Impact 
In order to smoothen out differences arising between the health insurers and the Third-Party Administrators (TPAs) over the settlement of claims, the Insurance Regulatory and Development Authority (IRDA) is planning to create a health insurance forum for enhancing an effective dialogue between the service provider (hospitals), the insurers and the TPAs.
The forum would eventually turn into an SRO. This move has been taken by IRDA after it observed reluctance among the health insurance participants to evolve the health insurance industry. The members of the forum would include three CEOs of health insurance companies, three CEOs of life insurance companies, CEOs of two TPAs, an Official from Labour And Health Ministries, an Official from Ministry Of Health And Family Welfare, Chairman of National Accreditation Board for Hospitals & Healthcare Providers (NABH), Superintendents of two government hospitals, one representative from standalone insurance company, ED/JD (health) IRDA and one representative from IRDA representing consumers.
The function of the forum would be as follows:
- To assist IRDA in evolving regulations relating to health insurance business in India
- To facilitate creation and adoption of standard processes in health insurance industry
- To aid, advice and assist IRDA in collecting, maintaining and disseminating data required for the efficient conduct of health insurance business
- To act as a consultative forum between the insurance companies and other stakeholders
- To advise IRDA in developing regulations for rendering health insurance forum more effectively
We believe the IRDA has taken the right step in bringing out reforms on the health insurance side, which was facing trouble due to the difference between insurers, service provider and the TPAs. Though this step is a credible one, the members of the forum should keep aside their vested interests, and along with the role of development of the health insurance industry due consideration should be given to the interests’ of the policyholders as well.
The forum should aim to achieve clarity on various issues related to the health insurance industry - particularly settlement of claims and preferred network of hospitals.
This Week's Poll !!!
Have you encountered bad service from your health insurer or TPA?
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Impact
Recently Fidelity Mutual Fund, a renowned named in the mutual fund industry (which set-up its business in India in 2004) decided to sell its stake India asset management company better known as FIL Fund Management Private Limited (FFMPL). In a sharp contrast to this move, now Chennai-based conglomerate – “Shriram Group” has decided to revive its defunct mutual fund business.
It is noteworthy that way back in 90s Shriram Asset Management Company (Shriram AMC) had four mutual fund products, which the company decided eventually to wind up due to lack of interest.
This decision comes on the back of Securities Exchange and Board of India’s (SEBI’s) directive to either surrender the licence or restart operations. Therefore Shriram AMC (the only listed AMC in India), intends to launch new products – starting with gold and balanced funds in the next six months targeting the retail investor.
We think that Shriram Group’s move to revive its mutual fund arm comes at a time when the overcrowded mutual fund industry has seen a significant dip in its profit margin. Also, the industry has witnessed a declining retail and institutional participation which is a cause of great concern. Thus while the group intends reviving its mutual fund business (by focusing on retail investors’) we believe that long-term commitment to business with sound investment processes and systems followed would help investors.
So far if we analyse the Group’s fixed income product offerings, they always have some enticement for the retail investors to participate. A stable and a robust business model has been one of the great strengths’ of the company which is nearly worth Rs 30,000 crore group today. However, it would be interesting to see how the Shriram Group plans its mutual fund foray and revives retail participation in mutual funds.
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Impact 
The year 2012 has begun with a renewed impulse for the Indian equity markets; and thanks to Foreign Institutional Investors (FIIs) once again. Thus far since the beginning of the year, FIIs have pumped in around Rs 24,200 crore due to the easy monetary policy followed in the Developed nations. Also, with Euro zone finance ministers having agreed for a second bailout for Greece to the tune of U.S. $ 172 billion (and doling it out too), it has eased the worries disseminating from the Euro zone, but has led to precious metal - gold consolidate as investors have preferred to take a lesser exposure to this safe haven.
