Buffet makes modest entry into insurance business in India

Berkshire Hathaway will set up a wholly-owned subsidiary in India, which will acquire a corporate agency licence from Irda to sell auto insurance policies from Bajaj Allianz General Insurance. The subsidiary will sell motor insurance online and make investments of close to Rs 50 crore to set up a support structure, including a call centre. Sources close to Irda confirmed the development. A spokesperson for Bajaj Allianz General Insurance refused to comment on the issue.
The decision to get a corporate agency was taken by Ajit Jain who heads Berkshire Hathaway's reinsurance businesses and is regarded as a possible successor to Warren Buffet. Mr Jain is a regular visitor to India and his company has been underwriting reinsurance contracts of Indian companies for years. Although Berkshire itself is a reinsurance company, it has significant interests in direct insurance.
US direct insurer Geico (formerly Government Employees Insurance Company) is a wholly-owned subsidiary of Berkshire. Geico's speciality is that it sells covers or insurance policies either through the internet or the telephone. Considering the high cost of distribution in retail, Geico is able to generate substantial savings by selling online and pass on the savings to buyers in the form of discounts. The company's tagline in all its advertisement is — 15 minutes can save you 15%.
According to sources, Berkshire is using this route because the low foreign direct investment limits in all other insurance business make it unattractive to the US giant. Whether it is life or general insurance or even insurance broking, current regulations do not permit foreign investors to hold more than 26% equity stake in the business.
Corporate agency is, however, an exception. Under current regulations, any entity, including a foreign bank or any foreign-owned finance company can become an insurance agent by acquiring a corporate licence.
A corporate agency, however, has its limitations. For one, every individual selling insurance in a corporate agency firm has to undergo training. Secondly, the agency can sell products for only one company. A corporate agency can, however, look forward to decent margins with commissions going up to 15% of the premium amount.
In the past, Buffett has been extremely bullish about the direct marketing insurer. In his 2009 letter to shareholders, Buffet said: "As we view Geico's current opportunities, Tony (Geico chief Tony Nicely) and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere."

Car manufacturers offer 'roadside assistance' to beat breakdown blues

Getting stuck on the road at an untimely hour is the worst fear of most car owners. It becomes a nightmare if the breakdown occurs in an unfamiliar territory. Be it a flat tyre, dead battery, a minor mechanical or electrical fault, running out of fuel, or an accident... anything can happen to your car and upset your schedule. Roadside assistance can come to your rescue in such instances. Many car manufacturers bundle roadside assistance with a new car. Some motor insurance companies bundle it with a motor insurance policy, while companies like Cross Roads India Assistance, Carnation Auto India specialise in roadside assistance and offer it as a standalone product. "Roadside assistance is like an insurance against unexpected breakdowns, which can happen to any car anytime, irrespective of the age or condition of the car," says Harish Lakkher, CEO, Cross Roads India Assistance.

 Roadside assistance promises you assistance within half an hour of making a call if you car has broken down. It takes care of your punctured tyre, a jumpstart is provided if the battery is down, among other things. While these services are free and part of the package, if you have run out of fuel, you will have to bear the actual fuel cost. In case your vehicle needs to be towed, it is towed to the nearest workshop of your choice, and you would have to foot the charges. "We also provide a taxi assistance and hotel accommodation if the need be. The idea is to handle a breakdown situation in a humanitarian way and give comfort to the customer," says Vijay Kumar, chief technical officer, Bajaj Allianz General Insurance. "By paying a small amount, you get peace of mind and you are sure of some help coming your way quickly. It helps especially in monsoons when you could get stuck in waterlogged areas," says Roshun Povaiah, automobile expert at Cartoq, an automobile website. His advice is to buy roadside assistance along with the car and keep renewing it every year. "Buy roadside assistance from someone who has a strong infrastructure and good past track record of delivery. Ensure that the service is not outsourced through third parties," says Povaiah.
Is it worth it?
The price for roadside assistance would depend on the age of the car and the number of services expected. For example, Honda's roadside assistance costs 1,750 in the first year, and increases to 4,600 in the fourth year. Then there are packages, which charge you based on the number of services you wish to enroll for. For example, Cross Roads India Assistance offers a City Pack, where roadside assistance will be offered within one city only and would cost 999. However if you are a frequent traveller and wish to get assistance within 23 cities, you would have to opt for a higher package which will cost you 1,599.
Roadside assistance is not hugely popular in India mainly because it is not available to older cars. Ideally, this cover is a must after the car is used for more than five years. However, most service providers don't offer this service for cars which are more than seven years old. As a car ages, there are higher chances of mechanical problems. However, there are a very few providers who would offer roadside assistance once the car is more than five years old, and even if they offer, the annual fees would be very high," says Banwari Lal Sharma, AVP (Marketing), Carwale, an automobile portal. Also, there are limitations to services under roadside assistance.

