Insurance sector, which has been making news in the past few years consistently, chugged on in February 2009 as well.
The global meltdown was reported to be grasping some of the giants in the business tightly - with AIG and Allianz, two behemoths, reporting huge losses. AIG is already under a bail out package from the US government and may require some more assistance or might sell some of its units - its life business is Asia being a prime candidate.

Reinsurance was no less affected with news that Swiss Re, one of the top in the business, losing over a billion francs and turning to Warren Buffet for investment.

The world insurance market is surely churning and the landscape may have changed completely in a few years.

Reforms to wait further

In our land, Insurance Act amendment (as well as pension reforms) were introduced in the Rajya Sabha but will have to wait for the new Parliament to take it forward. The insurance reforms include creating a new stream for health insurance companies with Rs. 50 crore capital and increasing the FDI in the sector from 26 per cent t 49 per cent.

IRDA is coming out with the M&A guidelines for insurance companies in three months. With consolidation in the sector expected in the near future, it cannot be too soon.

Interestingly, our own General Insurance Corporation of India is expanding with its foray into Latin America, where its Brazilian operation received licence. We should look forward to an Indian reinsurer being among the top names.

Service tax reduction will have its definite positive impact on insurance premiums. However, the major operational issue that insurance companies face is that they will have sent demand notices to customers much before and it takes a lot of effort to correct the service tax – by way of issue of revised renewal contributions, processing excess / short payments and clarifying the issue to the customer - not less in complication to the telecom companies which issue pre-paid cards.

Slow down did result in lower growth across the entire insurance sector - Life insurers facing a slow growth in fresh business (though LIC did buck the trend through Jeevan Astha) and for general insurers auto sale slow down has its own impact.

IRDA thankfully clarified that the new rule on computing the foreign equity holding did not apply to insurance since there is a clear regulation on how to calculate the foreign investment in a company.

New life products…

New products in February included LIC's Jeevan Varsha, a money back scheme, IDBI-Fortis' home insurance, HDFC Standard Life's surgical cover and Agricultural Insurance Corporation's Rainfall insurance cover for Karnataka coffee planters.

26/11 may still linger as the news channels' favourite subject, but the insurers will like to forget the impact it has made on them with claims over Rs. 700 crore only on the hotels. What is not normally accounted for are the policies that the individuals who were unfortunate victims had bought as personal accident or life insurance. With some high earning individuals being in that list, the claims could be high - the question is, with a Rs. 1000 plus crore bill for 2005 floods and now this, is Mumbai turning out to be a tough terrain for insurers?

The corollary to the incident is that terrorism cover is expected to be priced up by 36 per cent (in case of residences) to 54 per cent (in case of non-industrial businesses such as hotels and malls). Incidentally terrorism cover premiums are still at an affordable level in the country and this portfolio is managed by a pool of insurers.

The best case for the other non-life insurance portfolios (especially property and engineering) is that they are not expected to fall further. These premiums have come down substantially in the past two years with IRDA dismantling tariff levels.

TPAs in turmoil…

The news about IT department slapping notices on Third Party Administrators for non-deduction of TDS on health claim payments to hospitals is a cause for concern. The time has come for IT authorities to balance the customer service impact of sections such as 194 C and 194 J where the insurance companies have negotiated cashless settlements.

Staying on with the TPA sphere, the four PSUs have initiated an action for setting up a TPA owned by them. The objective is to control their health insurance business better and comes in the wake of some of the private insurers opting for such a move. Whether this will help the customer in the ultimate analysis is a moot question, since the concept of independent TPA will diminish with such initiatives.