As chairman of state-owned Life Insurance Corporation of India, T.S. Vijayan is one of the most powerful men in Indian finance today.
With $238 billion in assets, LIC is the country's largest insurance company, holding 70% of the life insurance market by premiums and number of policies. It is also the single largest investor in India's stock market, owning around 5% of the market's total value. LIC invested nearly $13 billion in Indian stocks in the year ended March 31.
The mild-mannered Mr. Vijayan, 57 years old, has been steering LIC since May 2006. Under his leadership, the insurer's profit, or "valuation surplus" as the company calls it, has grown by nearly 50% to $4 billion. LIC gives 5% of its profit to the government, and distributes the rest among eligible policyholders as a bonus.
Mr. Vijayan met with The Wall Street Journal recently. Edited excerpts
WSJ: Where is India's insurance industry headed?
Mr. Vijayan: Until 2000, in India, Life Insurance Corp. was the only player offering life insurance. Then the Insurance Regulatory and Development Authority came into being, which started giving licenses to private companies.
Now there are more than 22 private players.
The industry has been evolving bit by bit over the last 10 years, in tune with what's been happening in the Indian economy itself.
The distribution channels have expanded, from just direct agents of the company to now corporate agents, bancassurance [selling insurance through banks.] Products have also evolved. Unit-linked plans came into being. [These are a type of life insurance policy in which a part of the premium is invested in stocks or bonds, at the risk of the policyholder.]
Insurance penetration has grown tremendously. But India has still got a very huge potential for insurance, provided companies find the appropriate products and the right distribution mechanism is put in place.
WSJ: New rules for unit-linked plans come into effect on Sept 1. Are these too harsh?
Mr. Vijayan: Any regulation that is favoring the customer can not be termed too harsh. It may be that the margins of insurance companies get squeezed.
WSJ: How are the new rules good for policyholders?
Mr. Vijayan: In India, insurance is linked with savings. The new rules require a minimum five-year lock-in for all unit-linked plans [up from three years.] If money is being saved for the long-term, any policyholder will benefit. That's reflecting the spirit of insurance.
Another major change is that the charges will be lower. Insurance companies will be forced to cut their expenses. For instance, the new rule requires that fees for surrendering a policy within a short period of time be lowered.
LIC is comfortable. Previously also we never had any surrender charges.
WSJ: Will these changes cause some private players to shut shop?
Mr. Vijayan: This may not force rationalization in the industry per se.
Companies will be forced to contain expenses. They will have to focus on generating more volumes. They are already doing that. Look at their recruitment of agents; the number has been going up.
WSJ: Will these rules curb misrepresentation in sales of insurance products?
Mr. Vijayan: Mis-selling is everywhere. For many years, a soap was being sold in India as if it was used by film stars. I don't think any of the film stars were using it. Isn't that mis-selling?
In insurance also there have been exaggerated claims of returns. IRDA has come very heavily on it, requiring all sales literature to be approved by it.
Since we are a very big company with 1.4 million agents, we are very, very conscious of it. There is a possibility that some rogue element somewhere may make exaggerated claims but we are very strict about it.
WSJ: Financial literacy is one of the biggest challenges in India. How is LIC pitching in to promote this?
Mr. Vijayan: Debate and discussion in the media helps raise awareness.
When the insurance industry was liberalized in 2000, there was opposition to it. It generated a huge amount of media debate. All of that contributed to a jump in the [size of the] pie itself. Life insurance premiums have gone up from less than 2% of India's gross domestic product to 4% in 10 years.
So an integral part of this awareness program is how the general media takes up issues.
We are also working to increase education through our agents. Last financial year we sold 38.8 million policies. That means, 38.8 million individuals have been told something about insurance.
Of course, there's a lot to be done. The education has to become more sophisticated now that we have new products which don't guarantee returns to the customer.
WSJ: Any other initiatives?
