Friday, January 27, 2012
Saturday, January 21, 2012
Wednesday, January 18, 2012
Check settlement record before buying a cover (Ref : Economic Times)
Rarely do people actually bother to ask whether the insurance company can be trusted to honour a claim. Ironically, this is the most important aspect of an insurance product. In fact, that is the chief function of a life insurance policy - offering financial protection to the dependents of the policyholder on his or her death.
Understanding the claim track record
To be fair, very few know the parameter to be used to ascertain the company's dependability when it comes to approving claims. And, it is very unlikely that your agent will volunteer to share this information, unless his company has an outstanding track record of settling claims.
So, how do you get your hands around this key determinant? Well, for starters, you can refer to the Insurance Regulatory and Development Authority's ( Irda) Annual Report for 2010-11, which was released recently and put up on its website. Every year, the report lists claim settlement, repudiation (rejection) and pending ratios for all life insurers.
While a thorough research would necessitate studying these ratios for a longer period, even a year's data is not bad to begin with. The data sheet may look complicated, but all you have to do is focus on the percentages mentioned in brackets for each company. For instance, LIC's claim settlement ratio is over 97%.
"Claim settlement is an important criterion for all insurance covers, be it a term plan, traditional plan or Ulip, as insurance is the primary consideration," says Aditya Apte, partner with financial planning firm The Tipping Point.
LIC's record can be said to be very good, especially since the public sector giant processed over 7 lakh claims during the year. Some private sector companies, in contrast, have a dismal ratio of around 50%, despite handling just a few hundred claims.
The sole criterion?
Prima facie, the simplest way to choose a policy seems to be to buy one from the company that has the best, or at least very high, claim settlement ratio. However, it may not be entirely correct to go blindly by this data point alone.
"While the claim settlement track record would be an important factor when buying a life insurance policy, it would not be advisable to rely solely on this. Some of the new entrants in the insurance industry were initially prompt in settling the claims to establish a good record to capture business. But after having established themselves in the market, they have become worse than the established public sector company," says consumer activist Jehangir Gai.
For functioning effectively and surviving over a period of time despite heavy claims, a company must have a broad capital base with sound liquidity and reinsurance, he feels.
"Else, a company which may otherwise have a good claims settlement ratio could turn bankrupt in the event of a natural disaster," he adds. In addition, you need to probe further to get information on the death claims handed out.
"While computing the data on claims settled, pay-out of maturity proceeds is also treated as claim paid. In a way, this helps older companies to clock a better ratio as they are likely to see more maturities every year. Therefore, if you are buying a regular or online term policy, you should ask for claim information specific to these categories in order to get the correct picture," says Sanjiv Bajaj, managing director, Bajaj Capital.
Go deeper than mere numbers
Then, of course, there are other parameters that pertain to the policyholders themselves that are to be considered. For instance, comprehensiveness of the cover, its cost-effectiveness and, if it features an investment component, the returns track record too.
"While buying a policy, try to keep it simple and cover all the possible event risks (such as critical illness) along with life cover. Keeping your life insurance separate from your investment plans is an important consideration. Term plans offer the simplest protection possible at the cheapest cost," advises Apte.
An 'acceptable' ratio
Now, it is quite possible that upon research, you find that the company with the best claim settlement history does not offer a product that suits your needs. Or, that the premiums charged simply do not fit into your budget.
In this scenario, can an insurance seeker look for a company with a claim settlement ratio of say over 80%? Or should 90% be the minimum threshold level for the purpose? "For any company older than three years, one should look for an acceptance ratio of a minimum 90%," suggests Kalpana Sampat, chief, branch operations, underwriting and claims, ICICI Prudential Life.
"This is extremely subjective and relative. A high claim settlement ratio is important, and the higher the better from the perspective of the insured as you are effectively buying insurance to protect your family," says Apte. The key, then, may be to strike a balance and look for the best possible alternative.
This apart, there is a view that younger companies are entitled to some leeway as claims arising out of policies less than two-years old typically invite investigation and hence a high claim repudiation ratio is to be condoned. Gai, however, refutes this argument.
"The law of insurance states that investigation is necessary only in respect of claims lodged within two years of having taken the policy. Unless the claim is absolutely fraudulent due to suppression of material facts, which is unlikely as a medical check-up is a must for taking life insurance, the claim would be payable," he says.
"There would be legitimate claims in circumstances like death due to road accident. However, the number of claims would be relatively lower for a new/younger company, so it ought to have a better claim settlement ratio."
