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Lic to Introduce Rima Nivesh 2005
LIC’s Bima Nivesh 2005, a single-premium product, will offer a return of 5.5% for a 10-year policy and 5.3% for a 5-year cover. Bima Nivesh 2004 offers 5% on a 10-year policy and 4.8% on a 5-year cover.
Since 2000, when the original single premium policy, Bima Nivesh, came into being, the assured rate or return on this plan has been slipping from a height of 10.5% for a 10-year cover. This is the first time the return will go up.
Bima Nivesh 2005 is awaiting approval from the insurance Regulatory and Development Authority, IRDA, and is expected to be launched before the close of the financial year. With market interest rates rising, the 50 basis point increase is in line with the growth in returns.
LIC is also awaiting approval for its unit-linked pension plan filed earlier this year. Despite the removal of tax exemption on this plan, on account of its being a single-premium product, LIC has seen a growth rate of 474% in sales of this product this year.
Between April 2004 and January 2005, LIC mopped up Rs. 2,071 crore (Rs. 20.71 billion) from the sale of single-premium products, a large portion accounted for by Bima Nivesh 2004. LIC sold single-premium plans worth Rs. 360 crore (Rs. 3.6 billion) in the corresponding 10-months period last year.
With Bima Nivesh 2005, that is expected to be introduced before the end of 2004-2005, LIC hopes to push this growth rate further.
Despite the removal of the tax exemption under Section 88 for single-premium plans, policyholders of Bima Nivesh enjoy tax-free returns at end of the policy period under Section 10 (10D). Thus, many individuals who are not in the tax bracket tend to put large sums of this plan.
LIC to Have Separate Investment Units :
LIC has decided to carve out the investment activity of group business into a separate division. From April the investment activities of group and pension business will be conducted separately. Until now the corporation had a common investment department for both individual as well as group business.
The group business, which currently accounts for an investment portfolio of around Rs. 30,000 crore (Rs. 300 billion) has a different investment outlook compared to long-term life insurance policies.
Last year, the corporation had decided to create separate strategic business units for pension and group business, international operation and real estate. The SBUs have also been given a separate actuary.
LIC to Recruit Lakh Agents :
The Life Insurance Corporation of India plans to recruit around one lakh agents mainly from areas that have not contributed much towards premium income.
The corporation, apart from increasing the number of agents also plans to work out ways to increase the productivity of the existing agent work force. It plans to cross Rs. 3.11 crore new policies by March 2005 an increase of about 15%.
Life Insurers Ready to Share Network With MFs :
The life insurance industry has indicated a desire to work in collaboration with the mutual funds, offering them its distribution strength. The move comes ill the wake of mutual funds complaining to the Securities and Exchanges Board of India (SEBI) of life insurers encroaching into mutual funds territory with unit-linked plans.
Life insurance companies feel that by working together, both the insurers and the asset management companies can increase their share of the savings pie, which they feel is under threat from increased spending of FMCG, White goods and automobiles.
They feel that with over 40% of domestic savings in banks, insurance companies (14.5% share) and mutual funds (1.1%) can grow without hurting each other’s prospects.
Unlike traditional products where investment details and various charges are kept under wraps, ULIPs project all this information up-front. But at the same time the investor also takes upon himself the investment risk.
PNB Plans Life Insurance Foray :
Punjab, National Bank (PNB), the country’s second largest public sector banks, is now planning to diversity into life insurance business. PNB has already applied to the Reserve Bank of India (RBI) in this regard.
The company will set up the life insurance business in a joint venture with the Principal Finance Group of the US, Vijay Bank and Berger Paints with equity participation of 24%, 12% and 34% respectively.
The PNB will have 30% stake. The joint venture will be the country’s first agent- less life insurance office. The proposed joint venture, which will start operations in the next six months has a model distinct from the other 14 life insurance ventures in the country and is being planned to be the country’s first agent-less life insurance office.
