eServe Newsletter September 2011

IRDA no to TPAs for Government Schemes

The Insurance Regulatory and Development Authority (IRDA) has issued the Exposure Draft on Third Party Administrators (TPA) and has invited comments/suggestions from all stake holders on it.

IRDA had conceptualized the TPA as an intermediary who would play an important role in delivering Health insurance in a seamless manner to policyholders.

But now, the circular dated December 16th 2005, which said the IRDA had no objection to TPAs servicing of non-insurance healthcare schemes promoted by Central and State Governments, has been withdrawn with immediate effect. Licensed TPAs cannot enter into arrangements for servicing Health schemes promoted, sponsored or approved by any non-insurance body including Central, State, Local Governments, firms, corporates etc. during the subsistence of the TPA licence granted by the IRDA.

Existing contracts can continue to be serviced till the expiry of the contract period only and without any further renewal.

Uttar Pradesh Government - LIC MoU

The Uttar Pradesh Government has signed a memorandum of understanding (MoU) with Life Insurance Corporation of India (LIC) for payment of annuity to farmers affected by land acquisition for various projects.

As per the MoU, a farmer whose land has been acquired will get Rs. 23,000 annuity for 33 years with an increment of Rs. 800 per year, besides the compensation amount fixed by the Government. The Government has taken LIC’s group flexible income plan for the purpose and it will pay one-time premium to LIC.

IRDA fines SBI Life Rs.70 lakh

SBI Life Insurance Company, one of the country’s largest new generation Life Insurers and a subsidiary of State Bank of India (SBI), has been fined Rs. 70 lakh by the insurance regulator for making unauthorized payments up to Rs. 204 crore to various banks, including those in the State Bank Group, between 2005 and 2010.

Announcing the penalty, IRDA said its Group insurance norms barred companies from making any payment to corporate agents in excess of the commission approved by the authority. “Despite these specific guidelines, the Life insurer made payments to eight of its corporatge agents and six other master policyholders”, said IRDA Chairman in his written order. The IRDA has treated payment to each entity as an individual violation and imposed a penalty of Rs. 5 lakh for each of the 14 offences.

IRDA has thus rejected SBI Life Insurance’s stand that that these payments were reimbursement of administrative expenses in consideration of certain functions discharged by various entities in their capacity as master policyholder.

NIA loss rings alarm bells

The Government has reportedly taken a serious view of the net loss of Rs. 421 crore sustained by the country’s largest General Insurance firm, New India Assurance, in 2010-11, its first ever loss in 90 years of operations.

"It's a matter of concern that a public sector firm is reeling under losses. An explanation is called for", media reports quoted government sources as saying.

About Rs.300 crore of the loss was put down to "International operations".

"Terrorism Pool has no humane face"

The Terrorism Pool that the Indian Insurance Industry had set up following the September 2001 terrorist attacks in New York "does not project a humane face at present", said Dr. Amarnath Ananthanarayanan, MD & CEO, Bharti AXA General Insurance.

Though the pool was restricted to cover only Property, Fire and Engineering risks, including business interruption losses arising from property damage, it has grown steadily with contribution from the insurers in India over the years and today offers a cover up to Rs.750 crore per event per location, he was quoted as saying.

"Attempts to include other miscellaneous business apart from human life as part of the Pool have not been successful and hence it currently does not project a humane face", he added.

Terror incidents like those in July in Mumbai "do increase the risk perception and demand for higher rates in reinsurance-driven terrorism insurance", Mr. Sanjay Kedia, CEO, Marsh India, said. The latest terrorist strike "is no exception to that rule, with reports pointing to a spike in terror premiums."

Mr. Rajiv Kumaraswami, Head (Risk and Re-Insurance), ICICI Lombard General Insurance Company, said it was too early to say whether the rates would harden as a fallout of Mumbai "as it is a decision the pool's underwriting committee would need to take, which in turn would need IRDA approval."

Fund use: CBI probing LIC bosses

The Central Bureau of Investigation (CBI) has begun a probe against some top Life Insurance Corporation of India officials, including Mr. T. S. Vijayan and Mr. Thomas Mathew, both Managing Directors of LIC, for allegedly "misusing official powers to favour corporate firms", media reports said.

"A Preliminary Enquiry has been registered and probe is being conducted against Mr. Mathew and two senior LIC executives for alleged misconduct while investing LIC money in public issues or borrowings of other companies", a senior CBI official was quoted as saying.

Efforts to contact LIC and CBI sources failed and details are awaited though the reports alleged that, though Mr. Vijayan had been given a clean chit in an earlier case, he was now being accused of allegedly exposing LIC funds by investing in IP0s of companies "which are against the investment policies of LIC."

A new reason for LIC policyholders to smile

LIC policyholders now have a good reason to smile. Despite a global uncertainty across stock markets, LIC has declared a bonus of Rs. 21,580 crore for policyholders for 2010-11, which is 10.34% higher than the bonus rates in 2009-10. For details refer to table below.

As on March 31st 2011, LIC’s total assets stood at Rs. 13,17,416 crore, up from Rs. 11,52,057 crore in the previous fiscal, while the solvency ratio was 154.07% as against the prescribed 150%.

Insurance regulations in India, require LIC to pay 95% of its surpluses as bonus to policyholders while the remaining 5% is paid back as dividend to the government. The Corporation has declared a dividend of Rs. 1135 crore to the government.