Cover for some more swing in insurance
The insurance sector saw a series of changes in 2010, with the Insurance Regulatory and Development Authority (Irda) finally deciding to clamp down on mis-selling of Ulips (unit-linked insurance plans). Among the several steps that the regulator took included imposing ceiling on Ulip charges. Ironically, the changes can be attributed more to the much reported duel between capital market regulator Sebi and Irda rather than any consumer activism.
Whether the slew of Ulip-centric regulations, which came into effect from September 1, will make any noticeable difference to the way insurance products are bought and sold, remains to be seen.
In a separate development, public sector general insurers withdrew the cashless facility at several leading corporate (or five-star) hospitals starting July 1, citing exorbitant charges. Oddly enough, policyholders covered under corporate group mediclaim, which has been a loss-making portfolio for most insurers, were spared. Last heard, a large number of corporate hospitals had given in to the insurers’ demands to lower their charges, though many others in Mumbai continue to remain defiant.
Nevertheless, the impact of the changes, or the lack of it, will be clearer in 2011. The New Year is expected to herald several other changes, including guidelines on initial public offering (IPOs) as well as mergers and acquisitions (M&As) by insurance companies. On that count, at least, 2011 is likely to be a worthy successor to 2010.
Here are some likely trends and developments identified by industry experts and watchers that could affect you as a policyholder, next year:
Online is the way to go
Following Irda’s cap on Ulip charges that has hit the sales targets of several companies, insurers are now looking at alternative distribution channels to bring down costs. Many companies have taken to the online channel with gusto for selling term policies. As Irda allows differential rates for offline and online products, some insurers offer online term policies that are significantly cheaper (by up to 45% in some cases).
“The significant impact on profitability due to the new regulations on Ulips will lead to companies exploring cost-effective modes of distribution. Though the online channel as of now does not contribute significantly to the total sales pie, this mode of distribution is expected to gain momentum in the coming years,” explains Sanjay Tripathy, executive vice-president and head, marketing and direct channel, HDFC Life.
Traditional may be back in focus
Post September 1, there is a heightened need to promote traditional products, too. “There is a growing need to further broad-base the product mix to include a healthy proportion of non-unit linked products and cater to customer segments across their life cycle,” says Mayank Bathwal, chief financial officer, Birla Life Insurance. Several distributors are recommending endowment products over Ulips now.
While toning down the Ulip obsession is welcome, policyholders need to remain alert as the scope for mis-selling is huge even in endowment products whose opaque structure makes it difficult to ascertain the charges deducted and actual money invested.
Many insurance companies are gearing for initial public offers (IPOs) next year, when Irda is expected to come up with detailed final guidelines in this regard. From a policyholder’s point of view, you may not be affected greatly if your company goes public or decides to acquire or merge with another insurer. However, you could hope for certain fringe benefits.
“Acquisitions and mergers may bring down the administration cost and policyholders can expect higher returns from their insurance policies, ” says certified financial planner Pankaj Mathpal. And what about health policies that have to be renewed annually? “For a policyholder, if his insurance company is taken over by another, he will still enjoy continuity of cover. The policyholder is also entitled to renewals without any break from the original company or the merged company. This holds true for both retail and group policies,” says Sanjay Datta, head, health insurance, ICICI Lombard.
So far, the regulations have prevented one bank from distributing policies of multiple life or general insurers. Debate on whether an open architecture would be more appropriate is currently on and some industry watchers expect Irda to take a decision next year.
“Presently, a bank can offer only one company’s insurance policies to its consumers through the Bancassurance channel. Irda has set up a panel to review these rules. A revision would foster competition and hence innovation and better service to consumers,” reckons Mark Meehan, chief marketing and operations officer, Bharti-AXA Life.
If indeed banks are allowed to act as agents for more than one insurer, it may mean more choices for you, but a few experts have expressed some reservations, including the bank staff’s lack of in-depth product knowledge in such cases.
Term insurance rates may fall
“With innovation in distribution mechanism and online products, term policy rates are likely to go down,” says Meehan. The same holds true for mortality rates as well. “Mortality rate will come down and term plans will become more economical,” adds Mathpal.
In short, if you are looking for a pure protection cover to secure your family’s financial future in your absence, this is the time to seal the deal. Health insurance, on the other hand, may not offer any such respite. “Premiums for mediclaim are expected to rise in the quarter of April 2011,” cautions Sudhir Sarnobat, CEO of health insurance broking firm Medimanage.com.
Pay more for luxurious treatment
Some public sector insurers have already indicated that they would come out with health products with a larger sum insured (and consequently, higher premiums) for those who are keen on availing treatment at high-end hospitals. Such products may hit the market in 2011.
“Policies with higher sum insured and higher premium would get benefits like permission to avail treatment at luxury hospitals (this would also mean that there would be products which would be priced cheaper with lesser benefits),” says Sarnobat.
Also, things could become a little easier for policyholders who often have to grapple with incomprehensible clauses in insurance contracts. Irda may come up with administrative reforms to standardise terms and procedures. “For instance, a standard claim and pre-authorisation form as well as list of exclusions and their interpretations,” he adds.
Employee benefits could shrink
Those enjoying the benefits of corporate group mediclaim, where the family including elderly parents (and their pre-existing illnesses) are covered, may be in for an unpleasant surprise. According to an annual employee benefits survey conducted by Marsh Insurance Brokers for 2009-10, employers are tightening the benefit packages and one of the key casualties has been the cover extended to employees’ parents. The trend is likely to make its way into 2011 as well. “In this segment, we are seeing an increasing trend of dependent parents of employees being left out of the scope of coverage. This will result in a large number of parents going uncovered in 2011,” says Mahavir Chopra of MediManage.com.
Alternatively, they could, like many others, introduce the co-pay clause, wherein 10-25% of the approved claim has to be borne by the policyholders themselves. Therefore, it would be wise to cover your parents under an individual mediclaim or a family floater policy to avoid nasty shocks later.
To sum up, 2011 promises to be an eventful year like its predecessor and some prudent choices and inquisitiveness will help you get the better of your agent and make the right decision to secure your family’s needs.