1 New Insurance Bill: Vision & Paradigm Shift Facilitating Opportunity 20 th April 2015, Chennai

2 Agenda Overview of the ‘The Insurance Laws (Amendment) Act,2015’ 2 Significant Changes in the Insurance Bill 2015 impacting the Policyholder Impact of Changes in the Insurance Bill 2015 to the Economy Current Overview of Life Insurance Sector

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4 Life Insurance penetration since 1956 and how it has progressed since then Life Insurance penetration was approximately 0.53% in (GDP of Rs billion and Total premium of LIC was approximately Rs.74 Crores). The life insurance penetration increased at an average rate of 0.037% per annum between 1956 and Thereafter, between 2001 to 2012, the life insurance penetration increased at a rate of 0.092% p.a. The Life insurance penetration rate increased to 2.15% in 2001 and to 3.17% in The annual rate of insurance penetration has increased 3 times since private sector was allowed to do life insurance business. Currently there 24 life insurance companies having 11,000 branches with approximately 21 lakh agents and employs 2.5 lakh direct employees

Current Overview of Life Insurance Sector Source: IRDA, Life Insurance Council ParameterFY FY 10-11FY 11-12FY FY India’s share of world premium (Life) 0.50%2.54 %2.30 %1.99%2.20 % Penetration as % of GDP New Business Policies Indiviual (In Cr) In force Policies (In Cr)  The industry services largest number of life insurance policies in the world. Life Insurance Penetration

Current Overview of Life Insurance Sector Source: IRDA report Global Comparison

Asia: 958 World: 2,621 Asia: 4.1% World: 3.7% Asia: 230 World: 373 Size of the Market (US $ Billion) Life Insurance Penetration (Premium/GDP) – % Life Insurance Density (Premium per capita – US $) Current Overview of Life Insurance Sector Indian Life Insurance market has huge growth potential when compared with other countries

Current Overview of Life Insurance Sector Type of SavingsFY 11-12FY FY Bank and other deposits Insurance Provident and Pension fund Shares and debentures Currency and others Source: RBI 8 Gross Savings of Household sector  In Gross Domestic Saving rate as a % of GDP was 30.1 %  The share of Gross Savings in Household sector in % terms is as below:

Current Overview of Life Insurance Sector Type of SavingsFY 11-12FY FY Bank and other deposits Insurance Provident and Pension fund Shares and debentures Currency and others

,500 16,000 1,32,000 7,25, to to to to to to Life insurance sector has provided long-term funds for infrastructure development through five-year plan Inclusive growth of Life Insurance Sector Life Insurance Industry contribution towards economic growth of the country (Rs. Crore)

Category of Investments ` Cr. (%) ` Cr. (%) ` Cr. (%) Traditional Products Central Govt. Securities47,513 (24.48%) 5,11,248 (36.55%)6,04,651 (37.19%) State Govt. Securities52,524 (27.07%) 2,66,003 (19.02%)3,33,951 (20.54%) Infrastructure Investments 24,887 (12.80%) 1,16,645 (8.34%) 1,55,026 (9.54%) Approved Investments50,502 (26.03%) 4,45,611 (31.86%)5,03,059 (30.94%) Other than Approved Investments 18,584 (9.58%) 59,161 (4.23%) 29,118 (1.79%) ULIP Approved Investments - - 3,25,281 (94.97%)3,22,456 (97.22%) Other Investments ,226 (5.03%) 9,205 (2.78%) Total 1,94,010 (100%)17,41,175 (100%)19,57,466 (100%) Investments have been targeted towards established funds that helped in infrastructure growth of the country AUM of Life Insurance Companies Source:IRDA

12 Overview of The Insurance laws (Amendment) Act, 2015

Overview 13 THE INSURANCE LAWS (AMENDMENT) ACT, 2015  The Insurance laws (Amendment) Act, 2015 received the Hon. Presidents assent on 20 th March  The Insurance Laws (Amendment) Act, 2015 was notified in the official the Gazette of India on 23 rd March 2015  The Insurance Laws (Amendment) Act, 2015 has increased the limit of FDI from 26 % to 49 %. This significant change will not only benefit in increasing insurance penetration but will also enable channelling savings for long term funds for infrastructure development.  The new bill also has many significant changes that impacts the Policyholders and insurers in a big way such as:- Protection of Interests of Policyholders – Section 45 of Insurance Act. Protection of family members from Creditors. Recognition of Partial assignments under life insurance policies. Increase in insurance penetration. Grievance Redressal

14 Significant Changes in the Insurance Bill 2015 impacting the Policyholder

15 Protection of Interests of Policyholders – Section 45 of Insurance Act. Section 45 has been amended to protect the interests of Policyholders who have been loyal to the life insurance companies. If any claim is made under life insurance policies 3 years after the issuance of policy/commencement of risk/reinstatement of the policy, the insurance company loses the right to cancel the policy proceeds on the grounds of misstatements in proposal form for insurance. This is on the premise that the life assured has outlived his ailment, if any, Therefore, even if there is a misstatement in the proposal form, it ceased to have any impact on the health/mortality of the person whose life has covered and therefore the claim is payable. Grey Area A word of precaution here is that it could give rise to fraudulent claims by unscrupulous nominees of lives assured which die in, say, first year, and who can wait for 3 years to complete before lodging the claim with the insurance company for avoiding repudiation of claims.

