From Oct, service tax to make LIC policies pricier

From Oct, service tax to make LIC policies pricier
Rajalakshmi Sivam & Deepa Nair
The Hindu Business Line

Chennai / Mumbai: This means if the annual premium for your money-back policy from LIC is Rs 10 lakh, you will have to pay an additional Rs 30,000.

While private insurers add a service tax component to the premium paid by customers, LIC has not been levying the tax on its popular endowment and money-back plans.

From October, however, all LIC policies will attract a separate service tax, says a senior company official. LIC collected Rs 1,87,000 crore as premiums towards its non-unit linked polices in 2011-12.

IRDA diktat
In a recent announcement, insurance watchdog IRDA (Insurance Regulatory and Development Authority) mandated that service tax shall not be included in the contractual premium, but collected from policyholder separately.

Speaking to Business Line, a senior official from LIC said, “We will start charging service tax of about 3 per cent upfront to policyholders from October 1, as prescribed by the IRDA.

“We are currently absorbing the service tax as a part of the policyholder’s funds, as the share capital of the Government (which is our owner) is just around Rs 100 crore.”

He further explained that when service tax is charged separately, LIC may be able to pay higher bonuses on the policies.

All along LIC has been paying the service tax from the money in the policyholders’ account (which holds the premium collected and income from investments). It is the surplus in this account that is declared as bonus on traditional plans.

Customers may, however, see this move only as an additional burden.

A few LIC agents whom Business Line spoke to said the service tax was a deterrent particularly for immediate annuity plans and single premium products where the premium is usually large.

“LIC may lose the advantage over other traditional plans from private insurers now, and though this may come as a shock to customers initially, they will slowly get accustomed to the new normal”, said an LIC agent.

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Haryana govt bars ICICI Prudential for 3 years

Haryana govt bars ICICI Prudential for 3 yrs
CHANDIGARH: The Haryana government has barred ICICI Prudential Life Insurance for three years from doing any further business with it or any of its departments for “intentionally delaying” the process of distribution of annuity to land owners and failure to carry out commitments.

“ICICI Prudential Life Insurance Company needed to be blacklisted,” the state’s Finance Department said in a statement.

When contacted, the company declined to comment on the matter.

“The noticee can, however, opt to pay compounding fee in lieu of entire or a part of the black listing period within one month from the date of this order.

“…this is by paying penal interest at a rate of one per cent for every six months or part thereof of the blacklisting period proposed to be compounded, by making a request to the government in this regard,” the statement said.

Such enhanced rate of interest would be payable on the amount advanced to noticee for the period from date of receipt of advance till the date of repayment of advance and interest at SBI base rate to the Department, it said.

Necessary orders for allowing compounding of the black listing period will be passed after receipt of the requisite compounding fee, it added.

An Expression of Interest was issued in February, 2011 inviting bids from insurance companies and banks for the purpose of providing services for disbursement of annuity to the land owners under the R and R Policy of the state government.

The bid-cum-tender document were submitted by ICICI Prudential on March 31, 2011.

Thereafter, several rounds of discussions were held between the noticee and the state government with respect to various stipulations and condition stated in the draft Services Level Agreement, it said.

This included the obligation of the noticee as the Service Provider with respect to collection and validation of data of the beneficiaries under the scheme of annuity, it added

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NEW UNDERWRITING RULES EFFECTIVE FROM 08/03/2013

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NEW UNDERWRITING RULES EFFECTIVE FROM 08/03/2013

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Haryana blacklists SBI Life for delaying annuity payments

Haryana blacklists SBI Life for delaying annuity payments
PTI
See this story in:The Financial Express

Chandigarh: SBI Life Insurance company has been “blacklisted” by Haryana government for allegedly delaying the process of distribution of annuity to land owners under the Resettlement and Rehabilitation (R&R) Policy of the state government.

While giving this information in an release here today, an official spokesman of the Finance Department said, “Haryana government has blacklisted SBI Life Insurance Company Limited and cancelled the bid awarded to it for delaying the entire process of distribution of annuity to the land owners under the state’s R&R policy.”

He further said stringent actions, including debarring SBI Life Insurance from doing any further business with the State or any of its department could also be taken as per the law.

The official spokesman said that an Expression of interest (EOI) was issued in February, 2011 inviting bids from Insurance Companies or Banks for purposes of providing services for disbursement of annuity to the land owners under R&R policy of the state government.

The bid cum tender document was submitted by SBI Life Insurance on March 31, 2011.

He said that after receipt of the bid documents, several rounds of negotiations and discussions were held with respect to various stipulations and conditions stated in the draft Service Level Agreement (SLA) including the obligation of the noticee as service provider with respect to collection and validation of data of the beneficiaries.

The spokesman further said decisions regarding the contract were taken by the government on July 25, 2011 and August 11, 2011 for making payment of annuity under R&R policy by allocation of work amongst the selected insurance companies. A letter of intent (LoI) was issued to noticee on September 6, 2011.

The said LoI was also issued on specific and unambiguous stipulation that the LoI would be subject to execution of Service Level Agreement (SLA).

This was expressly communicated to the noticee that the government reserved its right to withdraw the said LOI in the event of failure of noticee to execute the Service Level Agreement, he added.