Factor in claims pending ratio
In addition to the claim settlement and repudiation ratios, claim pending ratio is also to be taken into account. The figure is arrived at after deducting claims settled, written back as well as rejected from the total claims filed.
"A pending ratio of over 5% demonstrates an inefficient claims management process. A company with a low repudiation but high pending ratio could be seen as postponing decisions on investigation related cases. One needs to study the 'turn around time' (TAT) on the pending data if the percentage seems high," adds Sampat.
Also, the company's age could be more pertinent here than on the claim rejection front. "Typically, a new company would have a higher claim pending ratio as almost all the policies would be new and would thus require investigation to prevent frauds," says Apte of The Tipping Point.
In short, you would do well to adopt a holistic approach and examine all criteria before taking a final decision.
Make an inventory of home for fast insurance claim settlement (Ref : Economic times)
BY: Neelesh Garg
Executive Director, ICICI Lombard General Insurance
Your home is your biggest investment and it is the place where your family shares many memorable moments. However, no matter how many precautions you take, the threat of loss of property from fire, theft, natural calamities or man-made events, like terrorism, are always present.
A one-minute earthquake can shake the entire dwelling, leaving it in shambles. In no time, a fire can turn all the hard work and emotions attached to the house into ashes. You cannot foresee these events but can definitely safeguard against the financial losses by proactively taking a home insurance policy.
Home insurance not only covers the damage to the facade or the physical structure of the house, but different premium options can provide protection for the contents inside the house as well. Whichever policy an individual takes, the only aim is to get covered against all odds. Thus at the time of any such odd situation, like a calamity, all you want from your insurer is a quick and easy settlement of your claim.
One of the keys to a quick claim settlement is to keep an accurate inventory of your belongings. It is important to compile a home inventory list by making a detailed list of your possessions including receipts, descriptions and photos of your home's contents. Your inventory will take a little time to compile, but at the time of emergency it would be extremely helpful.
A Few tips on compiling a home inventory
Record serial numbers of small appliances and other theft-prone items.
Along with the description of each item, attach its receipt.
If you are doing an audio or video inventory, start in one corner of the room and work your way around until the whole room has been covered.
Don't forget to include closets and the attic and the basement.
A detailed record of antiques, jewellery, silvers, sporting goods, major appliances and collector's items is very important. These items should be valued from time to time by a certified valuer, so that you get the benefit from the current evaluation of any item. Keep your inventory up-to-date and review it from time to time.
Tips for your inventory photos
To record your inventory, any camera with a flash will do. Either slides or prints are fine. Colour photographs show details better. You can also use a video camera.
Photographs of bills and invoices may also help incase the same are lost in any eventuality.
Make sure to mark the photos, slides and videotapes with the dates on which they are taken. If appropriate, record the date of purchase, brand name and purchase price of each item next to the picture.
To get an overall picture, take wide-angle shots of the entire room. Then take several close-ups to capture detail. Start from one corner of the room and work your way around.
Focus your flash away from mirrors and other reflective surfaces by standing at a 45-degree angle to the shiny surface.
When using a flash, try not to get closer than the recommended focus range. If you must get closer, dim the flash by placing a white handkerchief over the flash while taking the picture.
Open glass doors to prevent reflection.
A family member in the picture helps substantiate ownership.
Open closet doors to indicate quantity of clothing.
Remember to take pictures of the insides of drawers with the contents.
Use a non-glare dark cloth as a background for silver, chinaware or jewellery.
When photographing jewellery, keep the flash at an angle to avoid glare.
If you want to take only a few pictures, either take pictures of groups of your most valuable un-appraised items, or record whole rooms with your most valuable and theft-prone items prominently displayed.
After the entire inventory list and photographs are documented, all the original documents should be kept at a safe place. It is advisable to keep a photocopy of the documents at a friend or relative's place in case the originals are lost or burnt. A copy of filmed tapes and photographs should also be kept at a safe place away from your house; a bank locker could be one option.
This inventory list will act as proof in your claim and the insurer can refer to the list. This will clear any doubts regarding settlement of your claim. Proper documentation and photographs will ensure a speedy settlement of the claim.
Executive Director, ICICI Lombard General Insurance
Your home is your biggest investment and it is the place where your family shares many memorable moments. However, no matter how many precautions you take, the threat of loss of property from fire, theft, natural calamities or man-made events, like terrorism, are always present.
A one-minute earthquake can shake the entire dwelling, leaving it in shambles. In no time, a fire can turn all the hard work and emotions attached to the house into ashes. You cannot foresee these events but can definitely safeguard against the financial losses by proactively taking a home insurance policy.
