INSIDE THE ISSUE

3rd - 9th October 2014

New Motor Vehicles Act proposes big fines for uninsured vehicles owners - The Economic Times

Driving an uninsured car or motorcycle may cost you dear, if proposals in the new Road Transport & Safety Bill are passed by the Parliament without changes. General insurance companies, on the other hand, will be smiling all the way to the bank.

If a motorcyclist is caught riding without an insurance policy, the penalty will be Rs 10,000 while owners of light motor vehicles and autorickshaws will have to cough up Rs 25,000. For any car or a truck driver caught driving without an insurance policy, the penalty is as high as Rs 75,000. This compares to a fine of Rs 1,000 for all vehicles under the law currently in place.

Bill Will Replace Motors Vehicles Act The draft version of the Bill, which was put on the ministry's website on September 13, seeking feedback from the public, has largely attracted attention because it has proposed stringent penalties for traffic offences such as drunken driving and an accident in which a child is killed.

However, the fines for driving uninsured vehicles are also many times existing levels and could drive up insurance penetration manifold if the final version is similar to the draft one. "This (the enhanced penalties) will increase penetration of motor insurance," said Vijay Kumar head of motor insurance Bajaj Allianz General Insurance. The Bill will replace the Motors Vehicles Act, 1988.

Although insuring any automobile plying on the road is mandatory, many people violate the rule. A study by New India Assurance Ltd, state-run general insurer, has shown that nearly 70% of motorcy cles and scooters on the road are not insured. About a third of the cars and trucks are uninsured as well. Insurance company officials say that penalties should go beyond fines and include loss of licence for repeated violations. "More than the extent of fine, it is the ability not to drive that would be important for insurance companies," said Sanjay Datta, head of motor insurance at ICICI Lombard. "If the rules say that a three motorcytime offender will lose his licence, it will bring discipline."

To promote insurance penetration among automobile users, the Insurance Regulatory & Development Authority is easing its rules. It has allowed longer tenure policies - these include a three-year policy for twowheelers as well as third-party insurance. Long term products for car insurance are also in the works. Insurance companies have suggested to the government that third party liability should be limited to Rs 10 lakh. So far, liability for motor vehicles is unlimited while it is capped at Rs 5 lakh for aircraft and Rs 2 lakh for railways.

The industry also wants the claim allowed under two jurisdictions— one, where the accident has happened and the other where the vehicle is registered. Also, the claim has to be filed within three years of the accident taking place. The Bill has proposed setting up a motor accident fund to help grievously injured people and compensate legal representatives of a victim.

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More features likely in domestic travel insurance - Business Standard

Travel insurance, especially on the domestic front, is to come with more features for customers.

"The product is one of the cheapest in the market. Hence, even if claims are low, it will not be possible to bring down the cost further. What we as an industry can do is to add more features to the basic policy," said a senior general insurance executive. Of the total non-life product portfolio, travel insurance contributes barely two to three per cent of total business.

The premiums for domestic travel insurance range between Rs 150 and Rs 2,000, depending on tenure and coverage. Currently, domestic travel policies are usually offered in association with travel portals and are priced at Rs 100-Rs 200 for domestic air travel. The shortest duration for which one can buy travel insurance is seven days. For instance, on an annual policy, which allows unlimited trips of less than 30 days each, the premium is around Rs 2,700. Sector executives said the additional features could include assistance for emergency evacuation during domestic travel, apart from covers for hand baggage. This would be available at the same price.

"This could help increase the purchase of travel insurance, very low on priority among individuals while travelling in India," said the underwriting head at a private general insurer.

A survey by ICICI Lombard said while Indians travel more frequently and on longer duration trips, there is low demand for travel insurance. The ICICI Travel Trends 2014 survey said for domestic trips, only four per cent of respondents took a travel cover, though 86 per cent were aware of it and 64 per cent thought it was essential.

Travel insurance offers medical expenses due to emergency ailments or accidents. Other expenses covered include costs on missed or delayed flights, alternative accommodation, misplaced baggage and evacuation in case of an accident due to natural calamities. In addition, these policies offer additional amounts for accidental death and associated transportation for family and accommodation for extended stay.

Given the rising popularity of adventure sports such as motor rallies, bungee jumping and rafting, insurance companies also offer policies for such holidays, albeit at a higher premium. Accidents or death resulting from these sports are not covered under a basic travel policy.