Base: Rs 100
(Source: ACE MF, PersonalFN Research)
The chart above too has depicted how both these asset classes – equity and gold have performed since the beginning of the year. So say if one would have invested, a sum of Rs 100 each in the BSE Sensex and Gold at the beginning of the year 2012, you would have yielded a sum of Rs 117.86 and Rs 102.51 respectively. This, indeed reflectes the fact that when investor confidence in the equity markets is high, gold tends to mellow down or consolidate.
Going forward we think the Indian equity market would pave its path from the news disseminating from the global economy, and Budget 2012 (which in our view would focus on fiscal consolidation). While the radical impulse has occurred, profit-booking may take place in Indian equity markets, given susceptibility to global economic news and vulnerability of FII flows. Hence, gold we believe should always form an integral part of one’s portfolio and at any given time one should have atleast 5% to 10% of the portfolio assets allocated towards gold. This is important keeping in mind the volatile nature of the equity markets. For long term wealth creation it is important to have a balanced portfolio.
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Impact
Malls have become a great destination for all age groups, from kids to senior citizens to go for shopping, hanging out, relaxing, etc. Various age groups have different reasons to visit a mall. Right from clothes to restaurants, a mall provides almost everything under one roof. But off late you may have also noticed, and be amazed to see a small counter at some corner of the mall trying to sell ‘Insurance policy’ to visitors of the mall. We are sure no one in their wildest dreams must have thought of buying an insurance policy from a mall, even though insurance is an important part of one’s financial planning portfolio.
Considering the change in the distribution pattern in selling insurance policies as cited above, the Insurance Regulatory and Development Authority (IRDA) has issued a discussion paper to examine the issues related to tying and bundling insurance policies with other services and goods and how conflicts of interest that arise need to be dealt with.
To know our view on this and the impact of such an initiative on policyholders, please click here..
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In an interview with the Economic Times, Mr Michael Andrew – Chairman of KPMG shared his views on the fiscal position of Emerging economies, foreign flows in India, tax exemptions, taxation avoidance treaties, QE3 and future of banking system.
Mr Andrew believes that emerging economies over the past 10 years have shown a GDP growth above 3% over developed economies. Each market, he says is different and thus one cannot characterise India and say emerging market as the same. “India has got its own specific challenges. Investors are looking for more certainty in terms of policy. There have been a number of decisions recently, which have confused the international market. People are cautious at the moment,” he said.
According to Mr Andrew India has got a huge potential and at the moment PE players are looking at opportunities and if they see value, they will invest. However, he says that there is a high degree of uncertainty and after the global financial crisis countries such as Brazil and those in the Middle East are competing for the same dollar that could be directed to India. “It has become a global competition. It is important to have a joint venture partner to start in India because it is very complex with 29 state governments and one federal government,” he added.
Mr Andrew feels that the disparity issue in tax treatment and tax concessions is a major one. “My experience is that a company makes decision to invest in an economy or a person decides to move based purely on tax. They look at the yield or return on investment,” he said. Moreover, he thinks that the tax model in India is very complex but the launch of GST can make things simpler. He is of the opinion that those who have the capacity to pay more should pay more tax.
In a modern globally-derived economy, according to Mr Andrew, there should be tax treaties as it stops double taxation and equalises the trading value between two countries. “But there should be a clause, which should stop companies from minimising the tax. Tax treaties are there so that you have the same economic return from both the countries and stop double taxation,” he added.
As far as QE3 is concerned, Mr Andrew thinks that U.S. banking system has become resilient with more liquidity and cash on the books. Thus he feels that more funds would be flowing after QE3 into the emerging markets.
Mr Andrew feels that eventually banks will move back to traditional banking. “If we have got investment banking it needs different pricing and different capital and they need a different style of management. It is the return of traditional banker and we are seeing good margins in the banking system. Banks will start to become more risk-averse. A lot of customers try to arbitrage banks too and get cheap cost of funding. We will see much more alternative source of funding through corporate bonds and people going directly to the market place rather than relying on syndicates,” he explained.