Home insurance not only covers the damage to the facade or the physical structure of the house, but different premium options can provide protection for the contents inside the house as well. Whichever policy an individual takes, the only aim is to get covered against all odds. Thus at the time of any such odd situation, like a calamity, all you want from your insurer is a quick and easy settlement of your claim.
One of the keys to a quick claim settlement is to keep an accurate inventory of your belongings. It is important to compile a home inventory list by making a detailed list of your possessions including receipts, descriptions and photos of your home's contents. Your inventory will take a little time to compile, but at the time of emergency it would be extremely helpful.
A Few tips on compiling a home inventory
Record serial numbers of small appliances and other theft-prone items.
Along with the description of each item, attach its receipt.
If you are doing an audio or video inventory, start in one corner of the room and work your way around until the whole room has been covered.
Don't forget to include closets and the attic and the basement.
A detailed record of antiques, jewellery, silvers, sporting goods, major appliances and collector's items is very important. These items should be valued from time to time by a certified valuer, so that you get the benefit from the current evaluation of any item. Keep your inventory up-to-date and review it from time to time.
Tips for your inventory photos
To record your inventory, any camera with a flash will do. Either slides or prints are fine. Colour photographs show details better. You can also use a video camera.
Photographs of bills and invoices may also help incase the same are lost in any eventuality.
Make sure to mark the photos, slides and videotapes with the dates on which they are taken. If appropriate, record the date of purchase, brand name and purchase price of each item next to the picture.
To get an overall picture, take wide-angle shots of the entire room. Then take several close-ups to capture detail. Start from one corner of the room and work your way around.
Focus your flash away from mirrors and other reflective surfaces by standing at a 45-degree angle to the shiny surface.
When using a flash, try not to get closer than the recommended focus range. If you must get closer, dim the flash by placing a white handkerchief over the flash while taking the picture.
Open glass doors to prevent reflection.
A family member in the picture helps substantiate ownership.
Open closet doors to indicate quantity of clothing.
Remember to take pictures of the insides of drawers with the contents.
Use a non-glare dark cloth as a background for silver, chinaware or jewellery.
When photographing jewellery, keep the flash at an angle to avoid glare.
If you want to take only a few pictures, either take pictures of groups of your most valuable un-appraised items, or record whole rooms with your most valuable and theft-prone items prominently displayed.
After the entire inventory list and photographs are documented, all the original documents should be kept at a safe place. It is advisable to keep a photocopy of the documents at a friend or relative's place in case the originals are lost or burnt. A copy of filmed tapes and photographs should also be kept at a safe place away from your house; a bank locker could be one option.
This inventory list will act as proof in your claim and the insurer can refer to the list. This will clear any doubts regarding settlement of your claim. Proper documentation and photographs will ensure a speedy settlement of the claim.
Wednesday, January 11, 2012
Good ethics is also good business
In the first decade of the 21st century, many businesses learned firsthand
the moral and financial risks of focusing exclusively on short-term financial
gains. Consider the example of Lehman Brothers, which, after 158 years of
successfully doing business , went bankrupt in the space of a single weekend.
The causes: horrific mismanagement and a reckless disregard for moral
hazard.
The results: the worst global recession in decades. The Lehman Brothers debacle is only one of a long and growing list of recent
business-management scandals that now includes Arthur Andersen, Enron, Bernard Madoff and Parmalat.
In his latest book, ''Management Ethics: Placing Ethics at the Core of Good
Management' (Palgrave Macmillan , 2012), Domenec Mele seeks to shift our gaze
from short-term gains at any cost to a deeper, longer view of management. Mele
argues that good management should take ethics into account because management
is about people, and dealing with people requires ethics. A business is not a
machine. It is first and foremost a human construct.
Those who run the firm are free individuals who cooperate within an
organisation with common goals, and the decisions and actions a manager takes
have the potential to benefit or hurt other people. Thus ethics is not an
artificial add-on to business, but an intrinsic aspect of good management.
Companies should, therefore, resist seeing people as resources or as simply a
means for profit. Ethical management is about recognising what people are,
treating them accordingly and fostering their development.
Ethics are embedded in management - first through decision making, second
through the ideas that drive the practice of management and third through the
moral character of the manager him or herself. Making and acting on ethical
decisions help to humanise a business, generating trust, fostering loyalty,
encouraging responsibility and helping to develop a strong moral culture.
Respect for human dignity is a principle Mele proposes, along with the
necessity to contribute to the common good of the communities to which one
belongs, and to society . He holds up three basic values, and their
corresponding virtues, as critical to ethical management: justice, truthfulness
and intelligent love. Justice renders to all what is rightfully theirs.