Mr. Vijayan: Our information technology initiative has been a major change in recent times. It has helped us become more efficient and increase out productivity. Otherwise, we would not be able to service 250 million policies at such low cost.
WSJ: When can we buy insurance policies online?
Mr. Vijayan: We are not offering that yet.
But now one can pay LIC premiums at any branch across the country, or in selected banks, and also through our web site.
We have embarked on a very ambitious project of a paperless office by scanning all papers. Around 70% of the work is over. Three years ago, we built up a huge data warehouse and now we have management information systems which help us analyze the profitability of our products and campaigns very quickly.
Now, we're trying to restructure our work.
Traditionally, the branch office has been the hub of all policyholder documentation.
We want to liberalize that so you can do transactions, like getting a claim, or changing the address or nomination on a policy, through any branch across India.
WSJ: What about mobile?
T.S. Vijayan: Mobile is evolving. We are in discussions with two to three banks to tie-up such that if you have a bank account with them, you'll be able to use your mobile to transfer funds to pay your premium. We should be launching it soon, probably this year.
WSJ: What are LIC's plans for overseas expansion?
Mr. Vijayan: We have operations in seven countries, where there's a lot of Indian diaspora, among whom LIC is a big brand. In the Gulf countries, for instance, people want to take policies and bring them back to India one day.
This fiscal year we expect to start operations in Singapore.
WSJ: You are one the largest investors in India's stock market. What do you make of the recent volatility in markets?
Mr. Vijayan: Overall, stocks have been creeping up. I believe that will continue. Basically, it reflects the Indian growth story. Most of the stocks are led by Indian consumption
As long as policyholders trust their money with us, we'll remain bullish
WSJ: What do you think of the pension market in India?
Mr. Vijayan: Pension products have to become more predominant here.
Until some years ago in India, government was the major employment provider. Today, the private sector has become a big employer but their employees don't have any government-guaranteed pension. They have to build their own pension fund.
Pension has got two stages – the investing stage and withdrawal stage. All the debate and products have so far focused on the accumulation and investment stage. But more products have to evolve at the payout and annuity stage. That's a lucrative market.
Sunday, July 25, 2010
Irda's fiat on insurance agents finds many supporters
Insurance Regulatory and Development Authority’s (Irda) latest proposal to make life insurance agents more responsible while selling policies has elicited mixed reactions from life insurers.
While some are of the opinion that the move is a step in the right direction and will bring in much-needed accountability, others feel the conditions prescribed are too stringent, resulting in many agents winding up their businesses.
The insurance regulator’s proposal, which was placed in the public domain last week, proposes to de-license agents who fail to achieve a persistency ratio of at least 50%. Persistency is defined as the proportion of policies remaining in force at the end of the period, out of the total policies in force at the beginning of the period. It is an indicator of the number of policyholders who have chosen to renew their policies, broadly signifying their satisfaction with the product sold to them.
The move follows widespread complaints of mis-selling by agents who carry out their task with an eye on commissions rather than policyholders’ needs, eventually leading to the latter deserting policies, which typically entail a tenure of more than 10 years, mid-way.
“The move is aimed at ensuring that the agency force acts more responsibly while selling policies. In that direction, we support it. The interests of insurers, distributors and customers have to be aligned, and persistency is a key factor here,” said Max New York Life MD and CEO Rajesh Sud. “The emphasis on persistency will be approved by one and all — agency as well as industry bodies. In our case, we already follow this principle,” added Reliance Life president and executive director Malay Ghosh.
In addition, Irda has put forth certain other recommendations as well. If the draft norms are implemented, an agent will have to sell a minimum of 20 policies every year and bring in a first year premium income of at least Rs 1.5 lakh. Should they fail to fulfil either of the criteria, they will have to achieve proportionately more in either one to make up for the shortfall in the other, states the proposal.
“Agents in India are not full time as most of them enter the agency force as a stop-gap arrangement and the successful ones stay on. After the revision in charge structure, commissions have come down and it has become even more difficult for an individual to earn a living as an agent,” said the CEO of a life company on condition of anonymity.
