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17th 23rd August, 2012

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companies to insert an "enabling clause" in the tenure of appointment or engagement of professionals.

Source http://www.business-standard.com/india/news/moveregulatorsmisconduct-by-professionals-govt-tobanks/183438/on

Finmin prods insurers, PFs to invest more in equities The Financial Express The finance ministry on Wednesday urged insurers and pension funds (PFs) including the Employees' Provident Fund Organisation to explore ways of increasing their exposure in equities as part of efforts to lift sagging investor sentiment. Senior officials of the Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, EPFO and stock exchanges met finance ministry officials to discuss ways of increasing investment in shares, an official said on condition of anonymity. So far, insurers have invested 10-15% of their total corpus in equities while they are allowed to invest up to 50%, a official present at the meeting said. The insurance sector has so far invested R1.5 lakh crore in equities but a bulk of it comes from state-owned Life Insurance Corporation and general insurers GIC, New India Assurance, National Insurance, Oriental Insurance and United India Insurance. EPFO, which has a corpus of R 4 lakh crore, has not eased rules for investing in equities. Though finance ministry had allowed EPFO to invest up to 15% in equities by a 2008 circular, the central board of trustees have so far not accepted it. FM will speak to the labour minister and discuss the issue, the official said. The finance ministry is pushing long-term investors like insurance firms and PFs to invest more in equities in order to add depth and even out volatility in the market which still sways to the moods of foreign institutional investors.
Source http://www.financialexpress.com/news/finmin-prods-insurerspfs-to-invest-more-in-equities/991783/0

Insurance Industry
Move regulators on misconduct by professionals: Govt to banks - Business Standard
The Finance Ministry has asked state-owned banks and insurance companies to take up the issue of misconduct by professionals like advocates and chartered accountants with their regulating bodies like ICAI. The ministry has issued the directive to heads of public sector banks, financial institutes and insurance companies on an observation made by Central Vigilance Commission (CVC) which had said sometimes professionals present misleading reports which lead to distress assets and misleading claims. "Banks and insurance companies should approach the professional bodies with complaints of professional misconduct ...For suitable action," the ministry said. The professional bodies mentioned in the communication include, Bar Council of India, ICAI, ICWA and Institute of Engineers. The CVC had observed that "it has come to light that the professionals empanelled by banksinsurance companies viz advocates, engineersvaluers, chartered accountants, surveyors etc., are sometimes involved in unfair practices including falsedistorted reports which ultimately lead to distressed assets of the banks or unfair claims settled in insurance companies". While fixing up accountability, the maximum that the banks can do is to de-panel such professionals to future assignments. "Since, decisions taken based on such reports result in huge losses to the organisations, mere de-panelment does not serve as a deterrence to such unscrupulous professions," the Commission had observed. The Ministry has asked the PSBs, FIs and insurance

Insurance firms, PSUs park cash in state govt. debt Financial Chronicle
With banks bringing down bulk deposit rates sharply insurance companies and public sector corporates have shifted to state government development loans for parking their funds.

Insurance Institute of India

At Tuesdays state development loan auctions, non-life insurance companies and public sector companies made their rare presence in the auctions as non-competitive bidders. Bids by entities other than banks and primary dealers are treated as non-competitive bidders in the government borrowing auctions. Non-competitive bidders have seldom participated in the primary auctions of state development loans (SDL). They have instead preferred to make the purchases from the secondary markets. SDLs are sovereign guaranteed 10-year tenure market borrowings by state governments. At Tuesdays auctions, against the borrowing of Rs 5190 crore, bids from non-competitive bidders were almost Rs 200 crore, all of which was accepted by the RBI. The issue was modestly oversubscribed by banks and primary dealers by 1.02 times. But traders said, the weighted yields were largely down on account of the low bids made by the non-competitive bidders. The traders said that the weighted average yield at the auction was 8.92 per cent. Most non-competitive bidders had quoted far lower yields of about 8.8 per cent, the traders said. It was the banks and primary dealers that had pitched for the bonds at yields ranging from 8.9 per cent to 8.95 per cent. This was about 75 to 80 basis points more than comparable sovereign borrowings. Federal Bank president treasury, Ashutosh Khajuria said, The non-competitive are those that had parked funds in bulk fixed deposits with the banks. They have shifted to sovereign guaranteed securities. Public sector banks have stopped renewing bulk deposits in view of the finance ministry fiat. The directive wants banks to limit bulk funds to just 15 per cent of their aggregate deposits. The purpose of non-competitive bidders purchases of SDLs, however, was not to book earnings by way of interest flows, traders said. Instead the focus was to book profits through capital gains. Khajuria said, The system is flush with the cash and therefore investments are in demand. That banks were flush with cash was also apparent from their overnight borrowing positions from the Reserve bank of India. Overnight borrowings against collateral of government securities was Rs 38,965 crore or about 0.7 per cent of the aggregate deposits. However, the surfeit of cash in the banking system was largely on account of low credit off take from the banking system. This year so far credit has remained low. Most credit off take was only for working capital. The demand for working capital in turn reflected in high short-term yields. Short-term yields as reflected by the 91-day Treasury bills was 8.23 per cent or higher than the 10-year bench mark securitys yield of 8.17 per cent. The traders said that part of the large off take of working capital was largely by buyers of petroleum and coal. The increased draw down in working capital by petroleum companies were partly on account petroleum price spikes. Crude petroleum import basket prices are presently $114 a barrel. Besides coal importers have also stepped up purchases to replenish stock yard positions and also take advantage of the current low prices. International thermal coal prices are presently $89 a tonne. But term credit, offtake outlook remained low. A public sector bank official said that there were also little credit sanctions in the pipeline, implying that government security prices could firm up further in the coming weeks.
Source http://wrd.mydigitalfc.com/news/insurance-firms-psus-parkcash-state-govt-debt-722

