All Newsletters

• April 2016
• March 2016
• February 2016
• January 2016
• December 2015
• November 2015
• October 2015
• September 2015
• August 2015
• July 2015
• June 2015
• May 2015
• April 2015
• March 2015
• February 2015
• January 2015
• December 2014
• November 2014
• October 2014
• September 2014
• August 2014
• July 2014
• June 2014
• May 2014
• April 2014
• March 2014
• February 2014
• January 2014
• December 2013
• November 2013
• October 2013
• September 2013
• August 2013
• July 2013
• June 2013
• May 2013
• April 2013
• March 2013
• February 2013
• January 2013
• December 2012
• November 2012
• October 2012
• September 2012
• August 2012
• July 2012
• June 2012
• May 2012
• April 2012
• March 2012
• February 2012
• January 2012
• December 2011
• November 2011
• October 2011
• September 2011
• August 2011

In normal times the Rs 12 lakh-crore Life Insurance Corporation of India, the country's largest financial institution, supports nearly 40% of government borrowing. LIC was in the news recently for bailing out the government's disinvestment programme and bearing part of the government's burden of capitalizing banks. The regulatory environment, meanwhile , has thrown up new challenges for the life industry. In an interview with TOI's Mayur Shetty, LIC's acting chairman D K Mehrotra speaks on how the corporation is responding to these changes.

How have the new guidelines on charges, agency and pension plans impacted LIC?
The changes in the charge structure have affected us only marginally as our charges were already low. However, the withdrawal of existing plans and the time lag in approval of new plans led to a dislocation of the whole marketing process as, besides new products, fresh training had to be given to the field force and new marketing strategies had to be devised. The minimum premium under Ulip policies had also to be substantially increased - from Rs 5,000 to five figures - to ensure viability and this has shrunk the Ulip market. The increase in lockin period has also discouraged the customers. Similarly, the new regulations on pension has led to withdrawal of all pension plans barring LIC's immediate annuity plan, Jeevan Akshay VI.

The change in agency regulations has led to accelerated exits and the insistence on 100% online exam - resulting in low pass rate, especially in deep rural areas - has not helped the matter. However, having been in the industry for more than half a century, we hope to weather this storm too. It has become important to clearly define annuity & pension as a common man is not clear about the difference between the two. There should be more thrust on pension due to increased longevity, high cost of medical treatment and shifting to nuclear family structure.

Has the shift away from Ulips hit LIC's ability to tap opportunities in equities?
The shift to traditional plans has been a conscious decision and has not impacted our ability to tap opportunities in the equity market. All investment decisions have been taken keeping the customer's interest at the fore, and if opportunities favor better returns to the customer, we would be back in equity markets in full swing. Witnessing the high volatility in the capital market, retail investors have refrained from going in for Ulips.

There have been reports that LIC is acting as a proxy for the government in recapitalizing banks...

As already mentioned, all investments are done with the focus on maximizing mobilization of people's savings. In the process, the government or banks may have benefited even as we strive to deploy funds to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. LIC is not a day trader and always goes into the market with a long-term perspective . Our decisions are always based upon proper diligence.

LIC continues to hit the 10% ceiling in more companies. Has there been any special dispensation from IRDA?
If you look at the size of our total investment portfolio of Rs 12 lakh crore, there is a limitation in terms of the number of companies that we can invest in. But even in cases where the investment has exceeded 10% of the company's capital, there is no concentration of risk for LIC because that investment is only a fraction of our portfolio.

What is your view on IRDA proposal that banks have zone-wise distribution pact with life insurers?
Prima facie, the idea does not seem to be very practical or customer friendly. The banks and LIC have a pan-India presence and zone-wise arrangements may only lead to duplicity of efforts and resources, which is a waste. We are, however, prepared for any distribution arrangements proposed by IRDA. This step may cause inconvenience to a customer, particularly those employed in transferable jobs.

The Direct Taxes Code proposes an EET (tax exempt at investment - tax exempt at accumulation - taxed at maturity) regime for life insurance policies?

Life Insurance is a long-term contract and EET would only act as a deterrent. The proposed exemption of Rs 50,000 is inclusive of tuition fees. The rise in educational expenses has been pretty steep and once the customer fulfils the educational needs of his children, there is nothing left as exemption for the insurance taken. We would advocate a separate exemption of up to Rs 1 lakh for insurance needs, exclusively for life insurance, health insurance and pension.

What has been LIC's international strategy after the global financial crisis?