In India, the commission paid to banks and corporate agents are in many cases higher than the commission paid to individual agent. The proposed guidelines will leave individuals at the mercy of banks and corporate agents who have a bad track record in terms of mis-selling. The new guidelines will hurt the agency channel,” he added.
“Some of the conditions seem harsh, considering that nearly 30-35% of agents in the country are unable to sell even 12 policies in a year. If these norms come into play, many agents could go out of business,” pointed out GN Agarwal, chief actuary of Future Generali Life Insurance.
Some also feel that since many agents do not meet the requirements at present, the regulator needs to allow a reasonable transition period to enable companies to train agents and boost their productivity. Irda has set July 31 as the deadline for receiving comments and suggestions on the draft norms from the general public, life insurers and other stakeholders.
Insurance Regulatory and Development Authority’s (Irda) latest proposal to make life insurance agents more responsible while selling policies has elicited mixed reactions from life insurers.
While some are of the opinion that the move is a step in the right direction and will bring in much-needed accountability, others feel the conditions prescribed are too stringent, resulting in many agents winding up their businesses.
The insurance regulator’s proposal, which was placed in the public domain last week, proposes to de-license agents who fail to achieve a persistency ratio of at least 50%. Persistency is defined as the proportion of policies remaining in force at the end of the period, out of the total policies in force at the beginning of the period. It is an indicator of the number of policyholders who have chosen to renew their policies, broadly signifying their satisfaction with the product sold to them.
The move follows widespread complaints of mis-selling by agents who carry out their task with an eye on commissions rather than policyholders’ needs, eventually leading to the latter deserting policies, which typically entail a tenure of more than 10 years, mid-way.
“The move is aimed at ensuring that the agency force acts more responsibly while selling policies. In that direction, we support it. The interests of insurers, distributors and customers have to be aligned, and persistency is a key factor here,” said Max New York Life MD and CEO Rajesh Sud. “The emphasis on persistency will be approved by one and all — agency as well as industry bodies. In our case, we already follow this principle,” added Reliance Life president and executive director Malay Ghosh.
In addition, Irda has put forth certain other recommendations as well. If the draft norms are implemented, an agent will have to sell a minimum of 20 policies every year and bring in a first year premium income of at least Rs 1.5 lakh. Should they fail to fulfil either of the criteria, they will have to achieve proportionately more in either one to make up for the shortfall in the other, states the proposal.
“Agents in India are not full time as most of them enter the agency force as a stop-gap arrangement and the successful ones stay on. After the revision in charge structure, commissions have come down and it has become even more difficult for an individual to earn a living as an agent,” said the CEO of a life company on condition of anonymity.
In India, the commission paid to banks and corporate agents are in many cases higher than the commission paid to individual agent. The proposed guidelines will leave individuals at the mercy of banks and corporate agents who have a bad track record in terms of mis-selling. The new guidelines will hurt the agency channel,” he added.
“Some of the conditions seem harsh, considering that nearly 30-35% of agents in the country are unable to sell even 12 policies in a year. If these norms come into play, many agents could go out of business,” pointed out GN Agarwal, chief actuary of Future Generali Life Insurance.
Some also feel that since many agents do not meet the requirements at present, the regulator needs to allow a reasonable transition period to enable companies to train agents and boost their productivity. Irda has set July 31 as the deadline for receiving comments and suggestions on the draft norms from the general public, life insurers and other stakeholders.
