Jagoinvestor

February 27, 2009

How safe private insurance companies are?

Many people have this concern about taking policies from Private Insurance companies. Let us try to understand about the factors which takes care of financial stability and ability to repay back customers there money.

In reality the only things differentiates one insurance company from other is the service the provide, there settlement track record.

Want to know why Insurance is Important ? Read this

Private insurance companies

Solvency Margin

It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise.

In other words, Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency.

IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning.

Why is Solvency Margin there?

Companies have Assets and Liabilities. In some adverse situation, Assets are used to payoff all the Liabilities. Suppose there is company which has assets of 100, and liabilities of 100. In ideal case it would be able to payback the liabilities. But what if some adverse situation occurs and liability increases unexpectedly.

In that case company will be declared Insolvent (Bankrupt). This will be a bad situation which every customer does not want to experience.

Thats the reason, Solvency margin comes into picture, The excess margin maintained by the company provides that extra cover which may be required in case some thing totally unexpected happens.

by the way, i am now on twitter, so you can follow me and get updates on twitter.

What is the current Solvency Margin?

Current Solvency Margin is at 150% for Life Insurance Companies. It means for every Rs 100 insured the Insurer should have 150 with them.

Does it mean customers are totally safe?

You must have understood Solvency margin till now, but what if some bad event of High Magnitude happens and then Liabilities of company (the claims they have to settle) crosses there total assets + extra margin, in that case they will not be able to pay back, but the chances of this happening is very very small, and generally Solvency margin takes care of it.

Some bad unexpected event like Earthquake or some terrorist attack which kills say 1000’s of people can dramatically increase Insurer’s Liability, but in most of the cases its always taken care by choosing adequate Solvency margin. But there are always that small percentage chances of the Failure which you have to live with and we cant do anything.

So what does it mean for us common Investors while choosing Insurance Products?

Solvency Margin has to be maintained by all the Insurance Companies in India whether its Private or Public sector. All the companies are at same level, Some of them are old, some are new, some are big and some are small, but its same for all and everything is under IRDA norms and scrutiny.

So decisions based on How safe or unsafe a company is not relevant now . Risk is with every company and that is equal for all.

So for people who are going to take Term Insurance, the best thing is to go with the cheapest price and good record of claim settlement. There are many new players in this market who are so new that we don’t have any long track record . like for Religare Aegon (which is my favorite).

So for term Insurance, just break your cover into 2 parts and take insurance from 2 companies to diversify the risk further.

Read tips while taking Term Insurance

Summary

This is what many people never knew and they take there decisions based on just trust and how long company has been in existence. Huh, people trusted Satyam and Lehman Brothers also, so what !!

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Rajagopalan
Rajagopalan
8 years ago

Dear Sir
I am 22 and have taken a term plan with HDFC for 50 lacs. I want to take another term plan for 1 Cr. I have the following criteria viz, one with the longest term ( number of years), one with moderate premium. After comparison I find that Ageon Religare has the plan for maximum years ( 53 years ie till I am 70) and also the lowest premium. Can you advice if it is ok to go with Ageon for Rs 1 Cr

Triyambak Singh
Triyambak Singh
10 years ago

Hi All,

I need your suggestion regarding TERM Insurance plan , I am 30 Years old.
could you please suggest me which term insurance policy is best for me in terms of
benefits, claims, premium amount . since i am now 30 years old i want take policy for 30 to 35 years for sam assured 50 LAC. should i choose LIC or any private comp and take policy with one company or divide it two comp.

Mr. Confused
Mr. Confused
10 years ago

Thanks for the great sharing.

I was googling for some good Term plan and my search ended here. Aegon i-Term is cheapest one, but still I can not make my mind for that. Now I’ll choose from HDFC-Life, Kotak and ICICI-Pru. Could you please put some light on these products?
And I am thinking of a small HIGH risk investment plan, can you guide on that? Please keep following parameters in mind:
Benefit – 80-C
Risk – High.
Return – High.
Budget – 2,000 to 3,000 per month.
Duration –
1. Minimum 6 years, maximum 15 years.
2. Minimum 6 years, maximum 25 years.
Regards,
D.

Nitin
Nitin
Reply to  Jagoinvestor
10 years ago

Thanks Manish,

I was a bit confused on this, I’ll go with HDFC. Could you please suggest me on my second query:
“And I am thinking of a small HIGH risk investment plan, can you guide on that? Please keep following parameters in mind:
Benefit – 80-C
Risk – High.
Return – High.
Budget – 2,000 to 3,000 per month.
Duration –
1. Minimum 6 years, maximum 15 years.
2. Minimum 6 years, maximum 25 years.”

Regards,
D.

Nitin
Nitin
Reply to  Jagoinvestor
10 years ago

Thanks Manish,

Though JagoInvestor is already popular among investors, but still I’ll feel proud to share this knowledge and blog with my friends and colleagues.

Regards,
D.

