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eServe Newsletter August 2011
IRDA’s new merger norms for private General insurers
The Insurance Regulatory and Development Authority (IRDA) has announced the norms for
mergers of General insurance companies. The norms, which came into force with immediate
effect, will not apply to the four public sector insurers.
The new set of norms will be applicable only to private companies, leaving out the
New India Assurance, Oriental Insurance, United Insurance and National Insurance Company.
IRDA has reserved the right to impose additional conditions prior to court approvals, a change
from the draft where the regulator had kept the final approval to itself after the court approval.
The new norms stipulate that the solvency margins of the merged entity should not be less than
the stipulated solvency norms, whatever it be at the time of the merger. The solvency ratio of General
insurers now stands at around 120 per cent. The IRDA has also said that if necessary it may conduct an
actuarial valuation of the merged entity, including assets and liabilities and solvency positions.
Rudderless LIC causes concern
Government circles have voiced concern over the fact that more than half a dozen financial institutions, including Life Insurance Corporation of India (LIC) and banks, are running under “top-light” administrations.
LIC, from whom over half of Indians buy their insurance cover and is the country’s largest financial institution with assets of over Rs12 lakh crore, has been without a regular chairman since May 2 when Mr T S Vijayan’s term came to an end.
The Government then gave charge of the LIC, which actively moves markets with its daily trading operations, to Mr R K Singh, Additional Secretary in the Finance Ministry, who remained in the post for just 25 days. Mr Dinesh Kumar Mehrotra, one of LIC’s managing directors, has since been named the Acting Chairman for three months.
“Unless someone is positively in charge of such situations, decision making would be completely paralysed,” an expert has been quoted as saying by the financial media
IRDA keen on setting up client database
The insurance Regulatory and development Authority (IRDA) is thinking of creating a database of all insurance policy holders using the Aadhaar, or Unique Identification (UID) number, according to media reports. The move will help insurers assess risk and set their premium rates better, according to experts.
Insurance companies at present don’t have such a database that could help them assess the specific needs of a customer and also his capacity to pay premia; they simply go by the information provided to them by customers on the other policies they have taken, the reports add.
Besides, such a database can help them reduce instances of frauds. “A single policyholder may have different polices from different companies and may not have the financial capacity to service all of them,” an IRDA official has been quoted as saying.
The database could help customers switch from one Health insurer to another, Dr Amarnath Ananthanarayanan, CEO, Bharti Axa General Insurers Co. Ltd., was quoted as saving. It could also help insurers price Motor insurance policies according to the record of customers in terms of accidents and previous claims.
Meanwhile, the Unique Identification Authority of India (UIDAI) and IRDA are discussing the use of the UID number to meet the “know your customer” (KYC) requirements of insurance companies KYC requirements include customer for all financial transactions.
Further, a proposed web-enabled facility which is being established by IRDA and the Authority will help implement portability of Health insurance policies across General insurers” not later than October 1st 2011,” according to officials.
LIC wary of demat policies
The proposed dematerialization of policies could lead to an unhealthy market of trading in policies if checks are not placed on their assignment, Life Insurance Corporation of India (LIC) circles fear.
The Insurance Regulatory and development Authority (IRDA) has proposed that instead of issuing certificates of Life insurance, companies could maintain electronic records in a central repository similar to the National Securities Depository Ltd (NSDL). The IRDA repository guidelines state that an insurer on receipt of intimation of assignment from the policyholder shall register the same in its record and intimate the repository.
Assignment is the process whereby a policyholder can transfer all benefits, including maturity and death benefits, under a policy, to a third person. Although Life insurance contract are not tradable securities like stocks or bonds, it is possible to get an upfront payment form a third party, who is willing to pay a price for getting higher benefits in future through assignment of the policy.
According to the guidelines, the assignee “shall have all the rights of the policyholder”. The Life Insurance Council-an association of Life insurers has set up a panel of Life company CEOs to look into the various concerns of insurance companies relating to the creation of a repository.
For example, trading in terminal policies is a controversial practice in the West but practitioners say that they help the terminally ill policyholder by providing him with funds when he needs it the most. But critics say this practice virtually means taking bets on other people’s lives.