Truthfulness refers to the observance of truth in speech and behaviour, and a
disposition to search for the truth.
Intelligent love, understood as love driven by knowledge of the needs of the
other , goes beyond justice and entails care and benevolence. Having an ethical
sense pushes one to act in the best way for the purpose of efficiency. In turn,
a company's efficiency contributes to the common good.
Business managers always face a trade-off between generating profits and
being responsible to their firm's many stakeholders . Shareholders, employees,
customers, suppliers and the local community all have a stake in the success or
failure, sustainability or loss of the firm. In a nutshell, while making a
profit is necessary and important , it is not the sole purpose of business.
Moral competencies, including character and virtues, have a particular
importance in leadership. Character shapes the leader's vision, goals,
strategies and perception . As Peter Drucker said, "It is character through
which leadership is exercised."
While ethics may not be a cure for all the ills affecting the economy, they
are vital if we are one day to move beyond the current crisis to a sustainable
recovery. As Mele contends, by helping managers choose the best possible
alternative in each situation , ethics offer a sure path to better business
practice and even to a better world.
the moral and financial risks of focusing exclusively on short-term financial
gains. Consider the example of Lehman Brothers, which, after 158 years of
successfully doing business , went bankrupt in the space of a single weekend.
The causes: horrific mismanagement and a reckless disregard for moral
hazard.
The results: the worst global recession in decades. The Lehman Brothers debacle is only one of a long and growing list of recent
business-management scandals that now includes Arthur Andersen, Enron, Bernard Madoff and Parmalat.
In his latest book, ''Management Ethics: Placing Ethics at the Core of Good
Management' (Palgrave Macmillan , 2012), Domenec Mele seeks to shift our gaze
from short-term gains at any cost to a deeper, longer view of management. Mele
argues that good management should take ethics into account because management
is about people, and dealing with people requires ethics. A business is not a
machine. It is first and foremost a human construct.
Those who run the firm are free individuals who cooperate within an
organisation with common goals, and the decisions and actions a manager takes
have the potential to benefit or hurt other people. Thus ethics is not an
artificial add-on to business, but an intrinsic aspect of good management.
Companies should, therefore, resist seeing people as resources or as simply a
means for profit. Ethical management is about recognising what people are,
treating them accordingly and fostering their development.
Ethics are embedded in management - first through decision making, second
through the ideas that drive the practice of management and third through the
moral character of the manager him or herself. Making and acting on ethical
decisions help to humanise a business, generating trust, fostering loyalty,
encouraging responsibility and helping to develop a strong moral culture.
Respect for human dignity is a principle Mele proposes, along with the
necessity to contribute to the common good of the communities to which one
belongs, and to society . He holds up three basic values, and their
corresponding virtues, as critical to ethical management: justice, truthfulness
and intelligent love. Justice renders to all what is rightfully theirs.
Truthfulness refers to the observance of truth in speech and behaviour, and a
disposition to search for the truth.
Intelligent love, understood as love driven by knowledge of the needs of the
other , goes beyond justice and entails care and benevolence. Having an ethical
sense pushes one to act in the best way for the purpose of efficiency. In turn,
a company's efficiency contributes to the common good.
Business managers always face a trade-off between generating profits and
being responsible to their firm's many stakeholders . Shareholders, employees,
customers, suppliers and the local community all have a stake in the success or
failure, sustainability or loss of the firm. In a nutshell, while making a
profit is necessary and important , it is not the sole purpose of business.
Moral competencies, including character and virtues, have a particular
importance in leadership. Character shapes the leader's vision, goals,
strategies and perception . As Peter Drucker said, "It is character through
which leadership is exercised."
While ethics may not be a cure for all the ills affecting the economy, they
are vital if we are one day to move beyond the current crisis to a sustainable
recovery. As Mele contends, by helping managers choose the best possible
alternative in each situation , ethics offer a sure path to better business
practice and even to a better world.
Tuesday, January 10, 2012
Tax Saving Post DTC 2012
From Economic Times (Amarpal S Chadha, Tax Partner, Ernst & Young)
It is that time of the year when people make investments for tax saving. As an investor, when you think about investments, you have to keep in mind that the existing tax laws will undergo a major change by April 2012, with the implementation of the Direct Tax Code (DTC). DTC has suggested some major changes in the way tax saving instruments are positioned. One has to ensure that the investments which are eligible for 'tax saving' under the existing tax laws would also continue to reap benefits under the DTC.