Though we want to mark our footprint in some more territories, the regulatory compliance, being time consuming, constraints our entry. Nevertheless, focus is to increase the contribution of the foreign operations into our kitty.

LIC's credit card business has been in the offing for a long time...
We have now tied up with Axis Bank and have a fruitful partnership with them. The ultimate objective is to provide value-added credit card services to customers and employees of LIC, its subsidiaries and group companies. We wanted to increase the customer comfort and credit card was seen as a payment solution for them.

LIC has started selling products directly? What kind of direct distribution set-up do you envisage?
Direct marketing is one of our emerging distribution channels and is doing exceedingly well. This channel caters to customers who are tech savvy and prefer to deal with us online . We hope to sell policies online very shortly. We also have the direct service executives who provide the physical service to customers incase they require partial services like submission of the signed proposal form to the office.

It gives me great pleasure to be here today for the board meeting of Insurance Regulatory Development Authority (IRDA). It is a matter of pride that the financial regulatory framework in India is evolving in a manner which is conducive to development of a robust financial sector, ensures the independence of the regulators and enables the sector to grow in a healthy manner in line with the requirements of a growing economy.

We have traveled a long distance since the time Insurance was nationalized in 1956. As we look back from the time the IRDA Act, 1999 was enacted by the Parliament, it is heartening to note that the objectives for which the IRDA was created, have been largely achieved; and that the industry has been making steady progress. The growth in premium underwriting has witnessed strong CAGR of 22.3% during the decade 2001-2011. Insurance penetration and density at 5.1% in 2010 is a marked improvement from 2.71% in 2001. The public confidence in the industry has improved and is positive. The future looks bright for the insurance sector.

Asia excluding Japan will contribute nearly a quarter of global growth in next 5 years and within Asia, India will be the fastest growing general insurance market, with an average expected growth of 15%. A welcome feature is that the share of life insurance premium in the gross domestic savings with the household is about 18% and is increasing over the years. There are strong underwriting growth drivers. The demand for insurance products is likely to increase due to growth of household savings and purchasing power.

The insurance sector has been an important contributor to the infrastructure development of the country. The total investments of the insurance industry in infrastructure (as on 31st March, 2011) were to the tune of Rs 198,369 crore, of which 78% has come from public sector insurance companies.

I am happy to note that the Planning Commission and IRDA are working together to develop necessary framework for infrastructure financing. I am sure that IRDA will ensure all what’s required to ensure that the growth potential of the insurance sector is fully realized.

There are a few concerns that need to be addressed. Notwithstanding India’s rapid growth in recent decades, it has largely remained an underinsured market with financial vulnerability across most of the income segments. The protection level, as measured by level of sum insured to Gross Domestic Product, at 55% is still low, pointing to the need for promoting long term savings and protection. Further, the insurance market is structurally challenged in terms of profitability. The industry profitability is driven by the investment income, with continued deterioration in the core business economies. No Company in India has yet achieved a sustainable balance between growth and profitability.

The IRDA, through its regulations, has been ensuring policy holders’ protection. Initiatives such as dematerialized accounts, declining risk pool for third party motor pool, promotion of rural and social sector obligations, micro insurance policies, Institution of ombudsman and Integrated Grievance Redressal Mechanism, to name a few have strengthened the insurance sector tremendously. These efforts have to continue in the near future. IRDA, I feel has a crucial role at this moment to see that the sector develops in a healthy manner and the reach of insurance is maximized.

There are two potential scenarios for the market profitability (i) more holistic competition with new business models (ii) aggressive price based competition. It is the first option rather than aggressive competition in premium underwriting, that has been the case so far. While de-tariffing has resulted in significant lowering of premiums for the consumers, the adverse impact is being felt on the insurance company’s balance sheet. Underwriting performance is the biggest driver of superior returns and is the key differentiator between the top performers and the rest. To ensure prudent underwriting and curbing unhealthy and suicidal competition among the companies through undercutting premiums is something that the Regulator will need to address suitably.

The focus area for an insurance company should be to strive towards a proper business mix, distribution mix along with underwriting excellence, operation excellence and claims excellence. It is imperative that (i) companies adopt the granular growth approach and realign resources differentially by channel, product and geography, (ii) strengthen core distribution capabilities (iii) deeper retention through Customers lifecycle management, (iv) invest in technical excellence and (v) driving comprehensive expenses management. It is time for the IRDA to examine promotion of Digital channels and incentivize E-Governance and E-Policy so as to extend insurance coverage especially among the youth.

