June 25, 2014

lessons for the indian life insurance industry


I recently wrote on what lessons behold for the life insurance industry players in India on account for a recent rush in market-linked policies surrenders in an editorial contribution in the newspaper I present work for.

Here is what I wrote:

Insurance lessons
The surrender rush in ulips is not a problem. It is a symptom of an old problem

The means to an end is as important as the end itself. The life insurance industry, as this paper reported in Monday's front page, is in the throes of high surrenders taking place in unit-linked insurance policies (ulips). This is evidently on the back of rising net asset values of the equity-oriented ulips which has activated investors' ability to surrender nothwithing the high surrender charges of about three per cent.
Some of the insurance companies appear to be cribbing that this is having a crippling effect on their business. But, really, there is a need for honest introspection by the big players in the insurance industry. Surrenders taking place at a very high rate is the creation of the insurance companies and their agents in their attempts to get new business by any means even if it meant mis-leading the non-savvy investors. Mis-selling was the norm in the life insurance industry till at least 2010 when the insurance regulator, Irda, stepped in to reign in exorbitant commission charges and unfair surrender terms and charges. But this applied to new policies sold therefrom and so old policyholders were still tied up with the dreadful old regime.

The exact details of which ulip investors are surrendering their policies are not known but it is possible a big chunk of them may be from the pre-2010 period. The front-loading of fund management and other charges in them meant any investor wanting to surrender in the first 3-4 years of the policy would get even less than the value of their investments. With four years behind and stock market indices touching higher and higher peaks every week the hit to investors who would want to surrender is not that high as it was till a year ago.

But the issue is not that the stock market conditions have been conducive for such a happening in insurance ulips or other traditional policies. The real question to ask is why so many investors are motivated to surrender their policies. It is clearly the large amount of mis-selling by insurance companies and their agents which took place in the past, with no real accountability or regulatory desire to take action, which is forcing to investors to get out when they can. Instead of blaming the policyholders for the redemption pressure, the insurance companies need to see the pain undergone by these very policyholders as they, once stuck with a mis-sold policy involving a high annual premium, were forced to renew for a few years in order to get back a significant portion of what was their due.

Many investors in ulip and other traditional life policy have. in the past, even lost their entire investments by not renewing their policies since they could not even afford to pay the high premium amounts at the time of yearly renewal. In each and every such case the insurance industry gleefully pocketed the premiums already paid by those investors and it was like a free money for them.

But the chickens are now coming home to roost. Those investors who had the ability to renew and wait for a few years have now decided 'no more' and are getting out. It does not mean they are naive in their timing of exit. A lot of them could very well to re-invest their redeemed money back in equities through non-insurance channels such as equity mutual fund schemes. This hopefully will sensitise the insurance industry to the real needs of investors and not get blinded by the competitive fervour to show high growth rates in premium collections.

June 23, 2014

motivate the honest taxpayers

Below is an Editorial I contributed for the newspaper I work for presently:

Motivate the honest taxpayer

The honest taxpayer in India, whether an individual or a corporate, needs to be encouraged further and incentivised by the government of India and its finance ministry if more revenues are to be raised.

The news that the current government is thinking of starting a scheme to settle pending income tax tax disputes between the corporate/individual taxpayer and the Income Tax Department through a one-time settlement offer. Disputes between corporate or individual taxpayers and the IT Dept arises primarily because IT Dept raises demands of a tax liability much higher than the tax already paid by the corporate/individual taxpayer. The tax payer contests such a demand and the cases go on for years due to heavy backlog in the IT tribunals. 

Realistically speaking to get the corporate taxpayer to settle such a demand will mean asking it to pay only a fraction of the demand amount. If higher amounts were to be asked for in the settlement then the companies and other tax payers will prefer to continue contesting the cases in the tribunals.

Proposals such as this or the tax amnesty one floated by the previous government are not in the best interests of the honest tax payer. A dispute settlement or a tax amnesty scheme may rake in some revenues but it will also lose the confidence of the honest taxpayers who will see merit in evading tax or contesting tax demands.  


If the government of India thinks the IT Department has raised more tax demand from taxpayers than it should have then the correct thing to do would be to drop the earlier demand notices and raise new ones with accurate demand amounts. Else, the IT Department should not be forced to settle off-court under a government scheme.