ART

ART

Who insured the last football world cup? Which insurer is large enough to provide for losses arising out of huge hurricanes like Katrina?

Well the answer lies in the caption of this post which is ART.The ART that Insurers know of has no relevance to the ART of common Knowledge. ART expanded to as Alternative Risk Transfer.

ART came into being as Insurers neither had solutions nor capital capacities to provide risk transfer solutions for all risks. Reinsurers then thought of Alternative Risk Transfer Mechanisms which would provide a near inexhaustible supply of capacities (Capacity in simple terms means ability to provide for losses)

ART is a multi billion dollar industry and draws support from capital markets worldwide. Today it totals to about 35% to 40% of the total traditional insurance market. The previous football world cup was not insured and the risk was handled by ART techniques. The infamous Hurricane Katrina was also one of the events that drew ART into protection mode.

What are the common forms of ART – The most common one is the Bonds also called as Cat Bonds (Catastrophe Bonds). These bonds in simple terms are like any other bonds which the buyer buys and in the event of the catastrophe the proceeds from sales of bonds are used to pay the losses. If there are no losses, the bond buyer gains from interest on bond proceeds as well as the insurance premium which the buyer of protection pays.


Another common ART form is the Weather derivatives. The Weather Derivatives are not strictly in terms of insurance as they are linked to index and not indemnity driven. The derivatives on a macro plane could also be like trading off of Hurricanes of USA to the Cyclones of Indian Peninsula etc – that is the funds collected from Hurricane Protection in USA could be used for Cyclone losses of Indian Peninsula and vice versa assuming that both may not occur together. Thereby the capacity to serve the losses of risk is much more

The above paragraphs are meant to give you an introduction to the concept of ART and I shall feel justified if they have generated interest in the reader to look for more.

Medical Insurance - The Portability in the offing

Portability is a relatively new term used in connection with insurance. What is portability? Portability is taking from one place to another. So portability of insurance would be to take insurance from a new insurer without any change to the benefits enjoyed under the earlier insurance.

We do that in Motor Insurance without actually understanding it to be portability. The benefits of No Claim Bonus would accrue under a new insurer as if renewed with the present insurer.

Then what is new in portability. It is the Portability of Health Insurances that is being talked now. Today Insurers do not provide protection of benefits if the medical insurance is transferred from one insurer to another. This causes difficulty to the insuring public who are at a disadvantage even if they do not receive satisfactory service from the existing insurer.

With the objective of putting customer first, IRDA had requested General Insurance Council to come up with a proposal for offering Portable Health Insurance covers to the public. Accordingly General Insurance Council has come up with a recommendation. The salient features are:

· Sum Insured upto Rs.1 Lakh
· Basic Cover Benefits
· Premium to be determined by the companies within the band suggested
· Offered to those in the age band of 18 to 40.

This change when adopted gives more choice to the customer in choosing his health insurance service provider without compromising on the benefits earned till now. This change also puts it in perspective the importance of customer comfort and also portends more such changes to come in future.

Some news reports on the above caption

Business Standard

Business Line

Financial Express

Happenings in Sri Lanka - on Insurance front

The latest news in Insurance domain in Sri Lanka has learnings for us.

The third largest Non Life Insurance Company in Sri Lanka – Janashakthi Insurance has had its Licence Suspended by the Insurance Board of Sri Lanka. http://www.ibsl.gov.lk/IBSL.htm. The news reports of Sri Lanka say that the reason for the same is complaints from customers that claims are not being honoured.

Janashakthi has responded and has pasted a public notice in its website asking for the confidence and continued patronage of its customers. http://www.janashakthi.com/publicnotice.htm


Customer is the king and don’t get on his wrong side.

Insurance Act - The accelarated passage

It is on the news again. Business Line today reported that the Insurance Laws may be put on fast track (see report). There is also a report on similar lines in The Economic Times of Today

What is in it for us as Insurance People and also as common public.

1. It is estimated that over Rs.10,000 crores would come in as FDI which is great news for the economy. (ET report of today)
2. There is a greater scope of techonology transfer in as much it pertains to insurance with the foreign insurers like Lloyds allowed to set up branches here
3. An insurance company would have the right to rely on the statements in proposal only for the first 5 years. That means after 5 years if there is an incidence of claim, the insurers would have no right of refusal of the claim citing some statement or mis statement in proposal. This is applicable to the Life Insurance companies. This would give us all a sense of security that the contract that we entered into for the sake of our loved ones would be honoured. Pl check out this article of Economic times which throws more light on the subject

For me the third one is the one that makes this amendment most exciting though all of us would enjoy the positive fallouts of the FDI of Rs.10,000 Crores when it happens.

Insurance Ombudsman

An insurance ombudsman is a statutory office created by Government of India for quick disposal of the grievances of the insured customers and to make the problem redressal process simpler.

Ombudsman's powers are restricted to insurance contracts of value not exceeding Rs. 20 lakhs and are for personal insurances only. Therefore the office of ombudsman is not to be approached for grievances of organization.

The complaint may relate to any grievance against the insurer i.e.
(a) partial or total repudiation of any claim under an insurance policy;
(b) the amount of premium paid or payable for a policy;
(c) the legal construction and interpretation of a policy for considering a claim under the policy;
(d) delay in settlement of claims;
(e) non-issuance of a policy after receipt of premium.

The Ombudsman may pass awards on the matters of complaint brought to him and the same shall be be honoured by insurance companies within three months. The insured however may explore other avenues like consumer forums if he is not satisfied with the decision of the ombudsman.

For further and more complete details the following links are available:
The site of IRDA (http://irdaindia.org/) - please follow the link for ombudsman
Role of Insurance Ombudsman - Report in Financial Express

INSURANCE ACT – THE AMENDMENT BILL

The new government would be in place in a few days from now and one of the keenly expected areas is the reforms in Insurance Sector.

The previous government introduced the amendment bill in Rajya Sabha and as such the bill is live and has not lapsed.

The important points in the bill are given below for our understanding:

1. Raising of foreign holdings from 26% to 49% (FDI Cap)
2. Withdrawl of the condition which required Indian Promoters to divest a part of their holding 10 years after commencement of operations.
3. Allowing a ceiling for the government guarantee of LIC Obligations

The effect of this bill would be inflow of Foreign capital of over 2500 crores in life segment alone and bringing in of new technology and knowledge by foreign promoters.