Pay a lower car insurance premium if you are married

Factors like profession, gender and marital status, among many others, are now being used by insurers to determine the premium. ET shows how you can bring down your auto insurance premiums

Are you a doctor? Do you have a covered parking lot? Do you use your car sparingly? If your answers to these questions are yes, you may get a discount on the insurance premium on your car at the time of renewal. Faced with huge losses in their motor portfolio, general insurers are exploring various options to reduce the losses. Differential pricing is one of the options considered, which means premiums will go up if the insurer believes the incidence of claim is going to be higher or vice versa

"Traditionally, car premiums were decided upon the basic factors i.e. engine capacity, age of the car and geographical zones. Over the last four years, insurers in India have started using several other 'asset-based' parameters - such as the type of fuel used in the car, effective anti-theft devices etc. Further, few insurers now are trying with 'demographic' parameters as well - these include the occupation of the insured, the age of the driver/insured etc.," says Sanjay Datta, chief, underwriting & claims, ICICI Lombard.
In fact, industry-watchers say your marital status and gender, too, could affect the premium figures. "In terms of demographic parameters, we have started taking into account the insured's age, gender, occupation and driving experience. Even marital status plays a role in influencing the premiums. For instance, married individuals in the age group of 32-60 are entitled to discounts as they are perceived to be more responsible drivers and we are thinking of using this as a rating parameter. They can also be counted upon to take good care of their vehicles. Discounts on the basis of such personal information can go up to 20%. Likewise, the loading on premium, too, can be as high as 20%," says Madhukar Sinha, national head, personal lines, Tata-AIG General.
However, the possibility of discount in one category being cancelled out due to loading in another cannot be ruled out. For instance, higher premium due to the fuel type may nullify the discount earned on account of occupation or age.
PROVIDE MORE INFORMATION IN THE PROPOSAL FORM
Simply put, the information you provide can swing the premium for you. For instance, Berkshire Insurance, which sells Bajaj Allianz's motor policies, offers a 5% discount to policyholders if they share personal information.
"We have started offering discounts in premiums to certain professions (like doctors, software professionals, those with desk jobs) and also on the basis of income brackets and gender. The discounts will be in the range of 5-7% on policies bought online," says Vijay Kumar, head, motor insurance at Bajaj Allianz.
You are also likely to score high on insurers' preference meter if you sparingly use your vehicle, as that would translate into fewer chances of making claims. This apart, you could be charged lower premiums if you park the car in a covered space. Again, the reason is lower possibility of claims. On the other hand, a car parked in the open is always at the risk of getting damaged.
BUY POLICIES ONLINE
If you are buying your policies through an intermediary, it is unlikely that s/he will encourage you to provide such details in the proposal form. Besides, going online has direct benefits, too. "One can save money on car insurance premiums by buying the insurance policy online. Some companies offer better rates for customers coming directly onto the company's website," says Datta.

5 things to look at before you buy insurance for your vehicle: Amitabh Jain V-P, Customer Services, Motor ICICI Lombard General Insurance

Before you hit the road in your new car, you need to insure it against any possible mishap. Hence, buying a car insurance is important.
Most motor policies on offer are similar and, therefore, customers may not be able to select an option that suits them the best. However, some important factors, like brand, policy coverage, customer service, distribution and access price need to be considered before making a final decision.

