IRDA Decides To Unshackle Tariff Rates For General Insurers.
The last few years, have been quite eventful for the insurance industry , specially in the otherwise dry non life sector. There was a time when private insurance companies were allowed to enter the field, while General Insurance Company and its counterparts/ subsidiaries hailed monopoly in the non life segment. All companies followed the fixed premium rate, the products were undifferentiated and there was limited coverage for every product line.
Despite ample potential, the non-life sector suffered on account of the compulsory tariff sector.

However, it looks like things are about to change. The Insurance Regulatory & Development Authority (Irda) has taken a major decision, which completely unshackles the general insurance industry of all tariff rates. This decision will be put into action from September 2007.

The Tariff Advisory Committee has decided that the rates, terms, conditions and regulations applicable to fire, engineering, motor, workmen's compensation and other classes of business currently under tariffs will be withdrawn soon. The IRDA will regulate them from the next calender year.

Detariffing will bring in a major shift from rule- based underwriting to risk- based decision- making. Mr. C. S. Rao, the head honcho of IRDA has reportedly said that the decision of detariffing the general insurance sector will bring in a big change in the focus of insurance companies from corporate business to individuals, resulting into higher insurance penetration in the country.

Pari Oli, President of New India Assurance has told the media that fire insurance is indeed the cream of the business and private sector always concentrated on this product, while avoiding risky business like third party motor insurance. Detariffing will put fire premiums under competitive pressure now.

Kartik Jain, the marketing head of ICICI Lombard says that while normal wisdom would suggest that the tariff is supposed to be at a lowest rate that one can offer, market dynamics, in fear of undergoing business loss, quote a higher price. Complete Detariffing is expected to change this situation for the better.

Detariffing will affect various aspects of non-life business. These can be;

  • Brokers Benefit: A broker aims at getting you a good policy at a reasonable price. Since these people know a great deal about the insurance scenario, they are far better placed than the insurance company representative trying to sell you a policy. With the tariff policy removed, the brokers will come on their own, as they will be able to design policies as per their need.
  • Niche Plans: Detariffing will boost more segmentation and better quality products in the market. Motor Insurance will directly be affected with the de-tariff impact. Hence several interesting policies will be introduced this year.
  • Retail Products: Presently, retail customers could insure vehicles, assets, health and travel. But a change will be seen, due to the combined effort of insurers and brokers. The market for retail consumer products will widen and brokers see more consumer protection bundled products coming up this year that will give the policyholder greater control of his policy.
  • PSU: Detariffing will help do away with the PSU grip. Insurers , should however avoid unnecessary price cuts and underwrite good businesses.
  • Health Insurance: Group Health insurance premiums were the not so profitable group of health insurance sector. There is an element of cross subsidization in the market. This will disappear with detariffing.
An IRDA source has commented that the detariffing will indeed create a more level field. Furthermore, the IRDA will propose clear guidelines to start a Third Party Pool to offer insurance.
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  LIC’s New Credit Card Venture

The Life Insurance Corporation Of India is all set to make it big again. India’s credit card industry is on the verge of welcoming the public sector giant as a new member of the very vast family. According to CNBC- TV 18, LIC is set to forge an alliance with one of the world's biggest financial services company to launch credit cards.
According to sources, GE Capital services, the largest issuer of private label credit cards is said to have had talks with LIC for a joint venture into credit card business. Talks are still at a preliminary stage.

There is also news regarding LIC’s latest three-way venture with a bank. LIC has shortlisted ICICI Bank, UTI Bank, HDFC Bank, Standard Chartered Bank and Visa as partners for this joint venture. Corporation Bank also might be roped in to ensure that Credit Card Company is not subsidiary.

GE is already in a partnership with the State Bank of India in credit cards. If things between GE and LIC finalize a strict code of conduct will be put in force to prevent violation of confidential information between the two companies.

Along with LIC, Stanchart, DBS and Barclays are also in the credit card race.

