Banks Role in Insurance Distribution Business

Banks role in Insurance Distribution Business

As the financial year 2013-14 is approaching towards its end. People are rushing for tax saving investment options and for tax saving insurance product is very popular among the investors. However, in my personal opinion it becomes very toxic product if you mix your insurance need and investment. Insurance mainly sell by individual agents, brokers, direct selling and banks.  

Banks are the main contributor in the sells figures of private insurance companies products. In India, people have immense faith on banks. They still prefer bank FD even the net inflation adjusted post tax return is very poor. Due to this blind faith on banks, common investors become a victim of mis-selling of these products. I met a lot of cases almost in every investor meet of mis-selling by the banks. The complaints of mis-selling by banks are increasing. Due to this mis-selling complaints, bank regulator RBI has proposed the new guidelines for selling of insurance products. The main RBI proposal as given below:

• ·         A bank’s NPA should be less than 3%
• ·         It should have made profits for last 3 consecutive years
• ·         A bank’s net worth should be at least Rs 500 crore

The government is also planning to mandate multi insurance companies sales for bank. At present banks are selling only one company’s products. The insurance regulator IRDA has also capped a bank’s sale of joint venture partner’s products at 25% of the overall.

In fact the aim of insurance sales by bank is to increase the reach among the maximum people as banks have wider branch network across the country. The above mentioned proposal by RBI, IRDA and govt are not fully implement. We hope that after implementing these guidelines mis-selling would be stop to some extent. However, insurer would not allow implement these guidelines in very smooth manner.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com 

Insurance Sector Update - November 2013

Insurance Update – November, 2013

I am starting for now onward to simple update on insurance industry time to time. Insurance is very vital and critical part of any financial plan. It is our duty as an advisor and planner to inform our readers to update about this industry. A lot of regulatory activity is going on and companies come with new customized product. Every investor must know about this. Some recent update as given below:

• According to FICCI report, General insurance industry may touch gross written premium (GWP) 3 lakh crore by 2025 with a conservative growth rate of 13% CAGR. According to report that increased health insurance awareness would increase the opportunities in this sector.

• National Disaster Management Authority suggested that insurance should be mandatory for residential properties, malls, theaters, hospitals and hotels. It also be recommended that it should be applies on all urban property tax payers.

• Insurance regulator IRDA has increased investment limit in various category. Now general insurance companies are allowed to invest upto 1.50% or Rs, 3,500 crore in liquid mutual fund. It is for temporary time and can be reversed at a later stage.

• Life insurance companies now can invest upto 5% in FD schemes of promoter group bank. Earlier the limit was 3%. IRDA has also increased  invest limit to invest in information technology and industrial sector from existing 15% to 20%.
• Reliance life insurance has launched policy revival drive. In this campaign lapse policyholder can revive their lapse insurance policy without any penalty and medical tests subject to conditions. This offer will available till 30^th November, 2013 for all reliance insurance products.

• IRDA wants insures to stop giving high incentives to auto dealers. For pushing motor insurance policies sales, insurers offering high incentives to auto dealers and due to this policy holder are paying unreasonable premium.

• IRDS has also proposed to set up insurance clearing house. For smooth functioning of reinsurance and coinsurance business IRDA want to establish “Insurance Clearing House”. It would be promoted by Indian insurers, reinsurers and the authority.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

New Guidelines from IRDA for index link and health insurance

New guidelines from IRDA for life insurance and general insurance product

In last few days, The Insurance Regulatory and Development Authority (IRDA) has issued some important guideline to life insurer and non life insurer. According to new guidelines for traditional product, non-linked variable insurance products (index-linked products) to be treated at par with unit-linked products (Ulips). The insurers have been given time till June 30 2013 and September 30, 2013 to re-file their group and individual products respectively.

Guideline for Commissions:

The cap for first year commissions has been put at 15% for the first year for a 5 year term, 30% for 10 years and 35% for 12 years or more. The insurer in industry less than 10 year this cap would be 40%. In the case of polices are procured by direct marketing, there would be no commission allowed. According to new guideline the shareholders will get at 10% of the surplus and the policyholders would be entitled to 90% share of the surplus.

Guideline for surrender value:

The minimum guaranteed surrender value would be 30% of the total premiums paid less any survival benefits paid, if policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 70% of the total premiums paid less any survival benefits already paid. If surrendered during the fifth to the seventh policy year, it would be 90% of total premiums paid, less any survival benefits already paid.

Guideline for death benefit:

According to new guidelines for death benefit Irda said the minimum death benefit at highest of 125% of the single premium or minimum guaranteed sum assured on maturity or any absolute amount to be paid on death, for single premium products. For other products, it will be highest of 10 times the annualised premium or 105% of all premiums paid on date on death, or minimum guaranteed sum assured on maturity or any absolute amount to be paid on death.

Norms for pension product:

For pension products, it said that upon surrender of pension products, one-third can be commuted and balance can be received only as annuity upon superannuation with the same insurer. The same option is available upon vesting with additional option of extension of deferment period if aged less than 55 on vesting.

New norms for health insurance:

IRDA has allowed to general insurance companies to launch 3 year health insurance policies. Now insurer cannot refuse the renewal without any sufficient reason. Longer period health insurance is good for customer as till 3 year renewal done automatic and also get the cheaper premium than current they are paying.

If you have any other query related investment and financial planning feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com