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Developments in Indian Life Insurance Industry 23 rd May 2011, Hyderabad

Developments in Indian Life Insurance Industry 23 rd May 2011, Hyderabad. Agenda. Key Indicators of Indian Life Insurance Industry. Inclusive Growth of Life Insurance Sector. Investment by Life Insurance Companies. Expenses of Life Insurance Companies. Protection of Policyholders Interest.

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Developments in Indian Life Insurance Industry 23 rd May 2011, Hyderabad

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  1. Developments in Indian Life Insurance Industry 23rd May 2011, Hyderabad

  2. Agenda Key Indicators of Indian Life Insurance Industry Inclusive Growth of Life Insurance Sector Investment by Life Insurance Companies Expenses of Life Insurance Companies Protection of Policyholders Interest Issues Related to DTC 2

  3. Key Indicators of Indian Life Insurance Industry • Life Insurance Industry completes a decade of opening up. • Currently there are 24 players in the Life Insurance Industry. • 21 Insurance companies have JV’s with foreign partners. • LIC, Reliance Life Insurance and Sahara Life Insurance company are the three companies who do not have JV’s. • All the major international players are present in the Indian Insurance market. • A high capital intensive industry-Rs. 31,437 Cr deployed. • (As of 31st March 2011) • Foreign partners have brought in capital of Rs.5053 Crs as FDI. • (As of 31st March 2010) • India has the largest in-force policies in the world. 3

  4. Key Indicators of Indian Life Insurance Industry……….contd Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

  5. Key Indicators of Indian Life Insurance Industry ……....contd Source: IRDA, Life Insurance Council (FY 10- 11 data is provisional)

  6. Key Indicators of Indian Life Insurance Industry ……....contd Source: IRDA

  7. Key Indicators of Indian Life Insurance Industry ……..contd Benefits Paid Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

  8. Agenda Inclusive Growth of Life Insurance Sector 8

  9. Inclusive growth of Life Insurance Sector - • Companies are statutorily required to do rural business and cover lives from social sector -rural, un-organized and socially underprivileged from there first year of operation. • Companies have to mandatorily sell • 18% of new policies in rural areas. • Cover 25,000 lives in social sector every year. • 2.8 Crore rural policies were sold by companies in last two years. (1.55 Crore policies in 2007-08 and 1.26 Crore policies in 2008-09) • 3.36 Crore life's covered in social sector in last two years. (1.43 Crore in 2007-08 and 1.93 Crore in 2008-09) • 72% of the total 11,465 branches of insurance companies are in semi-urban or rural areas (33% in rural areas). • No such obligations for Mutual Funds. Source: IRDA, Life Insurance Council

  10. Agenda Investment by Life Insurance Companies 10

  11. Investment by Life Insurance Companies Rs. Crs • In FY 2009-10 life insurers invested 4,98,518crores in Central government, state government and other approved securities. Source: IRDA, Life Insurance Council

  12. Investment by Life Insurance Companies……..contd Pattern of investment Rs. Crs Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

  13. Investment by Life Insurance Companies……..contd Nett Investment in equities by Life companies and FII’s Rs. Crs Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

  14. Agenda Expenses of Life Insurance Companies 14

  15. Expenses of Life Insurance Companies • Insurance is a long term contract with average tenure of 15 years. • Comparatively high start-up cost to be related to a long tenure. • Under Section 40 B of Insurance Act 1938, there is a capping on expenses of management. • - Exemption is granted to companies in first 5 years of operation. • - Any non-compliance later is viewed adversely by IRDA. • Maximum Commission payable to agents under various product heads is prescribed in the Insurance Act (section 40 A). • Longer the term of the policy, lower is the premium and therefore percent commission is higher. For shorter term policies the percent commission is lower as premium is higher. This ensures that the absolute commission is reasonable. • In last five years (i.e. from FY 06-07 to FY 10-11) more than Rs.2,18,000crores of premium was collected at a commission of less than 2.0% Source: IRDA, Life Insurance Council (FY 10-11 data is provisional)

  16. Agenda Protection of Policyholders Interest 16

  17. Protection of Policy holders interest • Prevention of Mis-selling • All advertisements are to be filed with the regulator & must satisfy fairness criteria. • It is mandatory to explicitly give information on the definitions of all the applicable • charges, method of appropriation of these charges and the quantum of all the charges • during the entire term of the policy. • All ULIP sales illustration should highlight the rate of return calculated at 6% and 10% to enable comparison across various products. The illustration is to be signed by the policy-holders. • It is compulsory to mention on top each ULIP policy document “In this policy, the investment risk in investment portfolio is borne by policy holder. • Disclosure of Commission to the prospect. • Under regulation 6(1)Policy holders are given a 15 day free-look period from the date of receipt of policy document, where in the policy holder can review the terms and condition of the policy and opt to return the policy and claim refund

