customers will have to be on a constant vigil.




6 years ago

IRDA not only lacks integrity but is also grossly incompetent in its task as regulator. How else can you explain that these things are happening and IRDA is doing nothing about them? The regulation on ULIPs/ULPs was also done only after SEBI stepped on its toes and claimed jurisdiction. Till then, it was happy to be asleep at the wheel and let the insurance companies loot the public!

Deepak Mendiratta

6 years ago

Absolutely Raj !! Bingo on the TPA issues. The health insurance experience of policy holders is only going to get worse before it gets any better.

The challenge is that the entire exercise of IRDA to introduce TPA's seems to be under going a radical shift. There is already a Huge learning available within the TPA industry which never got captured in the first place. With insurers trying to come up with their own TPAs, the learning of the current ones, their relationships grown over the years - all that will now get reinvented.
One hopes that the costs will get controlled for the final consumer. And this can only be done by the GIPSA TPA coming in and wielding more power than 28 odd smaller entities.

EGoM likely to meet on 30th Dec to consider diesel, LPG hike

New Delhi: An Empowered Group of Ministers (EGoM) is likely to meet on 30th December to consider hike in diesel and domestic LPG prices, reports PTI.

This comes in the wake of crude oil prices ruling at a two-year high of $93.59 per barrel and widening the gap between retail fuel price and their cost.

“The EGoM meeting has tentatively been proposed for the afternoon of 30th December,” a government official said.

Oil prices today rose to the highest over the past two years supported by a weak dollar and chilly weather in northern Europe and the United States that increased heating fuel demand.

“However, a confirmation of the date is awaited from EGoM head (finance minister Pranab Mukherjee),” he said.

Oil secretary S Sundareshan had yesterday stated that the EGoM will meet before month-end to consider raising diesel and domestic LPG prices.

The EGoM was originally scheduled to meet on Wednesday but has been deferred due to non availability of certain ministers in the grouping.

The ministerial panel may consider a Rs2 per litre hike in diesel prices to narrow the difference between the domestic retail price of the transport fuel and its imported cost.

“The under-recovery (or the revenue oil companies lose) on diesel today stands at Rs6.09 per litre,” the official said.

Besides diesel, the oil firms lose Rs17.72 per litre on PDS kerosene sales and Rs272.19 on (14.2kg) LPG cylinder.

Mr Sundareshan had yesterday stated there was “certainly” a need to raise LPG prices as the expert group on fuel pricing headed by Kirit Parikh had suggested hiking domestic cooking fuel price by Rs100 per cylinder. But rates were increased by only Rs35 per bottle in June.

The necessity of a price increase has arisen because global crude oil (raw material) has climbed to over $93 per barrel from $73-$74 at the time of last revision in June.

Even after last week’s steep Rs2.94-Rs2.96 a litre hike, the retail price of petrol is Rs1.2-Rs1.25 a litre short of the imported cost.

The government had in June this year freed petrol prices, but the state firms, who control 98% of the retail market, continue to informally consult the oil ministry before revising prices.

Also, the government had decided to make diesel price market-determined in stages. “Freeing diesel prices at current crude prices is simply not possible,” the official said.

The three firms are projected to end the fiscal with a Rs68,361 crore revenue loss on account of the sale of diesel, domestic LPG and kerosene below cost.

“They are losing Rs215 crore per day on the sale of the three products. Also there are marginal under-recoveries on petrol,” the official said.


Adequate spectrum availability must for telecom growth: Sibal

New Delhi: Telecom minister Kapil Sibal today said the growth in the sector is essentially centred on adequate spectrum availability, assuring government will make all efforts to provide requisite airwaves to meet the industry’s demand, reports PTI.

“The real problem is that there is scarcity of spectrum and we need to increase the amount of spectrum that can be distributed.

This is because it (spectrum) is a vehicle through which people of India will be empowered and therefore we need a very broad area within the spectrum available that can be put to civilian use,” Mr Sibal told reporters.

His assertion comes a day after he met top telecom honchos who, among other things, expressed concern over the shortage of spectrum.

Yesterday, Mr Sibal had met Sunil Mittal of Bharti, Anil Ambani of RCom and Ratan Tata of TTSL and discussed the current scenario in the sector.

He would also be meeting other players including Idea and Vodafone.

Asked whether he would also hold meetings with new operators, Mr Sibal said “I will meet all the captains of the industry and of course we are dealing with so many things simultaneously.

Lets move forward and the road ahead will be a road of prosperity for the industry... the road ahead will be a level playing field road, a non-discriminatory road the road that will help the economy move forward.”

He further added, “I was very happy that the three captains of the telecom sector whom I met were extremely constructive about their approach and they have been assured of a level playing field.”

The meeting with the industry comes at a time when the sector is grappling with uncertainties with regard to spectrum allocation policies and CBI probe into the decisions taken by telecom ministry between 2001 and 2008.

The idea was to meet the leaders of the telecom sector and find out their concerns.

“It is not in our interest to destroy this sector. It is in our interest to take the industry forward, give them confidence, assure them of a level playing field or a non-discriminatory regime,” he said.

This, he said, was to ensure the “industry can realise its true potential and also mutually share its vision on where the telecom sector should be going, whether its broadband, or its other path of the telecom sector where decisions will have to be taken”.


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