Friday, April 9, 2010
Life insurers see 18% growth in total premium income in '09-10
Council has projected 18% growth in total premium income for the life insurance industry in the financial year 2009-10. Although final figures, released by the Insurance Regulatory Development Authority (Irda), are being compiled, Life Insurance Council secretary general SB Mathur told ET: “During 2008-09, the life insurance segment had mopped up a first premium income of Rs 88,000 crore while in 2009-10, there was an approximately 10-12% growth, which means that first premium income in the year just gone by is expected to be around Rs 1 lakh crore.” Mr Mathur also said the industry is estimated to have garnered a total premium income of Rs 2.6 lakh crore at the end of 2009-10, against Rs 2.2 lakh crore in the previous fiscal, which means an 18% growth. Life Insurance Corporation (LIC) is expected to have earned total premium income of Rs 1.76 lakh crore in the year under review, against Rs 1.53 lakh crore in the previous financial year. On the entire sector turning profitable, Mr Mathur said it is expected to take another 2-3 years before almost all companies turn profitable. As of now, almost all private sector companies, barring a few, showed loss on their profit and loss account. According to data released by the Insurance Regulatory Development Authority (Irda) for 2008-09, total accumulated losses stood at Rs 14,421 crore while the total equity infused by all companies put together was Rs 18,253 till March 2009.
Council has projected 18% growth in total premium income for the life insurance industry in the financial year 2009-10. Although final figures, released by the Insurance Regulatory Development Authority (Irda), are being compiled, Life Insurance Council secretary general SB Mathur told ET: “During 2008-09, the life insurance segment had mopped up a first premium income of Rs 88,000 crore while in 2009-10, there was an approximately 10-12% growth, which means that first premium income in the year just gone by is expected to be around Rs 1 lakh crore.” Mr Mathur also said the industry is estimated to have garnered a total premium income of Rs 2.6 lakh crore at the end of 2009-10, against Rs 2.2 lakh crore in the previous fiscal, which means an 18% growth. Life Insurance Corporation (LIC) is expected to have earned total premium income of Rs 1.76 lakh crore in the year under review, against Rs 1.53 lakh crore in the previous financial year. On the entire sector turning profitable, Mr Mathur said it is expected to take another 2-3 years before almost all companies turn profitable. As of now, almost all private sector companies, barring a few, showed loss on their profit and loss account. According to data released by the Insurance Regulatory Development Authority (Irda) for 2008-09, total accumulated losses stood at Rs 14,421 crore while the total equity infused by all companies put together was Rs 18,253 till March 2009.
Friday, March 26, 2010
Public non-life insurers’ employees to strike
Around one lakh employees of four Indian government owned non-life insurers will strike work for two hours March 31, demanding 40 percent pay hike and an option to join pension scheme. They claim they have “done well and the management should reciprocate”.All the unions in the four companies — National Insurance Company Limited, New India Assurance Company Limited, Oriental Insurance Company Limited and United India Insurance Company Limited — called for a two-hour walk-out from work places preceding the lunch recess March 31, the last working day of the current fiscal.
The unions warned of serious action if their demands were not met.
“The four government owned non-life insurers have clocked a gross premium of Rs.18,222 crore up to February 2010 this fiscal, logging a growth of 12.21 percent over the corresponding period of the previous year. On the other hand, leading private non-life insurers have logged negative growth,” J.Gurumurthy, secretary of All India Insurance Employees Association (AIIEA), told IANS Thursday.
He said the wage talks are still at the level of general manager level of the individual companies, steadfast on their offer of 17.5 percent salary hike, made at Kolkata Dec 22 last year.
The Governing Board of General Insurers Public Sector Association (GIPSA) Feb 5 informed the unions that it did not find it possible to improve the offer.
After the rejection of the offer of 15 percent increase, the GIPSA came up with a revised offer of 17.5 percent.
The AIIEA had demanded 40 percent wage hike so that there is pay parity with that of the private sector.
“The chairman and managing directors seem to feel that it is not their responsibility to find a satisfactory solution to the wage demand of the employees and officers in consonance with growth, productivity and competitive environment,” Gurumurthy added.
He said wage talks were resumed in Life Insurance Corporation of India (LIC) after the unions rejected the 17.5 percent hike offered.
The unions warned of serious action if their demands were not met.
