LIC settles claims faster than pvt insurers!

LIC settles claims faster than pvt insurers!

TNN, Oct 28, 2010, 09.40pm IST

NAGPUR: Public sector insurance behemoth Life Insurance Corporation (LIC) leaves the private insurers much behind when it comes to promptness in settlement of claims. "The private players may be prompt in selling their products but are not as efficient as LIC when it comes to settle the claims and need to improve on this front," said the union minister of state for finance Namo Narain Meena. He was addressing a meeting to mark the golden jubilee of LIC Agents Association's Nagpur unit.

Meena, who holds the charge of insurance and banking departments in the ministry, said LIC did not make claimants run from pillar to post for getting the settlement. "This only indicates transparency in the functioning of public sector organisation," said Meena, indirectly flaying the private sector insurance companies. He added that still a large section of population needed to be covered by banking and bringing them into the

banking fold remained a top priority of the ministry.

Source: The Times of India

LIC settles 711 death claims due to terrorist, naxal attacks!

Country’s largest insurer Life Insurance Corporation (LIC) has settled 711 claims to the tune of Rs 8.33 crore for persons killed due to terrorist and naxals attacks during the last three financial years, Parliament was informed.
"LIC has settled 17.77 lakh claims in the last three years out of which probable death claims due to terrorist and naxalite attacks were only 711 in number with Rs 8.33 crore paid as claim," Finance Minister Pranab Mukherjee said in a written reply to the Lok Sabha.
Mukherjee has further said that insurance regulator Insurance Regulatory and Development Authority (IRDA) has informed that there is no extraordinary financial burden on the insurance companies due to settlement of insurance death claims due to terrorist and naxalite attacks in the country.
"The proportion of death claims due to terrorist and naxalite attacks to the total death claims settled by insurance companies is very insignificant," he added.
IRDA has further informed that separate record of deaths due to terrorist and naxalite attacks is not maintained by the insurance companies, except LIC.
Source: Hindustan Times, Dec 10, 2011

Traditional Plans: A Good Bet!

The below article is from Business Standard regarding Traditional Plans. There is always an argument against traditional plans saying returns are not competitive. Yes I would partly agree with the same - returns will not be as exuberant as against a Term plan + Mutual Funds combination. But unfortunately, where is the discipline factor - Do we have the courage to stay in mutual funds (if not invest more) when the markets are sinking (or) do we have the stillness to stay invested when the markets are rising, saying I have invested only for long-term & hence wouldn't care if the markets go up & up. Either case, the answer is a NO. Then why crib about better returns. A traditional product from Insurance does not offer you superficial returns but then at least a discipline is there - most of us would not discontinue an insurance plan (both on psychological grounds & also because you will attract a huge penalty if you foreclose the same). So the plan for our long-term goals will remain long-term even though the returns are modest. Should I again repeat the good old proverb - "Something is always better than nothing".

D.M's club Certificate

Thanks to our clients - we have never stayed in one single club membership for more than a year. It was always an upward climb every year!

I.T Department may spare Salaried class from filing Returns

The Income Tax department is considering a proposal to do away with filing of Income Tax Returns by salaried employees. The proposal if approved will off-load considerable work out of Income Tax offices as well as for salaried people. The rationale behind such a proposal is 2-fold:

1. Salaried people do not have any other sources of income apart from Savings Bank interest component, which is anyways very less & I personally doubt if any one declares the same. 
2. The records of their income are anyways available with the employers & banks!

Of the country's 35 million taxpayers, roughly half are salaried employees.In an interaction with media persons on Tuesday, Mr. Sudhir Chandra (Chairman of CBDT) also promised small taxpayers another major relief. He said the I-T department is planning to release all small-value refunds before March 31. "I will ask my officials to give most refunds by the end of the current financial year," he said.
The I-T department has opened a Central Processing Centre in Bengaluru for faster processing of claims for electronically-filed returns.It will roll out three more centres in the Manesar, Pune and Kolkata.

LIC's Infra Bonds hit a road-block

Life Insurers Can't Raise Money For Any Other Activity But Core Biz

<IDFC's Infrastructure Bond is now open till Feb' 4th 2011>

The Life Insurance Corporation, or LIC, will not be able to issue tax-saving infrastructure bonds aggregating 5,000 crore to retail investors this fiscal due to a regulatory glitch, which was discovered after India's largest investment institution was named an issuer of these bonds by the income-tax department. Insurance regulations allow life insurers to raise funds only for promoting their core business. So, logically, life insurance companies cannot raise money for any other activity. "We are still struggling with the modalities on how to raise these loans. I am not sure about the legal position. So far, we have not finalised any plan to launch tax-saving infrastructure bonds," LIC Chairman TS Vijayan told ET.