Mr. Confused
Mr. Confused
10 years ago

Manish,
Thanks for the great sharing.
I was googling for some good Term plan and my search ended here. Aegon i-Term is cheapest one, but still I can not make my mind for that. Now I’ll choose from HDFC-Life, Kotak and ICICI-Pru. Could you please put some light on these products?

And I am thinking of a small HIGH risk investment plan, can you guide on that? Please keep following parameters in mind:
Benefit – 80-C
Risk – High.
Return – High.
Budget – 2,000 to 3,000 per month.
Duration – 1. Minimum 6 years, maximum 15 years.
2. Minimum 6 years, maximum 25 years.

Regards,
D.

Mr. Confused
Mr. Confused
Reply to  Mr. Confused
10 years ago

my age is 29.

Shiv Prakash
Shiv Prakash
11 years ago

Sir,
I want a term insurance policy for around 50 lakhs.. this company settled the claim miximum . In IRDA’s report for 2012-2013, the ‘claims settled ratio ?????????

srinivas
srinivas
11 years ago

Hi, I want to take Term insurance total of 75 lacks from two companies ,

1)Please suggest one from the following Religare Iterm , HDFC life, Aviva I life , ICICI, Bharti Axa-eprotect , Kotak, SBI smart shield (I have Lic Jeevan Anand- SA 5 lacks)

2) Now i may go with one which has highest settlement ratio but there will be no assurance that the company maintains that ratio in future right?

3) I have thought of surrendering JEEVAN Anand , what do you suggest ?

4) The test they do before policy are very few ( But there may be case the insured person may have silent killing diseases with no symptoms those are not aware), what if the insurer rejects the claim based on this , saying not genuine 

Ajay
Ajay
11 years ago

Dear Sir,

I want to take a pure term plan, & as per my analysis I have found HDFC, Aviva & Bharti Axa are best.
Aviva & Bharti AXA having almost same Premium and are cheaper than HDFC.

Shall you pls confirm which will be best.

Regards
Ajay

vinay
vinay
11 years ago

Sir ,
I want to know that i take the online term plan, i see the tow low premium of insurance company Bharti axa & aviva in both company Bharti axa have low premium. I want to know that is this safe to take Bharti axz online term plam, company good claim ratio and Solvency Ratio. According to you which one is best for online term plan. please tell me to find out good term plam

Gandhi
Gandhi
11 years ago

Manish,
Yes there could be cases of people giving false information, but the same applies to LIC also, do you think all the people are who insured with LIC gave accurate information. Which company settled claims faster during 26/11. How come they have 97% claim settlement record. The point is to just to save 10 to 20% do you want to insure with some one with bad track record or with insurer like LIC which has good track record, surplus cash, backed by govt. In fact for term policy the premium is not deciding factor to choose insurer.You need insurance for at least 65 years of your life, so it will be foolish to choose the insurer based on the premium.
Gandhi

Gandhi
Gandhi
11 years ago

Manish,
According to figures released by insurance regulator IRDA’s report for 2009-2010, the ‘claims settled ratio for Aegon Religare is a measly 48%, and the claims repudiated ratio (the number of claims rejected with respect to claims received) is as high as 44%.For the 2008-09, Aegon Religare had not settled any of the claims that had been submitted to it. On top of that, the insurer repudiated 71% of the claims that had been submitted to it in the above period.
DO YOU REALLY WANT TO INSURE YOUR LIFE WITH INSURER WITH SUCH LOW TRACK RECORD. THIS IS THE CASE WITH ALMOST EVERY PRIVATE INSURER.
Gandhi

Gandhi
Gandhi
11 years ago

Manish,
Even if LIC is 10 to 20% costlier than other insurance provides, it has very good claim settlement record. Claim settlement record is the most important factor to be considered while taking the policy. It would be great if you can add the claim settlement record for others when compared to LIC. Whats the point in taking cheap policy when there is uncertainty about settlement. You should never throw good money behind a bad one.
Gandhi

Rupesh Gupta
Rupesh Gupta
11 years ago

I have taken few ULIP Plans from 15-25 years maturity from HDFC for a total of around 4 Lakh per annum for the past 6 years and will continue for the term of plan. .In view of bad market run for the past 3 years the NAV of the plans is not that great but I hope it should give decent return in long run. I wish to make further investment of around 10-15 lakh per annum for another 20 years with some insurance. I am a businessmen so the facility to add or withdraw as per business requirement is important for me and so I do not wish to lock-in my money in term plan but wish to have excellent returns in long run. Would it be advisable to go for more ULIP and which is the best plan or there are better options for me.