Principal Group has plans only to sell group and corporate life insurance policies and would not venture into retail insurance products. It would prefer to sell through bancassurance tie-ups.
IRDA May Allow NGOs to Sell All Insurance Products :
The Insurance Regulatory and Development Authority may allow Non-Governmental Organisation (NGOs) and self-help groups (SHGs) to act as agencies for life and non-life insurance companies under the new micro-insurance scheme.
Until now NGOs and SHGs were allowed to sell health’, insurance products only. However, they are now likely to be allowed to distribute other life and non- life products as well.
Non-governmental organisation and self-help groups are not required to have the mandatory capital base of Rs. 100 crore, as applicable to insurance companies. The scheme will be unveiled soon. It is expected to help in better distribution of products in rural areas.
The comprehensive scheme will cater to the poorer section of society. The IRDA has decided to relax its norms in a bid to offer insurance products for a minimum assured sum of Rs. 10,000.
IRDA Irked with Inconsistent Pricing:
Unhappy with the present pricing, the IRDA has asked insurance companies to be consistent in pricing critical illness products by sticking to one standard data.
With no reliable data available at present to base the rates on life insurance companies are modifying the critical illness rates provided by reinsurer based on the experience abroad.
The insurance regulator has asked the Actuarial Society of India (ASI) to suggest reference tables that can be the basis till a morbidity table in drawn up. Once that happens, insurance companies will have to follow the said data for pricing products.
Life Insurers Want to Keep Tabs on Mortality Trends :
Life insurers are coming together to unravel the mystery of mortality. With some serious number crunching on mortality trends and sickness incidence, life insurers aim to get a clear view to design their products and work out premium.
At present, all life insurance payers depend on the data on mortality of the Life Insurance Corporation of India. The move proposed by the Life Insurance Council; is to set up a Mortality and Morbidity Investigation Bureau in collaboration with the Actuarial Society of India.
The exercise will be funded by the life insurance industry and technical support will be provided by ASI. It will be a joint venture entity.
The whole exercise would be based on decoding statistical data on death rate in every age group. The mortality rates are improving in the country with access to better healthcare facilities.
On the other hand, there is a rise in sickness level and there is no data available correlating age, nature and extent of sickness.
Eligibility of UCB’s lowered to Rs. 50 crore :
Urban co-operative banks toying with the idea of taking a plunge into insurance as a corporate agent can now be a happier lot. For, the Reserve Bank of India (RBI) has brought down the minimum eligibility to Rs. 50 crore from Rs. 1000 crore. Urban cooperative banks UCBs will now be able to undertake risk business on a referral basis without RBI approval.
The apex bank had earlier laid down stringent rules to ensure that only those UCBs that are financially strong participated in the insurance business. But, with the relaxation allowed.
It has said that no restrictive practice should be adopted by UCBs and that customers should be allowed to exercise their own choice. Also it has said that the UCB’s agreement with an insurance company should be for a period not exceeding three years.
Insurance Costs to Increase Post April 1, 2007 :
Insurance policies will become dearer from April 1. This means that a policyholder will have to sell out 1.2-1.2% addition premium in the coming financial years, depending on the type of product chosen, and the composition of savings and risk elements within the cover.
The less the savings element, the higher the additional premium a policyholder will have to bear as the service tax is being loaded on the risk portion of the cover.
Following the government’s decision to load a 10% service tax on the risk portion of insurance premium plus the 2% education cess, policyholders will have to bear the tax, which has till now been absorbed by the insurance companies.
In a meeting of the life insurance council, which has representation of all the 14 life payers, it was decided that insurance companies would pass on the tax liability to policyholders with respect to unit-linked plans, pure term insurance covers and group plans.
In case of a pure term insurance plan, the tax will be levied at the rate of 10.2%. On traditional plans, it was decided that individual companies would decide whether they would bear the burden and absorb the costs, or pass it on to the policyholders.