Insurance honchos admit to rampant mis-selling
At the recently held CII Insurance Summit, industry leaders blatantly exposed the issue of mis-selli
If you are a policy holder of a life or non-life insurance product, chances are that your policy needs have not correctly been met. The agent who so sweetly and subtly coerced you into signing that policy, has most probably, unknowingly or otherwise, sold you the wrong product. Mis-selling of policies is going on for a while but has assumed greater proportions as of late. This was the subject of intense discussion at a recent insurance summit organised by the Confederation of Indian Industry. Said T R Ramchandran, CEO and MD of Aviva Life Insurance Company, “The rising instances of mis-selling across insurance categories are worrying. This is primarily because of financial illiteracy of advising agents.” Concurs Nitish Asthana, Senior VP, Direct Distribution and Telcassurance, Bharti AXA Life Insurance, “Financial literacy in the distribution channel itself is the main cause of mis-selling. It leads to underinsurance and improper coverage for the insured. The problem lies in a lack of training on part of the employer for need-based policy selling.” He further added that inactivity of agents is another cause for concern. He said, “There are three million agents in the market currently. But only 20% of these are productive.”

Is there a way to curb this menace? According to Sanjiv Bajaj, joint MD, Bajaj Capital, the proposed 2.25% cap on insurer’s premium charges will help arrest mis-selling. He said, “We can’t control mis-selling by doing micro things. We have to do macro things like having a 2.25% cap on premium charges, which will make a lot of difference.” He attributed mis-selling to a lack of long-term relationship orientation with the customer. “Mis-selling is happening more at the employee level and not the agency level, as is the misunderstanding. This can only happen when there is one thing missing in the relationship, and that is relationship. If there is emphasis on having a relationship, then mis-selling cannot happen as the advising agent wants to thrive on the life-time value of the relationship.”
 – Sanket Dhanorkar [email protected]
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    Insurance paints a worrying picture






    Paresh Parasnis, executive director at HDFC Standard Life attributed the continuing losses to inadequate risk management and insufficient capital. He explained, “What happened over the past few years was the result of inadequate focus on risk management. Going forward, insurers have to look at capturing all possible risks and dynamically managing these risks. They must ensure they have enough capital to back the kind of risks they are taking on their books.” He also highlighted the absence of an efficient long-term debt market as a hindrance to the growth of this sector. He said, “The fact that we have more than Rs700,000 crore of invested money in debt instruments and the fact that we don’t have a long-term debt market is an obvious problem for the insurance industry. We are writing contracts which are for 20/30 years duration, but at the same time investing in near term securities.”

    Mayank Bathwal, CFO, Birla Sunlife Insurance, put the blame of high costs on the agency model of insurance. He explained that the high cost of commissions paid to agents was cutting into insurers’ profitability. He added, “Other than the variable component of commissions, there is a huge fixed cost component paid to management level executives that is affecting the sector as they continue earning high salary despite low business procurement.” He proposed a variable model to this category to improve efficiency.

    Meanwhile, the regulator, IRDA, is considering major regulatory changes. First on its radar is introduction of disclosure norms for insurers to bring in greater transparency. IRDA chairman, J Hari Narayan said, “We are concerned about the disclosures of insurers, and should be able to come out with disclosure norms by the end of this month.”
    The regulator is also mulling over guidelines for firms valuing insurance companies, which would bring greater clarity to valuations of insurers planning to come up with IPOs in the future. Mr Narayan said, “We are in discussion with SEBI to frame the IPO guidelines for insurers.” Some changes are also sought to be introduced in the bancassurance model. Another significant policy change is the proposed capping of premium charges.
    Apart from these, the new Direct Tax Code (DTC) is also set to change the scenario in insurance. One aspect of the new DTC proposes to remove the tax benefit on insurance premium on certain policies. This is giving sleepless nights to insurers as it will significantly affect the policy off-take with consumers preferring to shift to other savings instruments providing tax relief. Said Paresh Parasnis, “The fact that tax benefit will be available only for small number of policies will bring a large part of the current market outside this area. Customers who were buying insurance policies purely for tax benefit will rethink their preferences. This will force insurers to redesign products and find ways to provide good value to customers.”
    Sanket Dhanorkar
    [email protected]


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    More malls to come up

    Nirmal Lifestyle, a large shopping mall at Mulund (a Mumbai suburb); Inorbit, a shopping mall which caters to the suburban consumers of Mumbai & Navi Mumbai (Malad and Vashi) and Star Shopping Centres Pvt Ltd (who promote the StarCentres chain of malls) are in the process of building new malls by next year. Nirmal Lifestyle is in the process of launching Phase 2 of its mall in Mulund, says a top company official. The mall will be operational by December next year.