BRAND : This is the single most important parameter that differentiates one insurance company from another.
For the insurance industry, the moment of truth for customer is 'when he makes a claim'. One can easily check the past record of an insurance company on various parameters, including details of claim settled and time taken for claim settlement on its website.
A key fact to remember is that motor insurance is portable – you can shift to another insurance company without losing any benefit you are eligible for.
COVERAG E: The next important step is to select the right insurance cover that suits your requirement. A standard car insurance, commonly referred to as motor package policy, consists of a 'third-party liability' cover and an 'own damage' cover. As per the 'Motor Vehicles Act', a third-party liability insurance cover is compulsory for all vehicles plying on public roads, whereas an 'own damage' cover is not.
However, opting for both these coverages is recommended as they cover both accidental damages and the risk of thirdparty losses to your vehicle. With the advent of de-tariffing in India, insurance companies are now offering attractive add-ons (example: nil depreciation, no-claim bonus protect), along with basic motor package policy.
CUSTOMER SERVICE : Gone are the days when one had to wait for a few months to get the copy of the car's insurance policy.
Many insurance companies now focus on over-the-counter (OTC) issuance of policies. 'Agents' are provided stateof-the-art technologies to ensure faster delivery of motor policies. Apart from this, some companies have been able to demonstrate significant reduction in turnaround time for other service requests like endorsements for effecting any change in an existing policy and cancellation of policies, among others.
To make the claims settlement process fast and stressfree for customers if their vehicle meets with an accident, for instance, many insurance companies have tied up with garages for cashless settlement of claims.
This allows customers to take delivery of their vehicle immediately post repairs, that too without paying any money to the garage. What the customer should look out in this case is the quality and number of garages empanelled by the insurance company for the provision of cashless service. A wider cashless network of garages not only provides you multiple options, but will also ensure a faster and standardised claim settlement.
DISTRIBUTION AND ACCESS:
Sometimes, it is observed that one is not aware of whom to reach out to in case of any difficulty. The situation gets worse if a problem does not get resolved even after contacting the insurer – resulting in the ultimate customer experience becoming negative. A wide network and multiple distribution and communication channels have become the need of the hour for companies offering motor insurance.

PRICE: The premium charged should be one of the most important criteria for buying a motor insurance policy.
But the decision of buying a policy/selecting an insurer should not be solely driven by a low premium quote. The premium of a car insurance depends on its value (IDV – insured declared value) and the rate multiplier which is decided by the insurance company. The rates for all motor insurance products are based on the loss experience of the insurance company.
Higher the chance of accidents, higher is the price for an insurance cover. Generally, the model of the car and the geography are the two most critical factors which decide the premium rate. However, many other factors like the age of the vehicle, occupation and daily mileage may also play a vital role in determining the premium amount.
(V-P, Customer Services, Motor ICICI Lombard General Insurance)

Why you should have a personal accident cover

You need a life insurance policy to cover the risk of death and a health insurance policy as a cushion against hospitalisation expenses. While most readers are bound to be familiar with these essential covers, very few would have heard of the personal accident cover. Personal accident schemes cover the policyholder against death or disability due to an accident. All general insurance companies offer these policies, but it's very unlikely that an agent will try to sell you one. These low-priced policies are not very popular because the agent earns barely Rs 20-30 as commission from selling such a policy

However, you should buy a personal accident policy because it plugs an important hole in your insurance portfolio. Firstly, it will provide financial support to the policyholder if he is disabled after an accident. Secondly, the magnitude of the mishap doesn't matter; even minor ones like falling off a bicycle and breaking an arm, or fracturing a leg while playing football are covered by the policy. If you thought term insurance policies were cheap, wait till you find out about the premium rates of a personal accident policy. For as little as Rs 225 a year, you can get a cover of Rs 5 lakh.
The daily cost works out to about 60 paise. However, this is the rate for a basic cover from a PSU insurer and will only cover death and permanent disability. If you want enhanced protection, you will have to shell out more (see graphic). Bundle it with other covers One way to get the agent interested is to buy it along with your health or motor insurance.
"Since agents get very low commissions, they usually try to bundle the personal accident cover with some other insurance product. However, this doesn't mean that you will pay a lower premium, though some companies may give you a discount," says Sanjay Datta, head of underwriting and claims, ICICI Lombard General Insurance. A basic personal accident cover against death and permanent total disability is already built into a motor insurance policy. You can enhance the cover by paying extra. PSU insurers offer a maximum cover of Rs 5 lakh under a personal accident plan.
Private insurance companies offer a higher cover and a wider range of benefits, but the premium rates are higher too. You can take a cover of up to 8 times your annual salary. Apart from the basic death and permanent disability cover, you can buy additional protection against partial and temporary disability, even loss of livelihood. "A personal accident policy covers the buyer against costs that can shatter him financially," says Subrahmanyam B, senior vice-president, health & commercial lines, Bharti AXA General Insurance.
Understand terms & conditions It's important to understand the terms and conditions clearly before you buy a policy. For example, hospitalisation benefit can be availed of only if the policyholder is admitted within seven days of the accident and is hospitalised for at least 24 hours. A fractured leg is a temporary disability, and if you have taken a cover against it, your policy will pay a weekly sum of Rs 5,000 for up to two years. However, this weekly cash benefit is paid only if you are unable to go to work and the payment starts only 60 days after the accident. One also has to submit proof, including a doctor's certificate for the disability that prevents one from attending work.

