Eight Years on, Pvt. Life Insurers firms yet to break even

Private life insurers have entered into their eighth year of operations in the country but they are yet to generate profits.

Usually, insurers globally take six-seven years to break even, or turn profitable. But life insurers in India are taking longer to be profitable due to increasing management costs, a high attrition rate and ashrinking ticket size.

Industry players have already started focusing on premium renewals. As a result, this segment had grown at over 35 per cent in 2008-09. Further, this does not involve any high commissions for agents, unlike in new premium business.

Additionally, new premiums require large spends on the training of an agency force for creating a niche market for the products, and to provide for policy liabilities and maintaining solvency margins.

The private life insurance industry had grown at 7 per cent in the April-February period this financial year from April-February 2007-08.

Insurers attribute the delay in achieving break-even to the capital intensive nature of the life industry. They have to inject capital at frequent intervals to achieve growth in the premium income.

"A majority of the expenses goes towards distribution. Real estate prices, growth in salaries and expenses on technology have gone higher than what was provided for in the original business plan, pushing companies away from breakeven," said Aviva Life MD and CEO T R Ramachandran.

"If a life insurer fails to break even in seven-eight years, the company can never be profitable," said the managing director of a large insurance company on condition of anonymity.

HDFC Standard Life and ICICI Prudential were the first private players to start the life insurance business in 2001 when the industry was opened up. Four private insurers had reported net profits in 2007-08. Then Bajaj Allianz life posted a profit in 2008-09.

SBI Life, due to the large network of its parent company State Bank of India, achieved an early breakeven. Others insurers who have posted profits include Met Life, Shriram Life and Sahara Life. SBI Life posted anet profit of Rs 34.38 crore in 2007-08. It was the first private company to report a net profit of Rs 2.02 crore in 200506, followed by Rs 3.83 crore in 2006-07. Another private insurer Shriram Life, which started operations in February 2006, reported a net profit for its third successive year of operations.

However, it reported a lower net profit of Rs 5.58 crore in 2007-08 as against Rs 9.50 crore in 2006-07. The total premium underwritten stood at Rs 184.16 crore.

Metlife and Sahara life have reported net profits of Rs 21.25 crore and Rs 3.34 crore respectively in 2007-08.

The former posted a net loss of Rs 11.96 crore in 200607, while the latter posted a net loss of Rs 51.44 lakh in 2006-07.

ICICI Prudential Life Insurance plans to go in for an IPO before breaking even, depending on changes in FDI limits. It is aiming for an expense break-even in another 12-18 months.

Globally, insurers take six to seven years to turn profitable Increasing management costs, high attrition rate and a shrinking ticket size strain Indian life insurance companies Insurers attribute the delay in achieving break-even to the capital intensive nature of the life industry HDFC Standard Life and ICICI Prudential were the first private players to start the life insurance business in 2001 when the industry was opened up

Source : www.insuremagic.com

Public sector general insurers to float JV for TPA service

THE General Insurers' Public Sector Association of India (GIPSA), an association of all the four public sector general insurance companies, is planning to float its own third party administration (TPA) service jointly with a company in India or abroad. TPA is one of the core functions of general insurance business, especially for health insurance. TPAs help the subscribers in availing cashfree hospitalisation and other services by tying up with hospitals. They get a fee from insurance companies for carrying out these activities.

The yet-to-be-floated consortium, comprising National Insurance Co, New India Assurance Co, Oriental insurance Co and United India Insurance Co, would forge a joint venture (JV) with either an existing TPA in India or abroad. In case, GIPSA partners with a foreign TPA, the foreign capital in the JV would be restricted to 26%, which is the current FDI cap in the insuarnce sector. Foreign general insurers will have an opportunity to access some lucrative business currently in the domain of the government-owned insurance companies.

GIPSA is already in the process of finalising the consultant for choosing the JV partner. Companies such as KPMG, Boston Consulting Group (BCG) and Ernst & Young have given the expression of interest (EoI) for working as the consultant for the proposed JV, GIPSA chairman M Ramadoss, who also holds the same position in the Oriental Insurance Co, told.

"The idea is to form our own TPA. We are in the first stage of a long process. All top consulting companies have given bids for working as consultant for this project. Firstly we will select the consultant and then move towards the JV as per the advice of consultant," Mr Ramadoss said.

The consultant will advise the general insurer's association on the type of companies that they should look for the proposed JV as well as the equity partnership that the association should pursue.

At present GIPSA members offer the health insurance services through tieup with any Indiabased TPA. They form the tieup with the TPAs on an annual basis. They have to give about 5% to 6% of the premium collection as fee for availing the services of the TPA. However, insurance companies cannot pass on this burden to the subscribers of insurance policies according to prescribed norms by the Insurance Regulatory and Development Authority (Irda). Forming its own TPA would help these companies save on some extra expenditure. The yet-to-be formed TPA can also offer services to other private insurance companies for revenue generation.

Source : www.insuremagic.com