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Farmers to get Rs 397 cr as crop insurance claim - Business Standard

The Agriculture Insurance Company of India Ltd (AICIL), the implementing agency of the National Agriculture Insurance Scheme (NAIS), has sanctioned Rs 397.23 crore towards crop insurance claim against crop loss in Kharif-2013.

As many as 373,126 farmers of 1,397 gram panchayats in 143 blocks under 21 districts of the state would be the beneficiaries. Among the districts, Ganjam has the highest share of claim to the tune of Rs 132.75 crore, said BN Praharaj, chief regional manager, AICIL, Bhubaneswar region.

While claims worth Rs 392.62 crore were sanctioned for paddy, Rs 4.61 crore was approved for maize and cotton crops.

Around 1.3 million farmers are covered under the scheme with the sum insured being Rs 3,370 crore against premium collection of Rs 85.57 crore. During Kharif 2013, Odisha was severely affected by the Phailin cyclonic storm followed by devastating floods.

Out of the total claim, the state and Central governments have paid 154.94 crore each, while the AICIL has paid 87.45 crore. The state government's contribution of 154.94 crore was deposited with different banks on September 26.

Due to puja vacation, the contributions by the Central government and AICIL to the tune of Rs 242.39 crore was released on Tuesday, said Praharaj. Besides, the central cooperative banks (CCBs), the Odisha Gramya Bank and Utkal Gramya Bank have received Rs 7.53 crore and Rs 31.88 crore respectively.

The nodal banks have been advised by AICIL to credit the claim amount to their respective loan disbursing offices within a week of receipt of claim and deposit the claims to the farmers' account within seven days of receipt of claims, sources said.

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Hike in FDI cap in insurance will help sector's growth - The Financial Express

The proposed hike in Foreign Direct Investment (FDI) cap from 26 per cent to 49 per cent in the insurance sector will lead to higher growth of the industry, a top official of United India Insurance company said today.

"Private as well as government insurers will benefit from the proposed hike of FDI in insurance to 49 per cent... these companies will offer better and wide range of insurance products to customers at larger competitive prices," Milind Kharat, Chairman and Managing Director, United India Insurance Company told PTI here.

"Ultimately our aim is that customers should get the benefits and this hike will provide them better options in choosing from a wide range of insurance products at competitive prices," he said.

He added: "People in the country have more faith on government insurance companies and less on private ones,this hike will benefit the state-run companies more than the private ones."

Kharat was here to attend a two-day annual meeting with officers of the company that began here yesterday.

At present, the Insurance Bill is under the consideration of Select Committee of Parliament. Back

Government in discussion with RBI over banks selling insurance policies - The Economic Times

The government is in discussions with the Reserve Bank of India (RBI) on scrutinising the practice of banks selling insurance products, commonly called bancassurance.

The move follows fresh complaints of customers being forced to buy insurance policies when they apply for loans or seek other banking services.

"The issue was flagged by the central vigilance commission," said a government official with knowledge of the matter. "This review cannot be limited to state-run banks, and needs to be done for the entire sector, including private banks." The government also wants a review of existing incentive structures at banks for selling insurance products, because of concerns that giving over-importance to bancassurance could affect core banking functions.

As per industry estimates, insurance business through bancassurance accounts for just about 7.5% of total insurance premiums. About 15,000 of India's 100,000 bank branches are engaged in selling insurance policies.

The vigilance authority, in its communication to the government, had pointed out that sale of insurance products usually form a part of the bank's appraisal system. "This impacts the core function of the banks, which is not conducive for the system," the official cited earlier said.

The RBI had previously highlighted the need to revisit the marketing and sales strategies used by banks in pushing insurance products, especially since insurance is considered as a more complex financial product.

Several issues have risen in the bancassurance structure, such as misselling and also using unfair practices such as linking purchase of insurance products to provide locker facilities, the central bank had said in its financial stability report.

Under the previous Congress-led government, the finance ministry was pushing for banks to be permitted to act as insurance brokers and use their entire network, as part of its efforts to bring more people under insurance cover. The Insurance Regulatory and Development Authority has already allowed banks to act as brokers and sell products of more than one insurer.

As per latest data, just 3.96% of the population had insurance in 2012-13, a drop from 5.2% in 2009-10. General insurance penetration in the country stands at just 0.78%. Both bank officials and insurers say questioning the basic premise of the bancassurance model will be a retrograde step.

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Private sector insurers will need ‘Rs 36,000 crore capital over 5 years’ - The Hindu Business Line

The private insurance industry needs about ₹36,000 crore capital over the next five years, according to a study commissioned by the Assocham. Of this, about Rs 25,000 crore could come in the form of FDI (foreign direct investment), the report states, and emphasises on the need to increase the existing FDI limit substantially.