  18. Protection of Policy holders interest…………..…….Contd • Fair return to policy-holders • U/s 17d of Insurance Act 1938, there is a overall capping on expenses of management. • Post 01st September 2010 the reduction in nett yield for all ULIP policies with term of:- • 10 years or more - not more than 300 bps at maturity. • More than 15 years - not more than 225 bps at maturity. • This will cap the expenses under each products offered by life companies. • Lock in period increased to 5 years • Even spread of charges during the lock in period • Cap on surrender charges / discontinuance . Annual charges are also capped for • various maturities. • Interest is paid even on discontinuance fund which is on par with saving bank account. • Guarantee of return at maturity for ULIP Pension / Annuity Plans (4.5%)

  19. Protection of Policy holders interest…………..…….Contd • Grievance Redressal • Policy document should clearly mention inter-alia the grievance redressal mechanism, • name and address of grievance officer, ombudsman to whom complaint can be • registered. • IRDA has set up an Integrated Grievances Redressal system where the complaint is • escalated to higher authorities. • There are 12 ombudsman Centre's in India which provides resolution to policy-holders • at nominal cost. • The companies cannot challenge the decision of the ombudsman.

  20. Protection of Policy holders interest…………..…….Contd • Insurance a “unique product” • Offers savings and protection in a tax efficient way. • . • Minimum life insurance cover should be 110% of Single Premium for age at entry of 45 years and above and 125 % for age at entry below 45 years. • Customizable solution, where the customer can choose his - • Protection level • Investment horizon • Additional Benefits (Riders) • Option to allocate assets as per need

  21. Protection of Policy holders interest…………….Contd Transparency and Corporate Governance Public Disclosures • Companies are required to disclose detailed financial & statistical information on quarterly /half yearly and yearly basis on their website. • Companies are required to publish audited half yearly and annual financial statement in newspapers along with critical ratios. Corporate Governance • Companies are required to follow Corporate Governance guidelines which are followed by all listed companies in India.

  22. Agenda Issues related to DTC 22

  23. Issues related to DTC Eligibility Criteria of Premium < 5% of Sum Assured • Insurance premium will qualify for deductions only if premium paid for any of the years is <5% • of sum assured. • It will deny benefits to large number of policy holders since typically for age, 30 minimum • term will be around 21 or 22 years and for age 40 and above term will be 25 to 26 years. • It will lead to inequity as for same term and sum assured, tax exemption would be available • to say a 30 years old person but not to 40 years old person because of higher term assurance • content. • It will deny benefits to large number of people with irregular income like persons working in • agriculture sector who prefer single premium policies. • IRDA has stipulated term cover should be 10 times regular annual premium(125% of single • premium) for persons upto age 45 and 7 times (110% of single premium) for others OR • alternatively IRDA has suggested tax exemption to all policies with minimum term of 10 years. • Tax Authorities should follow the same principle to ensure long term savings only qualify for tax • exemptions Source: Life Insurance Council

  24. Issues related to DTC…………..…….Contd Increase in deduction limit for life insurance and health insurance • Under DTC 2010, the aggregate deduction for life cover and health cover is restricted • to a sum of Rs. 50,000 and that to, along with tuition fees. • After payment of health insurance premium and claiming deduction for tuition fees, hardly • any amount is left for claiming deduction on payment of life insurance premium. • The aggregate deduction limit of upto Rs. 50,000 specified for life insurance, health • insurance and tuition fees payment needs to be revised to provide for deduction of Rs. • 100,000 only for life insurance. • Deduction limit for health insurance should be separately provided at Rs. 50,000. • Current scenario • The current tax regime provides for an aggregate deduction of upto Rs. 100,000 in respect of premiums paid under a life insurance policy along with other specified investments made. In addition, separate deduction is available to a policyholder upto maximum sum of Rs. 20,000 towards premiums paid for health cover. Source: Life Insurance Council

  25. Issues related to DTC…………..…….Contd Pensions/annuity policies of life insurance companies • Deduction should be allowed for an IRDA approved pension fund / annuity plan of a life • insurance company under clause 73 of DTC 2010 within the recommended limit of • Rs.120,000. • Exemption be provided for the amount received from a pension fund / annuity plan upon • death by specifically including it in clause 46 of the Sixth schedule. • Specific exemption should be provided for commuted amount of pension received, other • than under any scheme of an employer by including the same under clause 40 of the Sixth • Schedule. • Pension amount received and used to buy an annuity policy from a life insurance company • should not taxable in the year of such receipt. • Annuity received by the policyholder from a life insurance company should not be taxable. Source: Life Insurance Council

  26. Thank You

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