IRDA has made progress in ensuring policyholder’s protection. In continuing this work, IRDA should be expressively punitive to companies who resort to mis-selling or violate the initially agreed terms and conditions. I feel there is a case for moving to a 'use and file' system for approving products or mix it with the existing 'file and use' policy, in order to speed up the product approval process which has been the concern in the sector for some time. The regulatory environment should be conducive to changes with regulator seeking broad guidelines as opposed to micro management.

Indian market, despite newer models of distribution is still largely dependent on the agents and agency model of insurance. Can we think of a system where in the mass market/OTC vanilla products with low ticket size are incentivized by having a second level of agents with lesser entry restrictions? This will ensure widening the reach of Insurance especially in semi-urban and rural areas. The low penetration in general insurance is primarily because of low penetration in retail insurance product segment.

The efforts of IRDA in promoting rural and social sector insurance are steps in the right direction. In this regard I have instructed the LIC as well as four Public Sector Insurance Companies to have their presence in all district headquarters and upto the Tier IV cities as classified by Census. In addition, IRDA may think of setting up a pool which should be specifically meant to take up insurance literacy and awareness. This is one area I am concerned and concerted efforts are needed to make people realize the importance of insurance especially as old-age security.

IRDA should have a clear vision in insurance sector in India in this changing social economic scenario and have a consistent long term policy framework so that the industry can flourish.

To conclude, I would emphasize that though the journey has begun well, it is only half-complete. It is now up-to both the Department of Financial Services and IRDA to work in a manner that insurance becomes an effective tool for transforming the lives of individuals and the society at large

With some of the key budgetary proposals coming into effect from today, the tax payers will save some money on account of lower income tax liability, but will have to pay dearly towards essential services like telephone calls, beauty parlour visits and insurance payments.

Finance Minister Pranab Mukherjee in his Budget for 2012-13 had given some relief to tax payers by proposing to raise the income tax exemption limit for individuals to Rs 2 lakh per annum from Rs 1.80 lakh and readjusting the slabs that attract higher tax rates.

Under the new proposal, persons with income up to Rs 10 lakh per annum will save about Rs 1,030 and those earning more than Rs 10 lakh will see their tax liability coming down by up to Rs 20,599.

Although the Finance Bill 2012 is yet to be approved by Parliament, it is unlikely that Mukherjee will make any major changes in his proposals with regard to direct taxes which entail a sacrifice of Rs 4,500 crore on the part of exchequer.

On the other hand, his proposal of hiking service tax from 10 per cent to 12 percent, which comes into effect from today, will make telephone calls, beauty parlour visits, eating out in restaurants, insurance and travel by air and airconditioned rail coaches expensive. The effective rate of service tax would now be 12.36 per cent, up from 10.30 percent.

Mukherjee proposed to collect an additional Rs 18,660 crore during 2012-13 by hiking service tax rate. Currently about 120 services including advertisement, dry cleaning, health clubs, credit card etc attract service tax.

In order to expand the base of service tax, the Minister also proposed a negative list, a notification regarding which, however, would be issued later.

Under the negative list proposal, the service tax will be levied on all services expect those mentioned in the list. At present, the tax is levied on the basis of a positive list, meaning that it applies only to specified service.

The government proposes to collect about Rs 1.24 lakh crore from service tax during the current financial year, up from Rs 95,000 crore during 2011-12.

The services sector accounts for about 59 percent of the country’s Gross Domestic Product (GDP).

There will, however, be some relief for senior citizens (above 60 years) who will be relieved of the burden of paying advance taxes from this fiscal.

In order to reduce compliance burden of elderly persons, Mukherjee had proposed that "senior citizens, not having any income chargeable under the head ’Profits and gains of business or profession’ shall not be liable to pay advance tax and such senior citizen shall be allowed to discharge his tax liability (other than TDS) by payment of self assessment tax."

Individual assesses under the Income Tax Act are required to pay advance tax in three installments on September 15, December 15 and March 15 every year.

On the other hand, taxpayers, who hold foreign bank accounts or properties, however, will have to furnish details of their foreign assets which include information like country name, address of the bank, name mentioned in the account and peak balance during the year, after converting the value of the foreign currency in Indian rupee.

The government has already modified by the Income Tax Return (ITR) forms by introducing a new column about details of foreign assets. The taxpayers will have to furnish the details in their returns for assessment year 2012-13.