Rupesh Gupta
Rupesh Gupta
Reply to  Jagoinvestor
11 years ago

Dear Manish,

Thanks for the reply. But the FD interest will be fully taxable so the post tax return to me will be around 6% as per current high rates of interest which surely will go down further in future and there is no insurance element. I guess equity oriented ULIPS with facility to top-up limited surplus money and ability to withdraw partially after 5 years lock-in can give good tax free IRR in the range of 15-20% in long term of 20-25 years. Secondly, I have heard that traditional plans of private companies (with participation in profits) are able to provide better return than LIC as they earn around 9.5% (Tax Free) on average whereas LIC’s return(bonuses) is only around 6-7% and, after 3 years of lock-in, if there is any temporary business related fund requirement loan will available from private companies as well similar to LIC. The only issue appears to be that of trust as LIC is here for so long and one can calculate with some assurity that what he will be able to get at maturity whereas Private cos. are new and nobody has received the maturity amount to know actual IRR. What do you say.

ganapati
ganapati
11 years ago

IS edlewiss tokio is approved by IRDA or not pls tell me sir

ganapati
ganapati
11 years ago

why the reply showing as jan 22 , 2010 date for recent post

ganapati
ganapati
11 years ago

hi Mr Manish,

i want to invest 1 Lakh per year upto 10 year
which is the best one pls guide me sir

ganapati
ganapati
Reply to  Jagoinvestor
11 years ago

Hellow sir,

You are doing very great job
I am very big confusied
I dont want take any risk
I need 100% security. how much amt can get maximum in 10years if i invest 1Lakh per year nad which company and which policy is best

Rohit Singhal
Rohit Singhal
11 years ago

Hi Manish,

The rates offered by Aegon Religare are mind boggling no other company is offering such rates. For a sum assured of 1 crore, policy term of 75 years with Critical illness rider at my age of 30 the premium comes out to be Rs. 8738/- It is too good to be true. What is your suggestion is there anything hidden or they are just aggressive to capture some market share? Also can you tell the share holding pattern of holding companies…? Out of the three Bennet coleman is the only relibale name for me.

For my insurance requirement I am planning to take the above policy from Aegon Religare and also 50 Lac sum assured from TATA AIA Life Maha Surkasha Supreme plan with “Pure protection cover with Life stage Plus” Option to increase the cover by 50% more if felt neccessary after some time. Tata is one of the most trusted and ethical companies i feel. What is your suggetion on this?

The total premium for both the policies is coming out to 8738+7650 which is approximately as per my budget of Rs. 50 per day…..
Please suggest if you have any better schems…

Please reply I need an expert advise on this….

Thanks
Rohit

T.S.Ramakrishnan
T.S.Ramakrishnan
Reply to  Jagoinvestor
11 years ago

Nice blog and truly informative. The IRDA has brought out a hand book on Life Insurance in 13 languages and you can download it if you visit the site http://www.ifea.in and click on that page ” IRDA consumer education” wherein you will find what are protection to the consumers are available. You will get the details of ” Integrated Grievance Management System” (IGMS) for the protection of the consumers including claims. The stipulation by IRDA of moral and mandatory responsibility on other Insurance Companies to take over the bankrupt company as informed by one of the commentators is not made public by IRDA. If it is true and is made public by IRDA it will create level playing field for all Companies and the liberalisation policy of Insurance will be fruitfully substantiated with competitive services by the Private Companies.

Akshay Saxena
Akshay Saxena
12 years ago

Hi Manish

You are doing a gr8 job through this blog!!

Following is my understanding about the term plan, correct me if I am wrong pls.

My current age is 25 and was looking for a good term plan as the premium would be less now and for a maximum period.

After doing bit of comparison
Best choice comes as Aegon Religare which gives me cover of 50 lacs upto the age of 75 at a premium of 5800 with accident riders as well.

As we know LIC as a brand I also have a natural inclination towards it.

But LIC Amulya Jeevan has the max term of 35 yrs (Premium : 14700/-) so if I take it now it will cover me only till 60 yrs which i think I would outlive ;-).

So it is better to take LIC at 35 yrs so that I can be covered till the max maturity age i.e. 70.

So what I think I should go for the Aegon Religare for now and later at 35 or as and when LIC or SBI kind of organizations launch policy which could cover me till 75 or more I can increase the sum assured as per the need and affordability.

Comments and thoughts welcome…!!!

Parag
Parag
13 years ago

Manish

I also heard that in case of bankruptcy, the IRDA norms says that a set of other few insurance companies need to come together and buy the bankrupt company. They need to do it and its a part of a process while granting the insurance license to them

Do you have any idea. BTW the information was given to me by AG executive

sadagopal
sadagopal
13 years ago

when they say, new entrant into private life insurance industry has to invest necessarily 100 crores as equity paid up., where do they nirmally invest? cd you pls.expalin on the above?
rana.p

abhi
abhi
13 years ago

thanks…i am going forward n taking the all new and enhanced sbi smart shield….a great term plan from SBI…cheapest in its category…n has some handsome riders as wel…is suppose manish shud let everyone know about this plan…it simply awesome…and from SBI…so no issues…

abhi
abhi
Reply to  Jagoinvestor
13 years ago

for higher sum assured….yes….2-5% cheaper than KOTAK…