Latest Updates from Industry
New India Assurance and General Insurance Corporation have obtained approval from their respective boards for listing of their shares in an initial public offering (IPO). With the companies looking at selling around 10-15% of their equity, the government could raise close to Rs 10,000 crore from the sale of shares.
"Our board has already approved listing of the shares and we have sent our proposal to the government for approval," said G Srinivasan, chairman, New India Assurance. He said that he expected the company to go for a listing within six months of the government's approval. Although listing of these two public sector insurance was part of the budget announcement, typically PSU divestment is cleared by the cabinet.
New India has not yet gone for a valuation. But insiders feel it should be close to Rs 50,000 crore. There are no listed insurance companies. However, recent M&A activity provides an idea of the valuation of general insurers.
LIC will get 1.6 million shares at Rs 96.63 each, a slight discount to the market price of Rs 97.95. Even so, there's a rider. The bank has mentioned in the EGM notice that, "The voting of LIC is restricted to 10 per cent of the total voting. Hence, issuance of fresh shares will not increase their voting right."
Regulation 12(2) of the Banking Regulation Act said, "No person holding shares in a banking company shall, in respect of any shares held by him, exercise voting right (on Poll) in excess of 10 per cent of the total voting rights of all the shareholders of the banking company."
Further in terms of Section 3 (2E) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the voting right of LIC will be restricted to 10 per cent of the total voting right of all shareholders of a bank.
Life Insurance Corporation increased its stake in all the three listed automobile companies, Maruti Suzuki, Tata Motors and Mahindra & Mahindra. The country's largest institutional investor also raised its stake in Hero MotoCorp.
The government-owned insurance firm has booked profit in Ashok Leyland and marginally brought down shareholding in TVS Motor and Bajaj Auto in the year ended March 31, 2016.
Interestingly, stock prices of all these companies, barring Tata Motors, have seen an appreciation in the year ended March 31. Significant appreciation has happened in Ashok Leyland (47.6 per cent), TVS Motor (22.33 per cent) and Bajaj Auto (19.26 per cent).
The rest have seen single-digit gains. LIC's decision to reduce stake in Ashok Leyland and TVS Motor is in line with the sharp run seen in both these stocks. "LIC has booked profits after the run-up in these stocks," said S P Tulsian, an investment advisor.
LIC has had a good run in the Gulf countries with its Bahrain-based arm LIC International that manages the GCC markets becoming the best among its eight international subsidiaries in terms of new business premium collection in 2015.
The Bahrain-headquartered LIC International is present in five Gulf Cooperation Council (GCC) countries of Bahrain, Dubai, Kuwait, Oman and Qatar. This subsidiary has contributed over 80 per cent of the Corporation's total overseas business in terms of new business in 2015.
The Corporation also has eight overseas subsidiaries - Britain, Fiji, Mauritius, Bahrain, Nepal, Sri Lanka, Kenya and Saudi Arabia.
"New business premium of LIC International grew by a whopping 197 per cent at USD 121 million in 2015," chief executive and managing director of LIC International Rajesh Kandwal told.
"We sold 13,120 policies in 2015, which is a growth of over 16 per cent over previous year. In terms of the number of policies, we enjoy over 88 per cent of market share in Bahrain in 2014," he added.
The Insurance Regulatory and Development Authority of India has granted special approval to 23 Cross Border Reinsurers (CBR) for the year 2016-17.
This will allow Indian insurers to make reinsurance placements with a large number of reinsurers. Cross-border reinsurers are those who do not have a physical presence in India but carry on reinsurance business with Indian insurance companies.
According to PJ Joseph, Member (Non-Life), IRDAI, approvals were given on the basis of submissions made by CBRs and the recommendations made by the insurers and GIC Re in line with the guidelines issued by the authority earlier.
The approved CBRs include Ingosstrakh Joint Stock Insurance Company (Russia), Asian Reinsurance Corporation (Thailand), Trust Re (Bahrain), United Overseas Insurance Company (Singapore), Equator Reinsurances Ltd (Bermuda), East Africa Reinsurance Company Ltd (Nairobi), Vietnam National Reinsurance Corporation (Vietnam), CICA Re (Kenya), Arab Insurance Group (Labuan) and Union Insurance Company (UAE), among others.