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- The new Consumer Price Index (CPI) data, released for the first time on February 21, 2012 revealed that the consumer price inflation was at 7.65% for the month of January 2012 higher than the WPI inflation for the same month (6.55%). The CPI inflation captures price movements in services, giving policymakers and economists a better idea of price pressures at the consumer level. It is compiled by the Federal Statistics Department covers retail prices in five major groups, food, fuel, clothing, housing and education across rural and urban India.
- In order to weed out duplication of records and ensure investors receive their Consolidated Account Statements (CAS), the Association of Mutual Funds in India (AMFI) has asked Registrar & Transfer (R&T) Agents and AMCs to consolidate folios based on matching PAN with investor names to smoothen consolidated account statement (CAS) issuance process by February 29, 2012.
Earlier, in order to issue consolidated statements, R&Ts were identifying folios based on PAN and the exact match of investor names under various folios of that particular PAN. However AMFI has observed that many investors have provided different names, sometimes their full names and sometimes only initials or surname. Thus a large number of investors got excluded from getting CAS which resulted in duplication of costs. Thus, AMFI has now instructed R&Ts to drop the validating folios on the basis of exact name match for statements to be dispatched from March 2012. AMFI has also directed R&Ts to send CAS electronically to valid email ids from May 2012 onwards.
- Manifesting its developmental role for the insurance industry, the IRDA has written to the government to make changes in the provisions of Direct Taxes Code (DTC) to allow insurance policies, which offer low insurance cover, eligible for tax deductions. One of the key insurance-related provisions of the DTC is that a policy will not be eligible for tax deduction if it offers a life cover of less than 20 times the annual premium. At present, a policy is eligible for tax deduction if it offers a life cover of five times the annual premium.
- In a bid to widen its distribution base significantly, Pramerica Mutual Fund is planning to buy 39% stake in Ahmedabad-based retail distribution outfit Prudent Corporate Advisory Services (PCAS) for about Rs 20 crore. PCAS ranks among the top five retail fund distribution companies. PCAS, which was formed in the year 2000, offers personal and corporate investment planning services through mutual funds, third party products, portfolio management services, fixed income and real estate.
- As many as 34 banks have registered with the National Payments Corporation of India (NPCI) to enable mobile fund transfers between banks for their customers. While most of these banks have launched mobile banking services for their retail customers, some are busy laying the platform for institutional clients as well. With the Interbank Mobile Payment Service (IMPS) in place, banks are now leveraging their existing corporate clientele to replace day-to-day cash dealings at the ground level with mobile transactions.
Moreover, to boost mobile banking in India, the RBI lifted the cap of Rs 50,000 on daily transactions in December. However, the banking regulator empowered banks to set limits based on their own risk perception and with approval of their respective boards.
- The IRDA may allow life insurance companies to invests in equity derivatives and credit default swaps (CDS) to give them (life insurance companies) more options in long term investments and to hedge interest rate risks. In addition, the insurance regulator may also allow insurance companies to hedge interest rate risk via interest rate futures (IRFs) for tenures of more than one year. The move is aimed at enabling hedging long-term risks associated with guaranteed returns on unit-linked pension products.
- Motilal Oswal Mutual Fund launched its first Gold-ETF (Exchange Traded Fund) which will allow investors to take physical delivery in minimum 10 gm bars, a first for Indian markets. The Motilal Oswal MOSt Shares Gold ETF is an open-ended ETF that invests in bullion. The delivery of the physical gold will take T+5 days where ‘T’ is the transaction day. The redemption of the same gold ETF in cash on exchanges for investor will take T+2 days. The physical delivery facility will be available across 22 cities in India.
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Credit Default Swap (CDS): A swap designed to transfer the credit exposure of fixed income products between parties.
(Source: Investopedia)
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QUOTE OF THE WEEK
"Our incomes are like our shoes; if too small, they gall and pinch us; but if too large, they cause us to stumble and to trip." - John Locke
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