Hardcore marketing by Insurance companies and their agents are a common sight in India. Rarely investors wonder if the insurance companies in which they invest in are financially healthy. At the end, all the multicolour returns that these companies stress as returns depends on the profitability of the companies as such.
Hence we are publishing herewith an article that appeared some time back in April 2009. Do read the Original report below and verify the attached file.
Life insurers' losses soar 43% in FY09
The Insurance Regulatory and Development Authority (Irda) on Wednesday said the life insurance industry reported a total loss of Rs 4,878.49 crore at the end of March 2009. This is about 43% higher than the previous year's total loss of Rs 3,412.81 crore.
Out of 22 life insures, only four have reported profits. They are LIC, Kotak Mahindra, Met Life and Shriram. LIC has reported an increased profit of Rs 957.35 crore as against the previous year's profit of Rs.844.63 crore. Kotak Mahindra, for the first time, has reported a net profit of Rs 14.34 crore. During the previous year, the company had incurred a loss of Rs 71.87 crore. Met Life and Shriram have reported a net profit of Rs 14.52 crore and Rs 8.11 crore, respectively.
ICICI Prudential, the largest private sector life insurer, reported losses for the eighth consecutive years. The company, which reported a loss of Rs 1395.06 crore in 2007-08, has recorded a loss of Rs 779.70 crore in 2008-09. During the year under review, the net losses of 12 companies have gone up as compared to the previous year.
Four new life insurance companies came into existence during the year. Among them, except Aegon Religare, other companies—Canara HSBC, DLF Pramerica and Star Union Dai-ichi—have reported losses.
Irda has explained that life insurance industry is capital intensive, and insurers are required to inject capital at frequent intervals to achieve growth in premium income. Given the high rate of commissions payable in the first year, expenses towards setting up operations, training costs for developing the agency force, creating a niche market for its products, achieving reasonable levels of persistency, providing for policy liabilities and maintaining the solvency margin, would be difficult for the insurers to earn profits in the initial seven to 10 years of their operations.
Meanwhile, the life insurance companies have settled 6.05 lakh claims on individual policies, with a total payout of Rs 4,798.22 crore. The number of claims repudiated was 12,781 for an amount of Rs 179.59 crore. The number of claims pending at the year end was at 16,915 and the amount involved was Rs 242.84 crore. Of these claims, 2,574 were pending for more than one year and 2,875 claims were pending for more than six months but less than one year.
Also LIC's investment income including capital gains was lower at Rs 43,122.17 crore in 2008-09 compared to Rs 56,672.91 crore in 2007-08. As a percentage of total income, it declined by 23.91% in 2008-09 from an increase of 37.78 % in 2007-08.
As against this, the share of investment income to the total income for the private life insurers declined by 336.81% in 2008-09 (as against an increase of 23.37% in 2007-08). Companies have also reported an improvement in the yields on their investments. The industry is still in the process of stabilising and despite additional contributions by way of share capital, it would require time to reach the consolidation stage.
I have seen the sheet and I came to this conclusion that this is due to some sort of negligence on the part of both customers and the company too. There are many cases where people do fraud with the company for gaining profit by redeeming the claim by showing false information.
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