Car, truck insurance premiums set to go up

This could happen as insurance companies may hike premiums by as much as 40 per cent for commercial vehicles and 10 per cent for two-wheelers and personal cars to compensate for high claims in the motor insurance business.

The general insurance industry is currently in discussions with the regulator on the revision of premium rates for third party motor insurance which will be applicable from April.
Third party coverage

Motor insurance in India has two components — one covering third-party damage in terms of property or life and one covering one’s own damage.

The third-party coverage is mandatory by law for both commercial and personal vehicles.

The Insurance Regulatory and Development Authority had earlier come out with a formula based on inflation and claims experience of insurers to account for risk based pricing for revising premium rates.
‘transparent formula’

“It’s a very transparent formula by which the increase will be given but the problem is that the start itself is 40 per cent lower than what it should be. Though there has been an annual increase in premium rates it is still not adequate and it is trailing behind the claims. So the industry needs a correction of 40 per cent in third party motor premium,” said G. Srinivasan, CMD, New India Assurance.

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Consumer Federation of America alleges unfair insurance practices

A recent study from the Consumer Federation of America revealed some odd findings when it comes to auto insurance.

The CFA used two hypothetical drivers and sought to get them insurance from a variety of carriers. Both drivers were 30-year-old women who had the same amount of experience on the road, lived in similar ZIP codes, and sought the minimum amount of coverage.

As for the differences, one woman was single, rented her house, and hadn't had insurance for 45 days. She also had a spotless record on the roads: no accidents and no tickets. The other woman was married, a high earner with a graduate degree, and a home owner. She had been at fault in an accident that caused $800 worth of damage within the past three years.

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No insurance cover for organ donors

CHENNAI: Srinidhi (name changed), a housewife, donated a part of her liver to her husband a few years ago. Even though she has no complications and is perfectly healthy, she was surprised to find that insurance companies rejected her application for comprehensive health cover.

"Insurance companies don't ask if you have donated an organ. The application forms ask if there is a scar of the body and the reason for it. When you say you donated an organ, the application is rejected," said Srinidhi. The liver regenerates after donation and the donor is as normal as anyone else. "I am willing to prove this with scans and doctor's reports," she said.

 Many donors say they weren't issued policies despite undergoing extra tests. The problem is not confined to new applications. Insurers insist that donors undergo specific tests when policies come up for renewal. "The profile of the patient may have changed post donation, and risks arising out of such changes may not be covered under the original policy," said a senior official from a Chennai-based insurance company.

Jayakar (name changed), 69, who leads a retired life in Bangalore, applied for health insurance six months ago. Three insurance companies, including a public-sector company, rejected his application after he told them he had donated one of his kidneys in 1984.

"I am healthy. I am not diabetic or hypertensive," he said. Jayakar worked for State Bank of India and then the Tata group, both of which covered all his medical expenses. "After retirement, I realized I didn't have health cover. I didn't know I'd be ineligible because of a selfless act," he said.

Kidney and liver are the only two organs people can donate when they are alive. Other organs such as heart, lung and pancreas come from brain-dead persons. Nephrologists say donating a kidney may lead to a slight increase in blood pressure and in protein levels in urine, but it does not increase risk of kidney disease or reduce life expectancy. "On the contrary, I would say kidney donors are healthier than others because before they donate, we ensure that they are free of all diseases," said nephrologist Rajan Ravichandran.

Urologist Dr Sunil Shroff, who heads Mohan Foundation, a non-profit that promotes organ donation, said there were no reasons to reject applications by organ donors. "We must encourage people to donate organs to their loved ones. I wish medical professionals working with insurance companies would stop rejecting genuine cases," he said.

A few do get lucky. New India Assurance has given policies to some organ donors. "A person donates an organ only when it is considered safe by doctors. While there may have been some aberrations in terms of health cover for organ donors, we don't have an issue in terms of providing cover for them," said G Srinivasan, chairman and managing director, New India Assurance. 

Chidambaram plans to introduce insurance, pension bills in Budget session

NEW DELHI: Finance Minister P Chidambaram plans to introduce the insurance and pension bills in the Budget session of Parliament as he is optimistic of securing the opposition's support on the contentious legislations, Bank of America Merrill Lynch said after an investor interaction it hosted with Chidambaram in Singapore.