    “We have invested Rs400 crore in Phase 2 of Nirmal Lifestyle and we are looking at independent projects in the next financial year in different places,” says Dharmesh Jain, chairman and managing director, Nirmal Lifestyle.

    The global downturn has not stopped retailers from expanding, but the number of malls supposed to come up by 2010–2012 has come down drastically, said an industry expert. “In 2007 there were 400 malls which were coming up across the country till 2010-2012 but now we have only 100 malls coming up by 2012, out of which I think 15-20 malls only will be operationally successful malls,” says Anuj Puri, chairman and county head, Jones Lang Lasalle Meghraj, a global real estate services firm specialising in commercial property management, leasing, and investment management.

    The retail industry in India is worth $410 billion currently out of which about $20 billion is modern retail, which includes malls and chain stores, says Puri.

    Inorbit is coming up with three more malls within next year (at Hyderabad, Pune & Bengaluru) with an investment of over Rs1,000 crore in these new projects.

    Inorbit is inaugurating a new mall at Hyderabad, which is one of the largest malls with 800,000 sqft of retail built-up area which will be operational by next month. Hypercity in Hyderabad—which occupies 100,000 sqft, has already been in operation since July 2009. “We are looking at a soft launch by early next month with two of our anchor stores—Shoppers Stop and Lifestyle and a few others,” says Kishore Bhatija, director, Inorbit.

    The Hyderabad mall will have 150 stores and the second will come up in Pune at Nagar Road which will occupy around 500,000 sqft. The Pune mall will be operational by August next year. The third project in the pipeline is an Inorbit mall in Whitefield, Bengaluru (capacity of 400,000 sq ft) which will be operational by December next year.

    “I feel the retail business has a lot of potential if you apply the right kind of strategy. We have seen a healthy growth in our business as we expanded from Malad to Navi Mumbai, Vashi,” says Mr Bhatija.

    Star Shopping Centres Pvt Ltd, another mall owner, is planning new chains. The company is promoted by Shilpa Malik, president and chief executive officer and Pranay Sinha, managing director. Both were the brains behind the famous Select Citywalk in South Delhi, and formed their own company in 2008 after the success of this mall.

    The company is coming up with its first project in Bengaluru by the end of the first quarter of the next fiscal and is planning to build 10-12 new mall chains across the country. “Our first shopping centre is modelled on the designs of High Street (the mall chain in Portadown, UK) which offers the benefits of an organised shopping mall and also the benefit of visibility that High Street gets,” says Ms Malik. Mumbai’s Phoenix Mills, which was converted into a mall, is built on the High Street model.
    “We are trying to come up with different formats of malls like lifestyle centres, destination centres, etc. All our shopping centres will be (based on) a revenue plus rent-share platform,” says Ms Malik. For example, an apparel store will shell out   12% -18% of its revenue, while food outlets may have to part with 20% of their revenues.

    Kishore Biyani’s VC firm, Future Venture, has a stake (the VC is not ready to reveal the percentage) in Star Shopping Centres. Future Venture is planning an IPO to raise funds for Star Shopping Centres.

    Star Shopping Centres has also tied up with Deepak Fertilisers and Petrochemicals Corp Ltd who own the Ishaniya mall in Pune. They have also inked a deal with Bhasin Infotech & Infrastructure Pvt Ltd, a Delhi-based developer, which owns the Grand Venezia in Greater Noida. Star Shopping Centres will be delivering their expertise in conceptualisation, planning, strategising and marketing for the two malls. The Grand Venezia will mainly cater to tourists from across the globe. – Pallabika Ganguly

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