The avenues available for tax saving investments are less under the DTC compared to the existing tax laws. Following are some of the key proposals under the DTC which could impact your investment decisions.
Deductions
Under the existing tax laws, the umbrella limit of Rs 1,00,000 is available as a deduction for a host of investments which includes payment of life insurance premium, ELSS, unit-linked insurance plans (Ulips), tuition fees of children, five-year bank deposits, and provident fund contributions etc.
The revised discussion paper on DTC has proposed to provide EEE (Exempt-Exempt-Exempt) method of taxation on the following investment instruments:
Government provident fund
Public provident fund
Recognised provident funds
Pension schemes (administered by the Pension Fund Regulatory and Development Authority)
Approved pure life insurance and annuity schemes
It is that time of the year when people make investments for tax saving. As an investor, when you think about investments, you have to keep in mind that the existing tax laws will undergo a major change by April 2012, with the implementation of the Direct Tax Code (DTC). DTC has suggested some major changes in the way tax saving instruments are positioned. One has to ensure that the investments which are eligible for 'tax saving' under the existing tax laws would also continue to reap benefits under the DTC.
The avenues available for tax saving investments are less under the DTC compared to the existing tax laws. Following are some of the key proposals under the DTC which could impact your investment decisions.
Deductions
Under the existing tax laws, the umbrella limit of Rs 1,00,000 is available as a deduction for a host of investments which includes payment of life insurance premium, ELSS, unit-linked insurance plans (Ulips), tuition fees of children, five-year bank deposits, and provident fund contributions etc.
The revised discussion paper on DTC has proposed to provide EEE (Exempt-Exempt-Exempt) method of taxation on the following investment instruments:
Government provident fund
Public provident fund
Recognised provident funds
Pension schemes (administered by the Pension Fund Regulatory and Development Authority)
Approved pure life insurance and annuity schemes
Under the DTC, the deduction of Rs 1,00,000 is restricted to Government Provident Fund, Public Provident Fund, recognised provident funds and pension schemes. Investments made before the commencement of the DTC, which enjoy EEE method of taxation under the existing tax laws, would continue to be eligible for the EEE method of taxation for full duration of the instruments.
An additional deduction of 50,000 has been proposed to cover payments such as life insurance premium (annual premium shall not exceed 5% of capital sum assured), tuition fees for children and contribution to health insurance, which are currently under the limit of Rs 1,00,000.
National Saving Certificates, five-year term deposits with banks or post offices or deposits in senior citizen savings scheme and non-pure life insurance premiums will no longer be a choice of tax saving investments under the DTC. Also, repayment of housing loan principal amount and contribution to long-term infrastructure bonds will no longer yield tax saving under the DTC.
Capital gains
Listed equity shares or units of equity-oriented funds held for a year or less would be taxed after allowing 50% of capital gains as notional deduction. The main object of the computation of adjusted capital gains is to benefit the lower and middle income group taxpayers, as the effective tax rate would be lesser in case of taxpayers falling under the lower tax rate.
Listed equity shares or units of equity-oriented funds held for more than a year, would be taxed after allowing 100% of capital gains as notional deduction.
In the case of non-equity shares or non equity-oriented mutual funds, period of holding will be considered from the end of the financial year in which they are acquired; where as, the holding period is calculated from the date of purchase of investments under the existing tax laws.
A snapshot of some of the key positive, negative and neutral proposals from a tax saving perspective under the DTC is given below:
Positive
An additional deduction of 50,000 is available for life insurance, tuition fees for children and health insurance premium
Neutral
Contribution to employee provident fund, PPF, superannuation fund, pension schemes are subject to deduction with a maximum ceiling of 1 lakh
Continuance of NIL tax on capital gains from sale of equity shares/equity-oriented units held for more than a year
Continuation of EEE method of taxation
Negative
The following investments will not be eligible for tax saving - ELSS, national savings certificate, five-year bank fixed deposits, Senior Citizens' Savings Scheme, post-office time-deposits, principal component of home loan repayment, contribution to long-term infrastructure bonds
In the case of non-equity shares or non equity-oriented mutual funds, period of holding will be considered from the end of the financial year in which they are acquired
To conclude, diversification always reduces risk and may increase returns, too. So, one could balance his/her portfolio and maintain a fair balance of investments in both government and private securities. The focus for investors will need to move towards investments that provide for a 'real' wealth accumulation and not only a tax savings play. Let's keep our fingers crossed for the DTC to be implemented by April 2012 as it will provide more clarity and a long-term view on the investment horizons.
(Sreenivasulu Reddy, senior tax professional, Ernst & Young, has also contributed to the article)
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