A Bill to increase the FDI limit from the current 26 per cent to 49 per cent is awaiting clearance from Parliament. “This is a much-needed pill for the insurance sector. Insurers need funds to maintain healthy capital base, offer a wider bouquet of product and deepen insurance penetration,” said the study which was released last week.

The FDI might lead to more participation of foreign insurers in development of new-age channels of distribution and eventually lead to listing of some of the entities providing better valuation. On the emerging technological advances in insurance, the study said the use of telematics, Web and social media, and risk management through analytics would have a positive impact on the industry. The demand for insurance products would go up as the working population (25-60 years) is expected to increase from 507 million in 2011 to 631 million by 2021, it added.

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Malaysia: Life insurers want more tax incentives in Budget 2015 - Asia Insurance Review

The Life Insurance Association of Malaysia (LIAM) hopes that the government will provide more incentives to promote financial planning among Malaysians in Budget 2015 to be tabled tomorrow by Prime Minister Najib Razak. “As Malaysia progresses towards a high-income nation, it is important that the mind-set of the rakyat (people) also transforms and the rakyat is more self-reliant in managing their financial well being,” said LIAM in a statement.

“The current taxation system provides a MYR6,000 (US$1,833) tax deduction on combined Employees Provident Fund (EPF) contributions and life insurance premiums. It is noted that the MYR6,000 tax deduction has not been revised for many years and has hence suffered inflation erosion. The last revision was in the tax assessment year 2005 when the amount was increased from MYR5,000 to MYR6,000, “ said Mr Vincent Kwo, President of LIAM.

The current tax incentive system also does not differentiate between the two important elements of financial planning, that is, savings and protection. EPF is for the purpose of meeting long-term savings needs while life insurance is primarily for the purpose of financial protection with a secondary aim of long-term savings, said LIAM.

“Financial protection will become increasingly important as we transform to a high-income nation as the loss of the income of the breadwinner of the family due to his/her untimely demise or incapacity would have an even greater impact on the surviving family with the increase in income.” “Based on a study conducted by the University Kebangsaan Malaysia in early 2014, it was noted that the protection gap required by each member (for a family of 5 persons) is between MYR150,000 and MYR200,000 for a period of five years if the breadwinner passes away.”

“To achieve this aim, LIAM proposes that the tax deduction be made separately available for EPF contributions and life insurance premiums, that is, MYR6,000 tax relief for EPF contributions and a separate MYR6,000 for life insurance premiums” added Mr Kwo. LIAM has also proposed that the tax relief for medical and education insurance premiums be doubled from the current MYR3,000 to MYR6,000 as tit deems the current amount of tax relief insufficient in most circumstances. For example, for an average family of two adults with three children, the cost of medical insurance is around MYR2,500 per annum at the lower end which leaves only about MYR500 per annum for savings towards the education of the children.

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The association also noted that the Economic Transformation Programme, an initiative by the government to turn Malaysia into a high-income economy by the year 2020, aims to increase the insurance penetration rate to 75% of the population by year 2020. Currently, the penetration rate of life insurance and takaful is 54%.

“The life insurance industry plays a very important role in financial protection, financial accumulation and healthcare funding. With proper advanced planning and the right tax structure, the private sector and the rakyat can be incentivised to play a bigger role and form a public-private sector partnership with the government in sharing the cost of various social economic benefits as our country progresses towards a developed nation,” said Mr Kwo. Formed in 1974, LIAM has 16 members, of which 14 are life insurers and two are life reinsurance companies.

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China: Premiums grow strongly despite product restrictions - Asia Insurance Review

China's insurance market has maintained strong premium growth despite tightened regulations, according to a China Insurance Outlook report released by Fitch Ratings. In April, the China Insurance Regulatory Commission (CIRC) launched a crackdown on high cash value products, which, as a result, presented more challenges to life insurance companies in the country.

Fitch Ratings Director of Insurance, Ms Joyce Huang, said in the report that the insurance companies in China maintained their strong premium growth by shifting their product mix away from restricted products and expanding their market and sales forces. In a circular issued earlier this year to guard against risks, CIRC said that the solvency of insurance companies shall be not less than 150% if they are selling high cash value products; otherwise the insurance companies shall stop selling such products immediately. The circular also caps the annual premium income from such products, with the ceiling based on the minimum capital required of the insurers.