Reliance General to launch health insurance for woman, girl child

"The objective of this initiative is to support healthcare needs of women and empower them," he added.
The beauty of the scheme is that a special discount of 5 per cent can be availed by a female proposer on the entire policy premium which would cover the family of the policy holder, he said, adding, this discount could be availed in case a girl child is included in the floater plan.
Citing the other benefits of the product, he said, under the new health insurance offering, delay in policy issuance as per defined turnaround will guarantee additional sum insured to customers. Similarly, any delay in claim settlement will attract additional financial compensation to customers.
Reliance General Insurance, a part of Reliance Capital, targets to cover four lakh lives in the first year of the product launch.
"About 20 per cent of workforce in India is woman and out of which only 2 per cent end up having healthcare protection on their own. In order to increase the penetration of health insurance in the segment, we have taken this strategic step," he said.
Health insurance accounts for only 10 per cent of overall USD 30 billion (about Rs 1,80,000 crore) healthcare spends in India.
Increasing its focus on the health insurance, Reliance General Insurance recorded 110 per cent growth in health insurance premium at Rs 169 crore in the first quarter ended June 30.
As part of change in its business strategy, the company intends to reduce the dependence on motor insurance and raise health insurance segment going forward.
"Our strategy to change business and product mix, optimise use of technology, manage costs and expand our retail agent base has helped us achieve a significant turnaround in performance," he said.
During the first quarter, Jain said the company has registered 25 per cent increase in its gross written premium at Rs 706 crore as against Rs 564 crore in the same period a year ago.

How do companies calculate car insurance premium

Ever wondered how your car insurance premium is calculated? Often the premium can be adjusted for any bonus or discount that the insurer is willing to offer you, but in any case these are calculated only after the insurer has fixed a premium that they want to charge you. Here we explain the factors that influence the premium that you pay for your car.

Insured declared value
At any given point, your car has some value associated with it. If you suffer a total loss in an accident, how much do you think you should be compensated for, assuming you had insurance for your car? The amount that you are compensated for under a comprehensive motor insurance coverage is directly linked to what is the value of the vehicle at that point in time.
If you have a new car that you have just driven out of a showroom, its value is more than say a three-year-old car with 30,000 km on it. Insured declared value, or IDV, is the value that the insurance company places on your vehicle to estimate its worth at the time you apply for motor insurance.
Motor insurance policies are indemnity policies. That's just a technical way of saying that they just compensate you for an amount up to financial loss that you have suffered on the vehicle, and no more.
IDV is the maximum amount that you can claim under a motor insurance policy to compensate for any loss arising from theft or accident. So, if you suffer total loss in an accident of your three-year-old car that is worth Rs 4 lakh at the time of the accident, under no circumstances will you be compensated for more than Rs 4 lakh.
When you buy a new car and are getting insurance for it, the IDV is calculated on the basis of the price of the new car, i.e., its ex-showroom price. If you have a car for which you are renewing the insurance, the IDV will be adjusted for any operational wear and tear that the car has experienced, or to put it in technical terms the IDV is adjusted for any depreciation that it has undergone for a vehicle of its age.
What if you have any accessories like a special music system or speakers in your car? In this case, the value of these items that are additional to the price of the car are added to the IDV, adjusted for any depreciation that these items might have undergone. If you are getting a policy for a car that is more than 5 years old, then the IDV is determined on the basis of an understanding between you and the insurer after adjusting for the depreciation schedule.
Please keep in mind that the IDV calculation is used only for a comprehensive insurance policy and not a third party insurance cover.
Cubic capacity of the vehicle
Every car has an engine size, which is measured as its cubic capacity. The size of the engine affects the insurance premium you have to pay for a third party insurance cover.

The premium amount is the same for a new car as for an older car, because the premium is a function of the engine size, and not the age of the car. Engine capacity is not a criterion used for calculating premium for a comprehensive cover.
The table below shows the rates (as of June 2010) on the third party cover premium amount according the engine size. The higher the cc, the higher will be the premium. You can find out the cc from the registration papers of your vehicle. (See Cover Drive: Table 1).
These figures are the basic minimum amounts as stipulated by the Indian Motor Tariff Act. There might be an additional amount that you are obliged to pay above this minimum for third party coverage. These minimum amounts are the same, irrespective of the brand or the age of the car. All that matters is the engine capacity.
Geographical zones