IRDA Regulations
Regulatory help to the aged available - The Times of India (Delhi edition)
The regulatory body for governing the insurance industry viz. the Insurance Regulatory and Development Authority (IRDA) has been found to be highly sensitive to the special needs of senior citizen policyholders. It has always been intervening proactively with all the private players and the ministries concerned to provide a healthy environment for the elderly in India. Its regulatory actions have always been benevolent. For example, in the financial year 2006 - 2007 when some insurers drastically raised hospitalization policy premiums, it laid down a cap for such revision. The aim was to support the industry as well as provide benefits to the end consumer. Later, a committee on health insurance for senior citizens was constituted to go in to the special requirements that the elderly have, as the industry would not have undertaken such an exercise. The elderly do not earn much and therefore do not constitute the premium end of the market. Owing to this, they are left at the bottom of the spectrum and largely ignored by the insurance industry. It is up to the regulator to ensure that not only does the private sector is obliged to allocate resources towards the elderly but also provide them peerless service while doing so. Incidentally, a large number of recommendations of this committee were implemented by the ministry of finance and instructions had been sent out accordingly. IRDA has also issued instructions about health insurance for senior citizens to insurance companies so that individuals should be allowed to buy new health insurance policies up to the age of 65. Any rejection of a proposal for health insurance of a senior citizen should be in writing to the applicant providing reasons for the same. A senior citizen policyholder should be given an option to change his TPA wherever practicable. At least, 50 per cent of the cost for pre-insurance medical examination may be reimbursed where the risk is accepted by the insurer. No insurer can refuse the renewal of a health insurance policy except on grounds of a) fraud b) moral hazard or c) misrepresentation.
Sourcehttp://epaper.timesofindia.com/Default/Scripting/ArticleWin.a sp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=CAP/

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years of age, the ministry said in a recent communication to the PSU general insurers. The ministry is discouraging us from insuring older vehicles as the claim ratios for these vehicles are high. Private players are already avoiding insuring vehicles which are more than five years old. As such, all these risks would go to the (declined) pool, said a senior official at a state-owned general insurance company. Motor portfolio, which constitutes around 43 per cent of the total premiums, has always been the Achilles heel for the general insurance companies in India due to inherent losses on account of commercial third party losses. The claims ratio is estimated at 153 per cent, which means for every ~100 premium collected, the claims paid is ~153. Besides, the premiums for the commercial third party is rated. The latest diktat of the ministry is aimed at bringing down the loss ratios in motor portfolio in these companies to below 100 per cent and make it profitable. Total premiums collected by the general insurance companies stood at around ~58,300 crore during 2011-12, of which motor premiums constituted ~24,000 crore. Typically, third party liability accounts for 35 per cent of the total motor premiums. The industry took a hit of ~8,000 crore last year on account of commercial third party motor pool losses. In a bid to distribute the losses among the insurers,Indian Motor Third Party Insurance Pool (IMTPIP) was created in April 2007, for commercial vehicle third-party insurance business. The share of each insurer was decided according to their overall market share of all lines of business. However, due to mounting losses, last December, the Insurance Regulatory and Development Authority decided to do away with the existing commercial third party motor pool and said the pool would be dismantled on a clean-cut basis, where the losses from 2007-08 to 2011-12 would be shared in accordance with the new loss ratios according to the regulator, in the region of 153-213 per cent.
Source http://www.business-standard.com/india/news/generalinsurers-told-to-havecommon-underwriting-manual/483871/