“The four government owned non-life insurers have clocked a gross premium of Rs.18,222 crore up to February 2010 this fiscal, logging a growth of 12.21 percent over the corresponding period of the previous year. On the other hand, leading private non-life insurers have logged negative growth,” J.Gurumurthy, secretary of All India Insurance Employees Association (AIIEA), told IANS Thursday.
He said the wage talks are still at the level of general manager level of the individual companies, steadfast on their offer of 17.5 percent salary hike, made at Kolkata Dec 22 last year.
The Governing Board of General Insurers Public Sector Association (GIPSA) Feb 5 informed the unions that it did not find it possible to improve the offer.
After the rejection of the offer of 15 percent increase, the GIPSA came up with a revised offer of 17.5 percent.
The AIIEA had demanded 40 percent wage hike so that there is pay parity with that of the private sector.
“The chairman and managing directors seem to feel that it is not their responsibility to find a satisfactory solution to the wage demand of the employees and officers in consonance with growth, productivity and competitive environment,” Gurumurthy added.
He said wage talks were resumed in Life Insurance Corporation of India (LIC) after the unions rejected the 17.5 percent hike offered.
Tuesday, March 23, 2010
LIC's new biz grew 23 pc during April-Feb 2009-10
The new busineses of the country's largest insurer Life Insurance Corporation (LIC) grew by over 23 per cent, with Rs 54,320 crore collected in the first eleven months of the current fiscal. During the April-February period of last fiscal, LIC mopped up first year premium of Rs 43,883 crore, sectoral regulator Insurance Regulatory and Development Authority (IRDA) said in its monthly data. Overall, life insurance industry collected premium of Rs 83,891 crore in the first eleven months of this fiscal compared to Rs 72,017 crore in the corresponding period last fiscal, thereby growing by over 16 per cent. The private life insurers grew by 5 per cent during April-February period of the current fiscal. The 22 private players mopped up new businesses of Rs 29,570 crore in the eleven months of the current fiscal compared to Rs 28,133 crore same period last year. The largest private player SBI Life mopped up Rs 5,266 crore during the April-February period compred to 4,348 crore collected in the same period last year
The new busineses of the country's largest insurer Life Insurance Corporation (LIC) grew by over 23 per cent, with Rs 54,320 crore collected in the first eleven months of the current fiscal. During the April-February period of last fiscal, LIC mopped up first year premium of Rs 43,883 crore, sectoral regulator Insurance Regulatory and Development Authority (IRDA) said in its monthly data. Overall, life insurance industry collected premium of Rs 83,891 crore in the first eleven months of this fiscal compared to Rs 72,017 crore in the corresponding period last fiscal, thereby growing by over 16 per cent. The private life insurers grew by 5 per cent during April-February period of the current fiscal. The 22 private players mopped up new businesses of Rs 29,570 crore in the eleven months of the current fiscal compared to Rs 28,133 crore same period last year. The largest private player SBI Life mopped up Rs 5,266 crore during the April-February period compred to 4,348 crore collected in the same period last year
Friday, March 19, 2010
Centre should retain power to decide LIC agents' service conditions: House panel
A Parliamentary panel has opposed a Government proposal to entrust Life Insurance Corporation of India (LIC) with the power to decide on the terms and service conditions of its agents. The Standing Committee on Finance, headed by the BJP leader, Dr Murli Manohar Joshi, in its report on the Life Insurance Corporation (Amendment) Bill 2009 suggested that it would be "preferable to continue with the existing legal provisions relating to the terms and conditions of service of LIC agents". The report was tabled in the Lok Sabha on Friday. The LIC Amendment Bill 2009 has proposed to do away with the existing system of the Centre framing the rules on terms and service conditions of LIC agents. Simultaneously, the Bill sought to confer upon LIC the power to frame regulations on the terms and service conditions of the agents. The Bill also proposes to take away the power of LIC to specify the form and manner in which policies may be issued and the contracts binding on the corporation may be executed. A large section of the LIC agents' community is keen that the power to decide and specify the service conditions should not be vested with LIC. Allowing LIC to frame regulations on the service conditions of the agents would dilute the legal protection that such agents currently enjoyed, sources said. The whole idea behind the proposed amendments is to bring the status of LIC agents on a par with that of agents in any other insurance company that is governed by the Agents' Regulations of the IRDA, sources added. The Insurance Regulatory and Development Authority (IRDA) had in a written submission to the Standing Committee on Finance noted that the responsibility of issuing and renewal of Agents' licences is proposed to be assigned to the insurers, but with checks and balances. Also, the IRDA would regulate the licensing procedure by way of detailed regulations.