The insurance bill will propose to raise the FDI cap in the sector to 49% from 26%, while the pension bill will open up the sector to foreign investment up to 49%.

"The FM hopes to pass the insurance bill and the pension bill in the Budget session. He mentioned that behind the noise, there were quiet negotiations with the opposition parties and support from them," Bank of America Merrill Lynch said in a note on Wednesday.

Chidambaram, who is on a four-nation tour to woo investors, had on Tuesday promised a stable budget that will take fiscal consolidation process forward and not include any unpleasant tax measures.

The cabinet had in October last year approved the Insurance Laws (Amendment) Bill 2008 with 49% foreign investment limit in the sector, but the government did not move it in the Parliament's winter session as it lacks the numbers to get the bill passed on its own.

Chidambaram, however, was not hopeful of getting the goods and services tax in place by April 2013, but he could get the legislation for introducing the bill passed by December this year.

The ambitious reform of the indirect tax regime that envisages one goods and services tax in place of many levies is stuck because of differences between states and the Centre over its structure and powers of the two.

The finance minister reiterated the government's commitment to reforms and liberalisation, but said an unstable government in 2014 could be the biggest threat to reforms, the note said. India will elect a new government sometime in May-June next year.

Bank of America Merrill Lynch said the minister also told the investors that 5.3% fiscal deficit target will be met through cost cuts and austerity measures. He also said that the five-year fiscal deficit reduction targets announced by him earlier would be met without raising taxes.

The plan envisages reduction in fiscal deficit to 3% of GDP by 2016-17.

Chidambaram pegged the current year's growth at 5.7%, rising to around 6.7% in 2013-14 and to 8% the next year.

"The FM reiterated that the Cabinet Committee on Investments would speed up project approvals. Moreover, the PSUs have been asked to spend on projects as per targets or return surplus cash by way of special dividends," the note said.

Chidambaram also hoped that the direct transfer of benefits will help reduce leakage in the subsidy scheme and save subsidies, citing 20 to 60% savings in pilots. 

IRDA comes out with framework for monitoring insurance frauds

 The regulator has asked insurance companies to lay down procedures to carry out the due diligence on the personnel and submit a compliance report before June

New Delhi: the Insurance Regulatory and Development Authority (IRDA) has come out with a framework for monitoring frauds in the insurance sector and asked insurers to carry out due diligence on their staff, including agents, reports PTI.

Stating that such fraud reduces consumer and shareholder confidence and can affect the reputation of individual insurers and the insurance sector as a whole, IRDA asked insurers to lay down procedures for monitoring and early detection of frauds.

“Lay down procedures to carry out the due diligence on the personnel (management/staff)/ insurance agent/ corporate agent/ intermediary/ TPAs before appointment with them,” IRDA said in a circular to all insurance companies.

The insurers have to submit a compliance report with the regulator by 30 June 2013.

 “It is required that insurers understand the nature of fraud and take steps to minimise the vulnerability of their operations to fraud,” IRDA said.

It asked insurance companies to ensure that the risk management function is organised in such a way that the insurer is able to monitor all the risk and take steps to address them.

IRDA classified frauds in the insurance sector under three heads—claim fraud or policyholder fraud, intermediary fraud and internal fraud.

It also asked the insurance companies to frame an anti-fraud policy and said that the company’s board would review the policy on an annual basis.

The insurer shall inform both potential and existing clients about its anti-fraud policies, IRDA said, adding that the insurer has to highlight the consequences of submitting a false statement for the benefit of policyholder in the insurance contract.

Buying Home Insurance? Learn How to Choose a Good One

Buying a new home can be a daunting task, even for someone who has owned homes before. The first step in safeguarding your dream investment is to insure it with a good home insurance policy.

What is Home Insurance?

House insurance provides coverage to you in the event of losses incurred due to fire, theft, or damage through certain natural disasters. Getting an economic house insurance is a good first step towards protecting your home. But ultimately, when you decide to buy house insurance, you should go for the best property insurance.

How Do You Choose a Good Home Insurance Plan?

Finding a good house insurance is often considered a lengthy process as there are several plans and companies to choose from. It takes extensive research right from the first step to the last. Over the years, India has seen a rise in house insurance with many dynamic insurance companies offering comprehensive house insurance policies.

