Insurers to adopt uniform definition of policy expiry

HYDERABAD: Domestic life insurers may have to adopt a uniform definition for expiry of insurance policies to give more leeway to policyholders on premium payments. IRDA has recommended a uniform grace period of 30 days for policyholders paying their premium every quarter, half-year or every year. A 15-day grace period has been suggested for policy holders paying monthly premium. An insurance policy lapses when the subscriber does not pay the premium within the grace period. IRDA has recommended re-instatement of a policy if the premium is paid within the revival period of two to five years, as per the internal practice of the insurer. Currently, companies have different definitions on expiry of policies and this creates a lot of confusion. The suggestion to life insurers to adopt a uniform grace period and lapse definition has been made in IRDA’s first occasional paper on lapsation of insurance policies and its impact on the domestic industry. Lapsation of insurance policies is of world-wide concern and impacts all stakeholders. IRDA chairman J Hari Narayan reckons that results thrown up in such research studies could help stimulate a policy debate and make course corrections, if need be. The occasional paper has been authored by a team led by R Kannan, member, actuary, IRDA. The recommendations, if adopted by insurers, would give more leeway to policyholders and curb policy lapses. The study reveals that the lapse rate in terms of the number of policies increased from 5.62% in 2002-03 to 6.64% in 2006-07. The lapse rate of premium rose from 4.4% to 6.95% during the period under review. The lapse rate in Unit Linked Insurance Plans (ULIPs), 18% in terms of number of policies and 10% by premium was also much higher compared to most traditional plans. ULIPs are popular savings instruments that offer flexibility to the policy-holder in terms of investment and also a life cover. A part of the premium is invested in equities or government bonds, depending on the choice of the policy-holder. Term assurance products showed the highest rate of lapse, while pension policies had the lowest lapsation rate. The lapse rate for non-medical policies was, however, higher than that of medical covers. When a policy lapses, the policy holder forfeits the premium paid and the insurance cover. The agent loses the renewal commission. It also impacts the growth of the insurance business and solvency margins of the insurer. Solvency margin refers to the excess of assets over liabilities that an insurer maintains as a prudential measure in the interest of policyholders.

EPF amendments

EPF amendments to pursue India's social security pacts
New Delhi, Nov 20 (PTI) To bring into effect social security pacts signed by India with countries like France, Germany and Belgium, the government has initiated registration for "International workers" after amending the Employees Provident Fund Act.The amendment in the Act will include Indian employees who are posted to these countries and foreign nationals working in India into the ambit of the Employees' Provident Fund (EPF) scheme.The modifications to the EPF scheme were brought to effect from November 1, and so far about 30 Indian IT and Construction firms have completed necessary registration process of the International workers employed with them."The modifications to the scheme will benefit the Indian workers for availing their pension benefits right here in their country of origin. It will also allow for exportability of social security benefits accrued in these countries back to India," an EPFO official told PTI here.Since the social security pacts are on a reciprocity basis, citizens from France, Germany and Belgium would not be required to register themselves under the 'International worker' category and they can continue contributing to social security schemes in their country of origin.However, there is yet some time before the social security pacts could be actually brought to effect.Modifications to the Employees' State Insurance Act are still awaited to ensure continuity in insurance term for Indian employees covered under similar schemes in foreign countries.This figures as one of the major condition of the social security pacts with foreign nations. PTI

sunk cost

Definition
Money already spent and permanently lost. Sunk costs are past opportunity costs that are partially (as salvage, if any) or totally irretrievable and, therefore, should be considered irrelevant to future decision making. This term is from the oil industry where the decision to abandon or operate an oil well is made on the basis of its expected cash flows and not on how much money was spent in drilling it. Also called embedded cost, prior year cost, stranded cost, or sunk capital

work measurement

Application of time and motion study and activity sampling techniques to determine the time for a qualified worker to complete a specific job at a defined level of performance. Work measurement is used in budgeting, manpower planning, scheduling, standard costing, and in designing worker incentive schemes

proxy contest

proxy contest
A strategy that may accompany a hostile takeover. A proxy contest occurs when the acquiring company attempts to convince shareholders to use their proxy votes to install new management that is open to the takeover. The technique allows the acquired to avoid paying a premium for the target. also called proxy fight

STORY-OF-THE-WEEK

WOULD YOU DIE FOR ME?

A young man called Ramaswami died an untimely death. His parents, wife and nine year old son were crying bitterly, sitting next to his dead body. They all happened to be disciples of a holy man whom they called ‘Maharaj Ji’.When Maharaj Ji learnt that Ramaswami had died, he came to visit the family. He entered the house and found the family wailing inconsolably. Seeing Maharaj Ji, the wife started crying even louder. She sobbed saying, “Maharaj Ji, he has died too early, he was so young. Oh! I would do anything to make him alive again. What will happen to our son? I am so helpless and miserable.” Maharaj Ji tried to pacify the crying lady and the old parents, but the loss was too much for them to come to terms with so easily. Eventually, Maharaj Ji said, “Alright, get me a glass of water.” Maharaj Ji sat near the dead body and put the glass next to it. He said, “Now, who ever wants that Ramaswami should become alive again may drink this water. Ramaswami shall come back to life, but the person who drinks the water shall die!” Silence!“Come, did you not say that Ramaswami was the sole breadwinner of the family? Who would die instead of him? It is a case of fair exchange, isn’t it?”The wife looked at the old mother and the old mother looked at the wife. The old father looked at Ramaswami’s son. But no one came forward. Then Maharaj Ji said to the old father, “Babuji, wouldn’t you give your life for your son?” The old man said, “Well, I have my responsibility towards my wife. If I die who will look after her? I cannot offer my life to you.”Maharaj Ji looked questioningly at the old woman and said, “Amma?” She said, “My daughter is due to deliver her first baby. She will be coming to stay for a month. If I die who will look after her and the newborn. Why don’t you ask Ramaswami’s wife?”Maharaj Ji smiled and looked at the young widow. She widened her tear filled eyes and said, “Maharaj Ji, I need to live for my son. If I die, who will look after him? He needs me. Please don’t ask me to do this.”Maharaj Ji asked the son, “Well little boy, would you like to give your life for your father?” Before the boy could say anything, his mother pulled him to her breast and said, “Maharaj Ji, are you insane? My son is only nine. He has not yet lived his life. How could you even think of such a thing?”Maharaj Ji said, “Well it seems, that all of you are very much needed for the things you need to do in this world. It seems Ramaswami was the only one that could be spared. That is why God chose to take him away. So shall we proceed with his last rites? It’s getting late.”Having said that, Maharaj Ji got up and left.God’s plan is impeccable. Sometimes man is unable to understand God’s design. The time of entry and exit for each one of us, is in God’s hands. It is His prerogative alone to pluck the flower He wishes to. It is no body’s prerogative to question His will.In the words of Baba, “We tend a plant only when the leaves are green; when they become dry and the plant becomes a life-less stick, we stop loving it. Love lasts as long as life exists.”

GOLDEN QUOTE

When you know you need help, don’t delay in asking for it.

Quote of the Day

Quote of the Day
The government who robs Peter to pay Paul can always depend on the support of Paul.- George Bernard Shaw

Back Office

Term of the Day - back office
The administrative functions at a brokerage that support the trading of securities, including trade confirmation and settlement, recordkeeping, and regulatory compliance.
More generally, administrative functions that support but are not directly involved in the operations of a business, such as accounting and personnel.