He said that the State Government in performance of its obligation as expressed under the LOI duly advanced payment in favour of noticee towards 50 per cent purchase consideration and allocated area of operation to noticee.

The noticee accepted the said advance payment knowing fully well that the state government has rejected its repeated requests for a change in the fundamentals of the EOI that is collection and validation of data, the official said.

In so far as the government was concerned, the issue relating to data was resolved, and the noticee had accepted the said condition of collection and validation of data, he further added.

He said that in furtherance of the agreed and accepted condition of LOI, the government vide its letter dated January 4, 2012 forwarded the SLA duly approved by it and called upon the noticee to sign the same with its concerned departments.

However, despite repeated reminders, including ones dated January 27, 2012 and February 3, 2012, for execution of the SLA, SBI Life failed to execute the same again for the same “frivolous” reasons of non deletion of the clause relating to the collection and validation of data, he said.

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New Jeevan Nidhi -812

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Flexi Plus Table No-811

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Max New York Life Insurance company to pay Rs 20K for issuing policy with different terms

Max New York Life Insurance company to pay Rs 20K for issuing policy with different terms
PTI
See this story in:The Financial Express

New Delhi: Max New York Life Insurance Company Ltd been ordered by a consumer forum here to pay Rs 20,000 as compensation to the grandfather of a policy holder for issuing a policy with terms and conditions different from what was told to him.

The Central District Consumer Disputes Redressal Forum also observed that the insurance firm had refunded the premium amount received from the complainant after he had filed a complaint.

“From the pleadings and undisputed evidence of the complainant, we find that the complaint has got merit. The insurance company issued the policy with terms and conditions, which were different from the terms and conditions told to the complainant.

“We believe in the case of the complainant. The insurance company returned the amount after filing of the complaint. It had enough time before filing of the complaint to refund the amount as the complainant made several oral requests and also

sent letters, representations and legal notice etc as pleaded,” the bench presided by B B Chaudhary said.

It directed Max New York Life to pay Rs 15,000 as damages and Rs 5,000 as litigation cost to the complainant.

The forum’s order came on the plea of Delhi resident Krishan Lal Nagpal who had alleged that the insurance firm had issued him a policy which had terms and conditions different from what was told to him by its agent.

Nagpal had applied for an insurance policy in the name of his grandson for a period of five years, but he was issued a policy for a period of 10 years instead, he had alleged.

The insurance firm was proceeded against ex-parte as no one appeared on its behalf despite the notice issued to it.

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Private life insurers’ lapse ratio doubles in pure plans

Private life insurers’ lapse ratio doubles in pure plans
Falaknaaz Syed
Financial Chronicle

Mumbai: While the rate of growth in sales of new insurance policies has distinctly slowed, it seems more customers are choosing not to continue their existing policies.

The lapse ratio has more than doubled during financial year 2011-12 (FY12) for many private sector life insurance companies in case of traditional insurance policies bought by individuals. In general, lapse is the discontinuance of a policy by non-payment of premiums by the policyholder within the 15 to 30 days grace period.

Among the insurers, Birla Sun Life Insurance had the highest lapse ratio of 51 per cent in FY12, down from 71.6 per cent in FY11, followed by Future Generali Life at 48.9 per cent (24.6 per cent in FY11), ICICI Prudential Life at 41.9 per cent (46.5 per cent in FY11), Reliance Life at 38.5 per cent (15.7 per cent in FY11) and Bharti Axa Life at 36.1 per cent (18.9 per cent in FY11). On the other hand, LIC lapsation ratio stood at 5 per cent for FY12, compared with 4.9 per cent in FY11.

Heads of life insurance firms, such as ICICI Prudential, Reliance Life, which had a high lapse ratio, refused to comment for this article

Lapsation affects the profitability of a life insurance company. According to a study released by the insurance regulator in November 2008 titled ‘lapsation and its impact on the life insurance industry’, in case, an endowment policy lapses during the later years of the policy term, an insurer may be profited by forfeiting the mathematical reserves built under that policy. In other words, consumers going away in case of endowment plans may actually help boost profits.

On the same lines, since in case of an endowment product, the asset share is built over the period of time and if the lapse occurs in the initial phase, then this would result to a loss to the insurance company because insurers will not be in a position to recover the fixed cost incurred in writing the policy. Moreover, if the lapses are high in the initial phase, companies will not be in a position to recover the fixed cost and, hence, the deficit in fixed cost recovery is to be borne by the shareholder. Such lapses typically occur when clients have been mis-sold or force sold a policy, say industry insiders.

However, many confuse lapsation with surrenders. Surrender refers to a situation where the policyholder surrenders his policy and takes the surrender proceeds as specified in the policy document, whereas, in case of lapses, within some specified time, the policyholder may revive the lapsed policy by paying all the premiums that are due on that date and proving continued insurability. This normally involves declaration of good health and/or undergoing medical tests as prescribed by an insurer.

But, the proportion of such revivals is less than 3 per cent and, hence, majority of lapses are permanent in nature according to the Insurance Regulatory and Development Authority (Irda). Normally in case of a lapsed policy, there is no sum accruing to the insured individual that can be cashed in.

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Profit & Loss for the year 2011-2012

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