LIC secured a mandate to raise up to 5,000 crore through these bonds after the I-T department authorised the institution, along with two other infrastructure financing companies-Industrial Finance Corporation of India, or IFCI, and Infrastructure Development Finance Company, or IDFC-and non-banking finance companies, or NBFCs, categorised as infrastructure finance companies by RBI to be the issuers. IFCI, IDFC, L&T and Rural Electrification Corporation, or REC, have already raised money through these bonds. The appetite for such bonds has gone up after the government announced tax incentives on them. Subscribers to these bonds are entitled to a tax deduction of up to 20,000 this fiscal.

LIC can offer free cover

This is over and above the Rs1-lakh tax deduction available on other savings schemes such as the public provident fund and equity-linked savings schemes. With a coupon rate of 8%, the pre-tax yield of these bonds works out to over 11%. A taxpayer, in the 30% tax bracket, can save up to Rs6,180 by investing Rs20,000 in these bonds. One option open before LIC to overcome the regulatory hurdle is to offer extra features such as free insurance covers to bondholders. However, a similar benefit cannot be offered by termlending institutions, leading to a disparity in norms for bond offerings. "We have asked LIC to sort out the issue with the insurance regulator and they are yet to revert," said a senior government official who did not wish to be named. The tax department will, therefore, remove LIC from the list of issuers if the regulatory hurdle cannot be resolved. CBDT officials were unavailable for comment due to the budget. Insurance regulations, though, allow all life insurers to invest up to 50% of their investible assets in government and other approved securities. Additionally, they can put 15% in infrastructure investments. They hold a discretionary control, subject to conditions, on the balance 35% of the assets. LIC has assets under management of Rs11 lakh crore.

According to officials in a couple of merchant banks, quite a few issues need to be clarified by LIC. "LIC , unlike IDFC or IFCI, is not a term-lending institution. Its core mandate is to garner money for life insurance business," said a merchant banker. The other concern is one of providing a level playing field. "If LIC can raise funds through infra bonds, then why not private insurers. Also, it is not correct to include LIC with NBFCs. This may result in other NBFCs offering comparatively higher returns to attract investors as they are competing with LIC," he said.

IDFC on Monday floated its second tranche of tax-saving infra bonds to raise around Rs2, 930 crore, aiming to mop up a total Rs3,400 crore. L&T Infrastructure Finance earlier raised about Rs240 crore. REC too recently opened its issue of Rs50 crore with a greenshoe option through private placement. IFCI raised Rs60 crore in its first tranche and recently closed its second tranche of Rs50 crore, according to brokers. The country's infrastructure spend is estimated at $514 billion in the 11th Plan. Core sector projects, however, need financing for 10-15 years, which banks are unable to provide as their funds mature in the medium term.

Finance Ministry rejects 9.5% Interest Pay-Out for Provident Fund

Source: Economic Times - 17th January 2011

NEW DELHI: The finance ministry has rejected the 9.5% interest pay out proposed on provident fund savings for 2010-11 saying the 'surplus funds' found by the PF department from its past accounts were 'unverifiable.'

Labour Minister Mallikarjun Kharge had recommended raising the employees' provident fund (EPF) rate to 9.5% in September 2010 after the PF department's accounts revealed a surplus from the past.

In a tersely worded communiqué to Labour Secretary Prabhat Chaturvedi, Finance Secretary Ashok Chawla has termed the calculations used to arrive at the PF rate as 'incorrect.'

Chawla's letter, written with the express approval of Finance Minister Pranab Mukherjee, also asked the labour ministry to get the Employees' Provident Fund Organisation (EPFO) to first update and settle all pending accounts of its 5 crore members.

The EPF rate has been at 8.5% since 2005-06 and the rate would have stayed the same in 2010-11 as per its earnings. But a review exercise of EPFO's Interest Suspense Account, where EPF's annual income is parked till it is distributed to members, revealed a surplus of about 2,000 crore.

While the EPFO board cleared the 9.5% PF rate on this basis, the finance ministry had commissioned a special audit of the accounts in question by the Comptroller and Auditor General of India (CAG).

The CAG found that the surplus amount cited in the suspense account can not be verified till all accounts are updated by the EPFO. The CAG usually audits EPFO's accounts at the end of a financial year. Chawla has cited the CAG's findings while communicating the finance ministry's refusal to notify the PF rate.

EPF interest is manually credited to workers' accounts. On 31 March 2010, the suspense account had a balance of 27,000 crore - which means EPFO's dated systems had not credited that much interest due to its 5 crore members' accounts. More than 11 crore account statements were pending on April 1, 2009.

The PF department has admitted that the huge balance in the suspense account would 'ideally' vanish if all past years' annual accounts were updated. PF officials also explained their surplus calculations to the finance ministry in at least two separate meetings. But their defence did not cut much ice.