Significant Changes in the Insurance Bill 2015 impacting the Policyholder 16 Protection of family members from Creditors Earlier, any nominee acted as a Trustee and was accountable to the Legal heirs of the life assured Now, Section 39(7) of the Insurance Laws (Amendment) Act 2015 gives special protection to parents, spouse and children who are appointed as nominees under life insurance policies. These nominees will be beneficially entitled to the policy proceeds and no other legal heir can claim the policy benefits and dispute the claim made by the family members as above.

Significant Changes in the Insurance Bill 2015 impacting the Policyholder 17 Recognition of Partial assignments under life insurance policies Earlier a life insurance policy cannot be partially assigned even if the Policyholder intends to transfer only a part of the rights. Now a partial assignment of policy interest only to the extent of the outstanding loan to the Creditor is possible and the balance rights belongs to the Nominee.

Significant Changes in the Insurance Bill 2015 impacting the Policyholder 18 Assignments do not impact nomination in certain cases Before the amendment assignment of life policy resulted in cancellation of namination. Now in the Bill, it has been provided that a transfer of a policy for consideration shall not cancel the nomination, but will affect the rights of the nominee to the extent of the outstanding loan Further where the policy is re-assigned, the nomination which was cancelled earlier will stand automatically reinstated

Significant Changes in the Insurance Bill 2015 impacting the Policyholder 19 IRDAI empowered to decide ceilings on Commission and Expense of Management limits. Insurance penetration can increase through substantial increase of spread in rural areas. The Insurance Amendment Act has scrapped ceilings on commission and expenses of management (Sections 40A, 40B) and given powers to IRDAI to prescribe ceilings IRDAI can use the powers effectively by encouraging rural insurance penetration through some of the following measures on the lines of backward area incentives: IRDAI may allow Concessions in fees/Fee holidays for insurance premium generated in rural areas. More allowance for expenses of management incurred in rural areas. Relatively higher commission on products sold in rural areas.

Significant Changes in the Insurance Bill 2015 impacting the Policyholder 20 E-Insurance Account – a Revolution First of its kind in the world – holding all insurance policies in electronic form by opening a single e-insurance account with an Insurance repository. Free for the customer and the charges are paid by the Insurance company. Loss of insurance policies and issue of duplicate policies have become history with the introduction of e-insurance account – facilitates faster settlement of claims. Single KYC done for e-insurance account instead of each policy – reduces the paper work. E-insurance account completes the paperless insurance policy system and makes the insurance purchase seamless. A customer buying policy online, pays insurance premium online, gets receipt online and also gets credit of insurance policy account online and Finally the claims are settled by direct transfer of funds to the account of the nominee/Policyholder

21 Impact of Changes in the Insurance Bill 2015 to the Economy

22 Impact of Changes in the Insurance Bill 2015 to the Economy n It is estimated that approximately Rs.50,000 crore will come through FDI and domestic investors over the period of 5 years. Increase in capital infusion of approximately Rs.50,000 will increase customer coverage in rural and semi urban areas from 72% to 80% and fuel employment growth in the country and contribute to increase in GDP of the country. Life insurance segment has the potential to grow 2.5 times its current size by This will result in more global players setting up offices in India, existing insurers expanding their operations in turn creating employment. Expected CAGR of Life Insurance industry will be 12-15% in the next 5 years Life Insurance employment potential till FY 2020 – 5 Lakh employees

23 Impact of Changes in the Insurance Bill 2015 to the Economy n The net Household Financial savings could reach around 35% in the next 5 years from the present level of 30%; Life Insurance being the second most preferred financial instrument will benefit from this. It is estimated that the household saving percentage to GDP will also increase significantly which will assist long term infrastructure funding. Life insurance industry contribution to Infrastructure projects – Rs. 3.5 Lakh Cr. by FY 2020

ParametersActual as ofProjection GDP (Trillion USD) Premium ( Billion USD) 57 ( 3.15 lakh crore) --- Gross Premium underwritten as % of GDP( Penetration) (Billion USD) :- (a) 3% (b) 4% (c) 5.5%  1USD = INR 55 Overview – Life Insurance Premium Projection Life insurance Premium projection at growth rate of 6 % of current GDP (Penetration) 24

Summary 25 Life Insurance Industry is a silent contributor to the nation building activities.

Thank You 26