High cash value products are defined as products where the sum of the cash value at the end of second policy year and the cumulated survival benefits are greater than the cumulated paid premium and where the expected persistency is less than 60% for a tenure of three years. Unit-linked products and variable annuities are excluded. For Chinese non-life insurers, Fitch expects they will sustain good premium growth momentum due to steady new automobile sales, greater penetration of non-motor lines, and insurers' expansion of their distribution channels.

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Malaysia: Non-life insurers seek more tax incentives - Asia Insurance Review

The General Insurance Association of Malaysia (PIAM) wants more tax relief on insurance premiums for education, medical and health policies in Budget 2015 which is scheduled to be unveiled by the government on 31 October. “This does not only lessen the government’s burden on education and medical costs, but also provides the ‘rakyat’ (public) with peace of mind,” PIAM said in a statement.

PIAM also hopes for tax relief for small and medium-sized businesses to encourage them to take up more liability insurance, which will help them better manage their risks exposure in the long run. The association hopes that measures in Budget 2015 will further liberalise and strengthen the nation’s insurance and takaful sector.

PIAM said that it also wants a further increase in tax relief on contributions to the Employees Provident Fund to be commensurate with the current salary ranges in the private sector. The insurance industry, comprising takaful and general insurance companies, also wants more tax incentives and relief from the government in the upcoming Budget 2015, for investment in human capability enhancement.

Mr Syed Moheeb Syed Kamarulzaman, CEO of the Malaysian Insurance Institute (MII), said that alongside tax relief in terms of books, computers and other paraphernalia, the institute hopes that there could also be some incentive for employers as well to invest in staff training. He said this would be in line with Malaysia's aim to be a high-income nation, and this could only happen more rapidly if companies invested in human capability enhancement.

"Where insurance is concerned, there is a requirement by the authorities that insurance companies should contribute a percentage of their payroll for training. "But this can be further enhanced by awarding incentives

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that would prompt companies to spend more on training, rather than the minimum requirement," he told Bernama. He said the MII was also requesting for more incentives for savings, either under the Employee Provident Fund (EPF) or insurance-based savings, focusing on annuities. He said that according to EPF's estimation, 58% of retirees use up their savings within five years, while the average life expectancy in Malaysia is 73 years and this would lead to social issues.

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P&C insurers' net income rises in H1 - www.reactionsnet.com

The average net income of the property/casualty insurers in the US rose in the first half of the year as realised capital gains made up for shortcomings in operating income. According to ISO, a Verisk Analytics business, and the Property Casualty Insurers Association of America (PCI), property/casualty insurers' net income after taxes rose by $1.6bn to $26bn in H1 2014 from $24.4bn in first-half of 2013.

However, insurers' pre-tax operating income fell by $1.9bn to $23.9bn in the first six months of the year from $25.8bn in H1 2013.This was offset by improved investment performance as realised capital gains on investments rose by $3.3bn to $7.2bn in the first half of the year compared with $3.9bn in the same period of 2013. Net gains on underwriting fell to $300m in the first-half of 2014 from $2.2bn in first-half of 2013. The combined ratio - a key measure of losses and other underwriting expenses per dollar of premium - deteriorated to 98.9% for first-half 2014 from 98% for first-half 2013, according to ISO and PCI.

"While insurers' net income rose modestly in first-half 2014, the deterioration in underwriting results and the drop in investment income both raise questions about the quality or sustainability of insurers' earnings. Other factors raising questions about the quality or sustainability of earnings include the extent to which underwriting results benefited from favourable reserve development and the extent to which insurers' net income benefited from realised capital gains dependent on developments in financial markets," said Michael Murray, ISO's assistant vice president for financial analysis.

Despite the fall in operating income for the US property/casualty industry , it remains extremely well capitalised and able to handle a large loss event should it occur. However, industry experts warn that despite the benign nature of recent catastrophe seasons, it only takes one major storm to change the face of the market and to substantially reduce capacity.

"The $18.2bn increase in policyholders' surplus to a record-high $671.6bn at June 30, 2014, is a testament to the strength and safety of insurers' commitment to policyholders. Insurers are strong, well capitalised, and well prepared to pay future claims," said Robert Gordon, PCI's senior vice president for policy development and research.

"But it only takes one powerful storm to disrupt countless lives and cause tens of billions in damage, and this hurricane season is far from over." Since 1950, there have been 15 catastrophic fourth-quarter hurricanes including Superstorm Sandy, which occurred in the last days of October 2012.

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