Reinsurance assumes significance as it is important to maintain solvency of the insurer and to ensure that the claims/other clauses are honoured as and when they arise. In the year 2015-16, the regulator had recognised 244 reinsurers and 90 Lloyds Syndicates.
Use of data analytics will improve product design and distribution which will expand the reach of insurance, according to T S Vijayan, Chairman, IRDAI.
Proper collection and deployment of data for analysis will help filling existing gaps in key areas such as auto, health insurance and disaster management/ insurance, he said adding that the data must be put to appropriate use.
R Raghavan, Chief Executive Officer, IIB said the objective of the conference was to learn from the Asian experience and also offer Indian expertise in data collection and analytics to the participating countries.
The additional tier-1 (AT-1) bond market, which has been witnessing subdued demand, is likely to see some activity with the possibility of the Insurance Regulatory Development Authority of India allowing insurers to invest in this category of bonds issued by banks.
The regulator is considering allowing insurers to buy hybrid AT-1 bonds issued by banks, senior official VR Iyer quoted.
AT-1 bonds do not have a fixed maturity date, and investors demand for a higher yield because of their perpetual nature and risk associated with the instrument.
IRDAI has approved as many as 16 proposals amounting to Rs 14,591.9 crore as foreign investment. "Post notification of the Insurance Laws (Amendment) Act, 2015, IRDAI has approved 16 proposals amounting to Rs 14,591.89 crore as foreign investment in the insurance sector," Minister of State for Finance Jayant Sinha said in a written reply in the Rajya Sabha.
The government had notified the Indian Insurance Companies (Foreign Investment) Rules, 2015, to facilitate foreign investment in the insurance sector. To bring clarity on Indian owned and controlled, the Insurance Regulatory and Development Authority of India has issued guidelines on the same.
United India Insurance has received a claim from the Federation of Indian Chambers of Commerce and Industry (FICCI) for the damage caused by a massive fire to its building in the National Capital.
The iconic National Museum of Natural History, which was housed in the FICCI building, was destroyed.
Milind Kharat, Chairman and Managing Director of United Insurance, said FICCI has lodged a claim with the company and the size of the cover is Rs 45 crore.
Industry experts said that it is yet to be ascertained if the National Museum was also separately insured.
According to reports, the three floors that housed the displays were gutted and museum officials have not yet managed to take stock of what they can salvage from the thousands of artifacts that were a part of its collection.
The fire, which broke out in the wee hours on April 26, could potentially have destroyed several fossils, including a 160-million-year-old dinosaur skeleton, a collection of bird eggs, and several stuffed animals, besides preserved butterflies, amphibian and reptile specimens.
M Ravichandran, President-Insurance, Tata AIG General Insurance, said the increasing damages in recent fire incidents concern insurers due to the difficulty posed in fire-fighting operations, such as hindrance in accessing building/structure due to clogging of entry points, poor maintenance of fire protection system/equipment, and lack of awareness in operating/handling fire-fighting equipment.
Finance minister Arun Jaitley may have cleared the way for public listing of state-owned general insurers, but National Insurance and New India Assurance may first go for strategic stake sale to arrive at a valuation before their initial public offerings.
A senior executive of New India Assurance said, "We have not decided on the quantum but we want to explore the idea of strategic stake sale." The official also said that the company is waiting for directions from the government on how to go ahead with listing. "We would like to open many more branches and for which we need capital."
The finance minister had in his budget speech last month proposed to list New India Assurance, National Insurance, United India and Oriental Insurance and reinsurance company General Insurance Corporation.
Country's largest non-life insurer New India Assurance is targeting to achieve a global premium of Rs 20,800 crore in the current fiscal, a top company official said. The company recorded a global premium growth of 14.46% in 2015-16 at Rs 18,371 crore.
While domestic operations rose 14.47%, foreign operations recorded a growth of 15.10% during the reporting period.