LIC has certain objectives behind this credit card venture. Their credit card business will help their policyholders and the agents will be able to utilize their time better by selling these credit cards. This will definitely cause brand enhancement. Senior officials of the company have claimed that credit card business will add value to their core activity of life insurance. LIC currently reaches to over 20 crore customers across the country. For its new business strategy, the insurance company is targeting two crore credit card holders for its new business.

Although a number of MNC’s are looking forward for a partnership with LIC they have been unsuccessful in convincing the latter that card business would prove beneficial for increase of insurance penetration. LIC is still to disclose its credit card strategy.

However, its mind boggling to review that though the potential for credit cards is tremendous in India, the proportion of total expenditure by them is one of the lowest in the world here. It seems like India is not very familiar with plastic money. While India registered plastic money worth $6 billion in 2006, Korea showed a spending of $136 billion by credit cards.

SBI Card CEO Roopam Asthana has commented that this very low level of penetration in India offers a lot of potential for credit card business. The drawing force behind a large number of financial institutions and companies like LIC is the 61% year-on-year growth in retail spending, the highest in the world.
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  Rising Rupee And Its Effects
The Indian Rupee is appreciating fast. And this rise is affecting many sectors in good or bad ways. Take a quick look on the effect of the rising rupee on various industries;
Rising rupee hits small exporters;
Small exporters are especially facing the brunt here. Unlike large exporters, these people do not have any financial reserves to fall back on. As they depend on local raw material, they do not see any benefits from imports becoming cheaper with the rise of the rupee.

The chairman of Apparel Export Promotion Council, Mr. Vijay Aggarwal has said that if the rupee continues to strengthen, at least 30 to 40 textile units in the apparel sector stand a chance of closing down. On its part, the commerce ministry has decided to compensate the losses recurred by the exporters by cutting the premium charges by the Export Credit Guarantee Corporation, enhancing the DEPB (Duty Entitlement Pass Book scheme) and duty drawbacks and making earners foreign currency (EEFC) accounts for interest bearing. But exporters are still facing a tough time as many of them do not have an EEFC account and are not eligible for DEPB and drawbacks on the products that they export. Hence these people can breathe a sigh of relief only when the Rupee weakens.

IT sector faces a blow;

The rising rupee has only added more trouble to the woes of the Indian IT industry which is already facing the burden of the rising costs of the Indian IT industry which is already losing out on account of the wage increases, high attrition and over- dependence on the U.S. market for business. Market analysts are of the view that with earnings round the corner, IT stocks are poised on the bottomline if the rupee appreciates further against dollar.

Gross Domestic Product (GDP);

Since 1991, India’s peak import duty has come down to 30 per cent. Though still high by global standards, this means that Indian prices are much closer to global ones. So GDP has become more real and less illusory. However it is a matter of interest that the rupee has strengthened from Rs 49 to Rs 45.30 to the dollar over the last year, and forex reserves have crossed $90 billion. Exports of goods and services are booming, and dollars from both NRIs and foreign investors are cascading in. If GDP rises 5.8 per cent and the rupee appreciates 2 per cent annually, that will represent a growth of 7.8 per cent in dollar terms. This in turn could lead to a miraculous economy growth.

Forex;

Flows and stock markets are presently strong while the dollar still stands weak in comparison to the Indian rupee. The positive factors are strong enough to lower the persistent rise in crude oil prices. Forward premia has fallen sharply while the rupee is being appreciated. Traders are however taking advantage of the situation of the lower levels to pay later.

NRI’s;

It is being observed that Indians working abroad have been badly hit by the rise in rupee. The rupee appreciation is eroding their savings.

Asia coming in terms with rising rupee;

Inspite of the Indian rupee not being acceptable in the international money market, it is being widely accepted due to growing trade and an increase in tourist inflows. There is speculation that several hotels might very soon do away with the dual tariff structure and offer a single rupee tariff. This will put foreign tourists and Indians in the same boat. According to recent reports the Indian rupee is being widely accepted in hotels in Singapore, Malaysia, Indonesia, Hong Kong, Sri Lanka and many more Asian countries, which are willing to accept the currency due to its strengthening against the dollar.
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