A Parliamentary panel has opposed a Government proposal to entrust Life Insurance Corporation of India (LIC) with the power to decide on the terms and service conditions of its agents. The Standing Committee on Finance, headed by the BJP leader, Dr Murli Manohar Joshi, in its report on the Life Insurance Corporation (Amendment) Bill 2009 suggested that it would be "preferable to continue with the existing legal provisions relating to the terms and conditions of service of LIC agents". The report was tabled in the Lok Sabha on Friday. The LIC Amendment Bill 2009 has proposed to do away with the existing system of the Centre framing the rules on terms and service conditions of LIC agents. Simultaneously, the Bill sought to confer upon LIC the power to frame regulations on the terms and service conditions of the agents. The Bill also proposes to take away the power of LIC to specify the form and manner in which policies may be issued and the contracts binding on the corporation may be executed. A large section of the LIC agents' community is keen that the power to decide and specify the service conditions should not be vested with LIC. Allowing LIC to frame regulations on the service conditions of the agents would dilute the legal protection that such agents currently enjoyed, sources said. The whole idea behind the proposed amendments is to bring the status of LIC agents on a par with that of agents in any other insurance company that is governed by the Agents' Regulations of the IRDA, sources added. The Insurance Regulatory and Development Authority (IRDA) had in a written submission to the Standing Committee on Finance noted that the responsibility of issuing and renewal of Agents' licences is proposed to be assigned to the insurers, but with checks and balances. Also, the IRDA would regulate the licensing procedure by way of detailed regulations.
LIC board free to decide on banking licence: official
The Life Insurance Corporation of India's (LIC) board will have to take a decision on its own whether to apply for a banking licence, media reports quoted R Gopalan, secretary, department of financial services, ministry of finance, as saying.
Speaking on the sidelines of a FICCI seminar on microfinance, Gopalan said, "the LIC board will have to decide that first. Let the board decide, discuss and debate whether LIC should get into the banking business or not."
Finance minister Pranab Mukherjee in his Budget speech this year said the government is planning to open up the banking sector, saying that the Reserve Bank of India (RBI) is considering issue of banking licences to private sector players and non-banking financial companies (NBFCs).
Speaking on the sidelines of a FICCI seminar on microfinance, Gopalan said, "the LIC board will have to decide that first. Let the board decide, discuss and debate whether LIC should get into the banking business or not."
Finance minister Pranab Mukherjee in his Budget speech this year said the government is planning to open up the banking sector, saying that the Reserve Bank of India (RBI) is considering issue of banking licences to private sector players and non-banking financial companies (NBFCs).
This is great news for India's prominent industrial houses, including Tatas, Birlas, Anil Ambani-led Reliance group, the Aditya Birla Group, Tata Capital, Anil Ambani-led Reliance Capital, Malvinder Singh-led Religare group, Muthoot Group, Bajaj Group and Shriram Finance as a change in regulatory environment will boost the ambitions of these entities to enter the banking sector (See: Mukherjee to ease banking licence rules).
Many analysts see this as a pleasant surprise as RBI last issued licences to private banks way back in 2002, to Kotak Mahindra Bank and Rabo Bank.
However, RBI is expected to frame new guidelines for companies willing to apply for a banking licence.
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