Most policies tend to cover a wide range of household items and this in turn increases your premiums. The first thing to avoid this is to make an inventory list of all the household appliances that needs to be covered. Make a note of all your household appliances and write down an estimated value for each of them. Do remember that as household items pile up, coverage increases. And as coverage increases, so do premiums.

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Indian retail non banking finance market in 2011-12: ICRA

 ICRA has come out with its report on Indian retail non banking finance market. According to the rating agency, retail credit for NBFCs is expected to grow by only 17% in 2012-13. Gross NPA% of the NBFCs is likely to deteriorate from March 31, 2012 levels of 1.56% due to an adverse operating environment.

CRA Ratings has come out with its report on Indian retail non banking finance market. According to the rating agency, retail credit for NBFCs is expected to grow by only 17% in 2012-13. Gross NPA% of the NBFCs is likely to deteriorate from March 31, 2012 levels of 1.56% due to an adverse operating environment.

NBFCs1 in India continue to grow profitably by meeting the credit needs primarily of self employed borrowers while maintaining reasonable asset quality and prudent level of leveraging. Understanding borrowers profile and dynamics of borrower segments of such NBFCs is a prerequisite for the performance evaluation of NBFCs. Although NBFCs cater to a wide range of segments, there are common characteristics of borrowers across these segments. A typical borrower (of such NBFCs) needs to be approached to originate a credit deal (is unlikely to walk into a branch to seek credit, except for Gold loan borrowers), is more complex to credit assess (as compared to a salaried person) and could require intensive monitoring and servicing efforts. Given these characteristics, banks particularly Public Sector Banks find it unattractive to operate in such segments, as they struggle to maintain good risk adjusted returns from such segments. As over three fourth of the Indian credit market is served by PSBs, low credit penetration (at around 10%2 as on March 31, 2011) vis. a vis. Deposits (68%) may be a reflection of PSBs inability to cater to such borrowers. It is critical to be nimble footed, service oriented and extremely cost efficient to be profitable in the segment. In light of this private sector banks and NBFCs mostly compete with each other in such segments.

NBFCs have reported a managed advance growth CAGR of 35% in last five years, and as on March 31, 2012 had a gross NPA3% of 1.56%, net NPAs to net worth of 3.8%, Return on Equity (ROE) of 16.24%, and a reported capital adequacy at 19.42% (tier 1 capital % of 15.75%). NBFCs are likely to witness a slowdown in the growth in 2012-13 in light of lower growth in the key segments they operate in; at the same time there may be some build up of delinquencies and a downward bias in interest margins. Despite this NBFCs are likely to report double digit ROE. Key performance highlights and outlook are as follows:

Managed retail credit of NBFCs reported a 32% growth during 2011-12. In light of significant slowdown in Commercial Vehicle (CV), Construction Equipment (CE) and Gold loan portfolio segments in the current financial year (which put together account for around 56% of total NBFC retail credit), ICRA expects retail credit for NBFCs to grow by only 17% in 2012-13.

As per ICRA estimate, total NBFC retail managed credit ~Rs. 2960 billion as on March 31, 2012, was distributed across commercial vehicles (29% of total), gold loans (17% of total), mortgage (16% of total), construction equipment (10% of total), cars (15% of total), unsecured loans (8% of total) and tractor loans (3% of total). This proportion could undergo some shift because of slowdown in vehicle sales and in gold loans and continued expected growth in the mortgage segment.

As for asset quality, Gross NPA% of the NBFCs is likely to deteriorate from March 31, 2012 levels of 1.56% due to an adverse operating environment. Segments that are likely to witness an increase in delinquencies are Commercial Vehicle, Construction Equipment, SME lending and capital market funding.

NBFCs currently report exposures in 180+ overdue bucket as NPAs; The proposed RBI revision, if implemented, in the NPA recognition norm to 90 days, along with the adoption of higher provisioning requirements for NPAs and standard assets (in line with that for banks) could lead to a increase in NBFCs' credit provisions by 0.55% in the short term, impacting the profitability. Over the medium term, the decline in profitability could be in the range of 15-20 bps as NBFCs realign their monitoring and recovery systems to the 90-day.