"We have done well in the year due to recovery in the country's economy and we are quite upbeat about registering a better growth during the current fiscal too. NIA's market share increase has happened for a third year in succession," New India Assurance (NIA) Chairman and Managing Director G Srinivasan said.
The net worth of the company, including fair value of investments, stood at Rs 28,845 crore in 2015-16. The asset base of the company was around Rs 62,880 crore during the reporting period.
India’s first insurance policy covering public liability to an atomic power plant operator has been issued to Nuclear Power Corporation of India Ltd (NPCIL) but the reinstatement of insurance value post a claim will be decided later, industry officials said. The insurance policy was issued by the country’s largest non-life insurer New India Assurance Company Ltd.
“We recently got the insurance policy covering all our atomic power plants. The total premium came around Rs. 100 crore for a risk cover of Rs. 1,500 crore,” S. K. Sharma, Chairman and Managing Director, NPCIL, said.
The policy complies with all the provisions of the Civil Liability for Nuclear Damage Act (CLND), said a known insurance industry official.
The policy would cover the liability towards public as a consequence of any nuclear accident in the plants covered under the policy and also the right of recourse of NPCIL against equipment suppliers.
The insurance coverage will be for all the NPCIL’s plants— like a floater cover.
Insurance schemes under the Pradhan Mantri Jan Suraksha Yojana will not see any premium increase this financial year. While pure-term insurance and personal accident policies under the scheme have seen claims being reported and paid, the price of the cover has not been revised upwards.
Insurers expecting some upward movement due to claims will now have to provide the cover at the same cost. Besides, a pension scheme (Atal Pension Yojana), the scheme provides term insurance and an accident insurance scheme - Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY). Eleven months since launch, the schemes have sold almost 124 million policies.
"Volumes have been big and, hence, the sector has faced claims as well. Some premium increase was expected but we are told that there would not be any in this financial year," said a senior general insurance executive. There could, he said, be some revisions from FY18, based on data. The plans have a cover of Rs 2 lakh each, with a premium of only Rs 12 a year for accident insurance and Rs 330 for the life product.
With the authorities tightening the screws on directors and senior corporate bosses after Láffaire Vijay Mallya and the Panama Papers revelations, there has been a scramble by companies to get large Directors and Officers Liability (D&O) insurance policies.
Corporates are opting for covers as large as Rs 500 crore, says Mahesh Chainani, Senior VP at Howden India Insurance brokers, which specialises in D&O policies.
Premiums in this segment have crashed almost 60 per cent in the last five years due to rising competition among insurers, Chainani adds.
However, a key exclusion in the D&O policy is loss arising from dishonesty, fraudulent conduct and self-admission (of wrongdoing), but the policy will cover all innocent employees, say insurers.
KG Krishnamoorthy Rao, MD & CEO, Future Generali says, "Initially, D&O policies were taken only by listed companies. However, in the last two years, there has been a demand for such policies by non-listed companies such as SMEs and start-ups as well."
Insurers also say that with increasing litigation and widening corporate exposure, the coverage sought has widened beyond the basic policy.
Private insurance companies are using drones to photograph farms and if permitted by the agriculture ministry these could provide data to calculate crop yield.
Insurers are using unmanned aerial vehicles as a pilot scheme. The agriculture ministry has called for use of such modern technology for the Pradhan Mantri Fasal Bima Yojana (PMFBY).
Drones have not gained widespread commercial use, as individuals need permission from local governments and other regulatory bodies to fly them. The government is also keen on using technology such as Smartphones and remote sensing to reduce crop cutting experiments and help cut delay in payments to farmers. The government is planning to spend Rs 5,500 crore on the crop insurance scheme.
Anuj Tyagi, member of executive management at HDFC ERGO General Insurance, said his company had conducted a project with drones in Rajasthan.
"We think using drones will be a successful experiment," he added. He said in Rajasthan, his company had looked at data collected by drones as well as satellite images, and they were happy with the results. ICICI Lombard is also using drones for crop yield data.