"The problem is that the PF department classifies worker accounts that haven't been credited interest due to them as pending for the 'current year' and pending for the past," a senior government official told ET.

If some accounts have past interest credits pending, it is not possible to ascertain for how many years they have not been updated. Till the amounts in the suspense account can be broken down to verify how many members' account credits are pending for how long, a 'surplus' can't be claimed from the same funds.

The labour ministry is likely to request the finance ministry to reconsider its decision. It is expected to point out that as per the rules, the EPF rate is announced at the beginning of a financial year and is always based on estimated inflows and incomes.

The finance ministry has already notified a tax-free PF rate of 8.5% for 2010-11, effective from September 1. Historically, the tax-free PF rate notified by the income tax department has never been lower than the EPF rate for the year.

New ULIPs: How they Fare ...

LIC's Unit-Linked plans seems to be the clear winner out of the fresh ULIPs launched by insurers after the regulatory body came up with guidelines pertaining to ULIPs in terms of cost structure, surrender charges, provision of guaranteed returns in pension ULIPs, etc.

LIC seems to be the only insurance company to have launched a pension scheme apart from ICICI Prudential. But the pension scheme of ICICI is a one-time investment scheme & hence aruguement sake it cannot be called as a pension plan @ all as it does not serve the purpose of regular savings for retirement.

Pvt. Players see drop in Policy Sales

The private life insurers have seen a drop of 10-15% in new policy sales since September 2010. The effect is attributed to the capping of charges in ULIPs & introduction of providing a minimum guarantee in Pension products by IRDA. Much of the sales for private players depended on ULIP sales & with commissions payable to agents entering single digit figures, a number of agents have gone out of business as it is no more viable for them. Most insurance biggies including ICICI Prudential, Birla Sunlife, Bajaj Allianz have been hit by the new guidelines. Couple of private players have also cut work force & closed shops to reduce the costs!

Insurance regulator to meet, brief life insurers on flaws!

Source : Sify Finance
The Indian insurance regulator is planning to start the new year with a path-breaking initiative of calling promoters of private life insurers and having a frank discussion with them on the issues facing their companies. Speaking to IANS on the condition of anonymity, a senior Insurance Regulatory and Development Authority (IRDA) official said: "We are planning to meet the promoters of private life insurers and apprise them about the status and issues faced by their companies. We will also set a deadline for the promoters to take corrective action wherever needed." Prior to such meetings, the IRDA would do a detailed study about the companies individually, broadly under three areas - accounting, actuarial and market conduct - which would cover the entire gamut of operations of a life insurer. Attempts to reach IRDA Chairman J. Hari Narayan were not successful. Officials of life insurance companies told IANS that overseas insurance regulators meet the promoters or CEOs every year and take stock of their operations and set deadlines to correct deviations. Shape-up-or-ship-out warnings were given to the CEOs or shareholders by overseas regulators. They said the Life Insurance Council, supposed to be a self-regulatory body, is largely a lobby forum and has not performed its primary role effectively which, in turn, resulted in the IRDA overhauling the regulations governing the unit-linked insurance policy (ULIP) last year. Welcoming the IRDA’s initiative, secretary general of the Life Insurance Council S.B. Mathur told IANS: "It is a welcome move. There can be one-to-one discussions between the regulators and the promoters of life insurance companies. It is a good practice that the regulator would set in motion." According to industry officials, there were companies with large capital and expense ratios but without commensurate premium income. Regular meetings between the regulator and promoters would be helpful in setting the sector on the right path. Industry sources told IANS that companies that have declared profits last year have huge accumulated losses which nobody knows when they would be able to wipe out.

UID will replace PF A/C Number

The EPFO plans to replace the PF a/c number with UID number so that it will help subscribers to to transfer thier accounts to new employers quickly & also without hassles. They could then be able to access their account online. At present it takes months together for the account to get transferred & hence most of the employees either close their accounts or go in for fresh accounts with the new employer. This replacement of PF a/c number with UID is expected to happen by March 2012 when all the branches of EPFO are inter-connected.
In a pilot study conducted at EPFO’s Karnal office, it was found that over 30.2 per cent of subscribers withdraw their PF within a year of joining service while 54.3 per cent do so by the end of the second year.
EPFO having a subscribers’ base of about 4.7 crore, processes over 60 lakh claims every year. It manages about Rs. three lakh crore of funds and receives an incremental deposit of over Rs.25000 crore every year.

There is also a proposal (though in a very initial stage) to prevent subscribers from withdrawal from PF before retirement so as to ensure social security to the working class compulsorily. This is in fact the right move so that it ensures that the vast majority of the population now in their early 30s will not become a liability to the nation without proper provision for retirement.