General Insurance
Maharashtra govt to pay crop insurance premium of farmers - The Hindu Business Line
The state government will spend Rs 23 as premium to insure crops of 137 lakh farmers in the state, the state governments agricultural department said here today. An official at the divisional agricultural office here said that a sum of Rs 3151 lakh has been already been provided as insurance premium for farmers whose crops will be insured during this year against any eventuality. The programme known as Shetkari Janta Abghat Vima Yojana has been continued by the state government this year as well. Crops of a total of 48.95 lakh farmers from Konkan and Pune division have been insured after paying Rs 1125.85 lakh as insurance premium. In Amravati and Nagpur, a total of 28.05 lakh farmers have been insured at a premium of Rs 663.55 lakh and in Nashik, 25.95 lakh farmers have been insured at a premium of Rs 596.85 lakh. In the Aurangabad division, 33.25 lakh farmers benefitted due to the state government paying their insurance premium amounting to Rs 764.75 lakh, the official said.
Source http://www.thehindubusinessline.com/news/states/article3785 442.ece

General insurers told to have a common underwriting manual - Business Standard

In a move to contain the losses inherent in the third-party motor insurance portfolios, the finance ministry has asked the four state-owned general insurers to prepare a common underwriting manual for declined risk pool by the end of August for the next financial year. The move is aimed at ensuring that the risk avoided by one public sector undertaking (PSU) does not get transferred to another PSU insurer. Besides, this would also ensure all the four insurers follow a uniform underwriting practice. Four state-owned non-life insurers National Insurance Co, Oriental Insurance Co, New India Assurance and United India Insurance account for more than 55 per cent of the ~58,000 crore general insurance market in India. The ministry has also directed no brokerage or commissions would be payable for vehicles more than 10 years old. In case of vehicles more than seven years of age, commissions or brokerage shall be restricted to five per cent of the own-damage (OD) premium. No commissions or brokerage shall be payable for vehicles of more than 10

Global News
UK
Brokers under increased pressure for HNW market share
Brokers are coming under increasing pressure from the competition for market share in the high net worth (HNW) space, an independent research firm has revealed. Defaqtos High Net Worth Home Insurance Guide, which was published today, said that while the market has been

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dominated by the intermediary sector, a clear challenge had emerged from banks and direct providers capitalising on brand recognition and customer knowledge in recent years. But the report said that intermediaries will continue to thrive in the sector if they continue to focus on providing clients with top personal and professional advice. The study reported significant growth in the number of providers and products in the market, underlining the opportunities for intermediaries and providers alike. The HNW market has reported a 41% increase in providers and a 28% rise in products between 2008 and 2012, said Defaqto. To meet this growing challenge, it is important for intermediaries to emphasise their unique selling points and become more aware of their competitors offering in particular, they should focus on the bespoke needs of HNW individuals to appropriately position features and benefits that meet the unique requirements of their clients, the report said. The report found that standard basis of cover for buildings and contents is now on an all risk basis for 100% of policies, compared to 83% in 2008. Meanwhile for standard basis of cover for valuables, 97% of policies now offer cover on an all risks worldwide basis , versus 71% in 2008. More than half (56%) of policies now offer alternative accommodation for up to three years, compared to 29% in 2008, the report revealed. Where cover for money within the home was concerned, more than one quarter (28%) of this years policies provide between 7,500 and 15,000 of cover for money kept in a safe, compared to just 8% in 2008. Defaqtos insight analyst for general insurance Mike Powell said: The dominance of intermediaries in the high net worth home insurance market is clearly being tested as more banks and direct providers enter the frame. In some respects, however, the entrance of banks and direct providers can be seen as good news for the intermediary sector as more competition provides opportunities for intermediaries to raise their profile.
Source http://www.insurancetimes.co.uk/brokers-under-increasedpressure-for-hnw-market-share/1398270.article

A total of 10 out of every 10,000 applications for insurance products were fraudulent during that period versus 12 out of 10,000 over the same period in 2011. Experians latest fraud index revealed that main offenders were first party fraudsters, who accounted for 86% of all attempted fraud. Overall there was a 3% year-on-year decline in attempted fraud across all financial services products. Automotive finance and insurance providers experienced the biggest falls, while the mortgage industry suffered a 23% jump in fraud in the second quarter of 2012 and savings accounts were up 109%. Experian UK and Ireland director of identity and fraud services Nick Mothershaw said: Robust fraud prevention relies on thorough and efficient validation of customers identities and the information presented on the application form. It is vital that finance providers share comprehensive and timely information about finance applications and known frauds to help combat this common threat to the industry.
Source http://www.insurancetimes.co.uk/insurance-fraud-falls-16-insecond-quarter-of-2012/1398268.article
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Insurance fraud falls 16% in second quarter of 2012

Attempted insurance fraud dropped by 16% between April and June 2012, the latest research by data services provider Experian has revealed.

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