Life Insurance Corporation of India has used market volatility during the March quarter to raise its stake in companies on the Sensex, including Housing Development Finance Corporation (HDFC), HDFC Bank, Tata Motors, TCS (Tata Consultancy Services), and Maruti Suzuki.
Of the 27 companies where shareholding pattern data for the March quarter is available, LIC raised its stake in 13 companies during the January-March quarter from the level seen in the preceding three months. In seven companies, the holding declined, while in the remaining seven the stake remained unchanged.
"This is a well-known pattern. Whenever the markets are in a correction or a volatile phase, or even when the foreign institutional investors (FIIs) are selling, LIC comes in and buys or raises stake in stocks of blue-chip companies. And the companies it has raised stake in the March quarter have good stocks. These stocks will do well and generate a good return for LIC. The move also acts as a counter-balance to the FII selling," says Dhananjay Sinha, head of institutional research at Emkay Global Financial Services.
LIC owns about 15% in Axis Bank, but now it's pushing Axis bank to sell insurance policies through its more than 2,500 branches, testing its existing partnership with Max Life.
"We are in talks with Axis Bank to sell LIC's products through their branches," said an executive at the country's largest financial institution. If Axis Bank begins the work, it would be an opening that could lead to several such tie-ups in the future as a new rule permits banks to tie up with more than one insurance company.
But that could be a drawback for those like Max Life which already have an alliance to sell their products exclusively.
LIC, which gets less than 5% premium income through banks, would immensely benefit if Axis agrees since banks are key growth drivers. Other insurers get as much as a quarter of their overall new premium income selling via banks. The share of banks in new business was 20.84% for the private sector industry in 2014-15, data from the insurance regulator shows.
LIC is aiming to double its business in terms of new policy issuance to four crore in the current fiscal and will hire two lakh new agents to augment its field strength. Life Insurance Corporation (LIC) currently has an agency force of over 10 lakh.
These targets were set out for LIC by Chairman S K Roy and said, "During Fiscal year 2016-17, let us commit ourselves to set new records in sales and exponentially expand on individual non-single premium segments.
We should target a minimum 4 crore lives to be covered and minimum two lakh agents to be added in 2016-17". His optimism comes from the robust growth the Corporation could record in financial year 2015-16, wherein it grew by close to 25 per cent in terms of new policy issuances.
"Financial Year 2015-16 was a year of recovery for us. We recovered from below-par performance in fiscal 2014-15 to show positive results. On the basis of reporting of figures to the IRDAI, we have grown by 24.74 per cent growth in first year premium and 1.86 per cent growth in policies/ schemes," Roy said.
Insurance Regulatory and Development Authority of India (IRDAI) will make certain changes to its guidelines for facilitating insurance companies to go public, according to a top official.
Insurers at present has to take the Authority's permission for selling more than one per cent of equity. This stipulation has to be changed when they plan to make an IPO, according to T. S. Vijayan, Chairman, IRDAI.
The IRDAI, he said, was also in the process of announcing a timeframe after which insurers could make an IPO. "We are working with the companies... not decided on the timing (minimum years of operation before going public)," he said.
Listing of the shares would contribute towards better corporate governance and transparency, he said.
IRDAI's move comes in the backdrop of at least two life insurers exploring the prospects of coming out with an IPO.
The insurance regulator has warned life companies against overdependence on banks for selling policies. Banks are now the dominant mode for distributing policies of private insurers, and the share of individual agents which is the core agency force of the insurance industry has declined.
IRDAI had called a meeting of CEOs of life companies and bancassurance was one of the issues raised where the fear was that if there was any eventuality which compelled the RBI to prevent banks from selling insurance, companies dependent on banks would see their sales being hit.
Insurance officials, however, say the bancassurance model is line with the developed markets, and banks are the dominant channel for distribution of life products in Europe and they are growing their share in Asia.
IRDAI also made it clear to the industry that they would not have the freedom to increase commission. Earlier, the regulator had said that it would focus on overall costs to the policyholder, leading many to believe that commission rates would be freed as long as they remain within the overall cost ceiling. The regulator told life companies that the trend was towards lower commission across industry and the insurance sector could not be an exception.
Individualâ€™s income is dependent upon the investment of his time. Over a period of time, he saves sufficiently to provide for the time, when he is too old to earn. But no body can guarantee him this time.
This uncertainty of time leads him to the invention of insurance. The story goes of a newspaper hawker boy who used to go on cycle to distribute newspapers to earn his livelihood. One day, when he left his cycle outside a house and went in to deliver the newspaper, his cycle got stolen. He had thereafter no means to run around. Walking would be a slow process and his income would dwindle. The boy was a smart one. He called his other brother hawkers and narrated his story. Many others in the same job had similar stories to tell.
They just hit upon an idea. A cycle say would cost Rs. 100/-. There were almost 100 hawkers. Almost every year one cycle was getting stolen. Only if they could have a fund of Rs.100/-such a loss suffered by any of them could be compensated. And the creation of a fund of Rs.100/- merely means a contribution of Rs.1/-Â per person per year.
The concept of insurance was born. A co-operative society was created, where each member of the family contributed a small portionÂ to provide for a possible big loss which was too big for any one to bear.
This crude beginning could later on be applied to varied circumstances. The traders, who sailed on the uncharted high seas, faced the risk of damage or total loss due to storm on the high seas. House--owners found the risk of fire to their house too ruinous to bear. Life being the most precious of the productive assets similarly needed to be protected.
Insurance, let it be noted, does not prevent the loss to occur. It cannot prevent thievery, fire, sinking of a ship due to storm or even death of the bread winner. Far from it, if they could be prevented, there would be no need for insurance. It is only the damages beyond the control of men, purely accidental, or due to fury of nature, which are subjects for insurance.
An intentional damage caused by the insured is an act of sabotage and is therefore a criminal action. In case of human life, even suicide, at least during the short period of one year, is beyond the pale of insurance.
We call life insurance a social security tool because without the provision of insurance, this human society would consist of hapless old people, helpless widows, unprotected orphans. The economy would not survive let alone grow.
The factories would not restart after a fire, houses cannot be rebuilt after an earthquake or a cycle or a motorcycle for that matter cannot be replaced after being stolen. Unlike a socialist society or a highly developed capitalist society where the State takes care of individuals who become destitutes or deprived, in a developing society like ours, the State is too poor to take up such responsibilities.
In the Directive Principles of State Policy, the Constitution of India makes certain mission statements. In article 41, it states that the state, within the limits of its economic capacity and development, shall make effective provision for securing the right to work, to education and to provide public assistance in case of unemployment, old age, sickness and disablement and in other cases of undeserved want.
What it has been able to do, is for anybody to see. There are certain insurance schemes floated for the socially disadvantaged, the details ofÂ which we shall discuss, when we proceed.
The declaration of Human Rights by United Nations similarly declares from the house top that every one has a right to a standard of living adequate for health, well-being of himself and his family including food, clothing, housing, medical care and necessary social services and the right to security in the event of unemployment, sickness, disability, widowhood and other loss of livelihood in circumstances beyond his control.
If wishes were horses, beggars would ride. Even in highly developed countries like Britain and United States where some medium of social security is available, insurance, both life and general is a thriving business.
Insurance is based upon the universal axiom, â€œGod helps him, who helps himselfâ€. There are only three sources of income when calamity has befallen - savings, charity and insurance. Savings needs time to accumulate.
Normally in case of human beings, 90% of the income comes from investment of time and 10% of the income comes from savings. As one grows old, the ratio is reversed and 90% of his income comes from his savings and 10% from investment of his time. That is the ideal situation. But who can guarantee him the time - time to save adequately so as to reverse this ratio.
The second alternative - charity is too demeaning to be even considered as a proper alternative. The only viable alternative therefore is insurance. It is a product of individualâ€™s farsightedness, his present sacrifice for a future gain. It is commensurate with his self respect and dignity.
In case of a house burnt due to an accidental fire, he does not have to go to other members of the society begging help. Insurance thus creates a society of proud people who know how to take care of themselves even during difficult times. Insurance is thus a tool of social security par excellence.