Insurance has been the buzz word ever since the COVID-19 pandemic. In the special show ‘Smart Money’, CNBC-TV18’s Sonia Shenoy spoke to Sumit Rai, MD and CEO at Edelweiss Tokio Life Insurance, and Monika Halan, Author of Let’s Talk Money, to understand what is the protection cover that one must have for one’s family. They also shared some hacks to buy life or health insurance.
This is a bit morbid, but extends your duty of care even when you are not there anymore.
In my book Let’s Talk Money, the chapter on Life Insurance asks you to do this exercise to figure out what the family’s life looks like after you are gone. Shut your eyes and imagine you are gone. And then see the family’s distress in trying to piece your financial life together. You can’t message them from the other side or whisper passwords in their ear as they try and open your mobile and email to access crucial money details.
Each of us who manages the family finances has a duty of care towards those who either depend on our money or on our ability to manage the household finances and investments. The duty of care towards the family extends to after we are gone and we need to leave an ‘If-I-Die-Before-You’ file.
Digital or physical?
The first decision is about whether you want to maintain this file online or in a physical form. The problem with online content is that its location and access might not be that easy in case the passwords are not known by the family. Also, digital content is vulnerable to hard disk crashes, hacking and getting erased by error. A physical location in a notebook, file or register is easier to locate but is open to falling in the wrong hands.
This is a personal call that you make, but if you are not very easy with using services like a cloud or have trouble finding files in your computer and forget your passwords often, it is best to maintain this record in a physical form. You will need to be vigilant and keep it safe and also ensure that the immediate family knows about the content and the location of this file. Some people buy a note book or register, others prefer to use a ring file folder in which sheets can be added by opening the metal ring to thread fresh pages in. Remember that information in the file is dynamic and will keep changing. A hard format will reduce your ability to change the information like changes in service providers, account numbers, passwords and gadgets.
There are some basics that you need to put into this file, but other than that you can keep adding whatever you think is needed.
Will and ID cards.
The location of the Will must be documented. Some people keep a copy of the Will in the locker and one copy with the financial planner or lawyer. Put down the name of the executor of the Will along with his or her phone number and email. If you still have not made your Will. Do so now. I cannot stress the importance of this step enough. Read this piece for more on why you need a Will. Your PAN, Aadhaar, driver’s license and voter card number and date of expiry must be put down. Also tell your surviving family where you keep these documents.
Put down the names, email and phone number of the people who you know will help the family when you are gone. A financial planner, CA, lawyer are the people who need to be there. Choose a friend who you know will help the family and put her or his name down as well. Go back to the first piece I wrote on this to get a detailed list of people to contact here.
The names and basic details of all your bank accounts and lockers need to be documented here. The name of the bank, branch, account number, IFSC code, name of nominee (this presupposed that your bank account has a nominee), locker number are basic details. Next put down your digital banking username and password. Most banks also have a set of three questions you need to answer periodically. For example: name of your first pet or city of birth. Put down the questions and answers too. Keep a page for each bank since some details will change. Bank passwords change and you will need enough room below the password to strike out the old for the new. It is a good idea to put a date on the new password. That also reminds you to change in every six months or so. Put down the location of the cheque books, passbooks if any, locker keys as well.
Credit and debit cards.
Write details like the bank that issued the card, what kind of card it is (Mastercard, Rupay or Visa), card number, pin, date of expiry and the phone number linked to the card. India has a two layer level of protection on our card use where after entering the PIN, we also get an OTP to complete the transaction. Therefore access to your mobile phone will be a very important part of handing over control to the family. See the section on ‘Digital’ for that.
Document your username and password for the e-filing site. Also put down the location of the physical tax files in your home or office. Your CA’s name is already there in the important people list. No harm in remembering to check if you have put it down already or not.
Digital wallets and UPI.
Think of usernames and passwords of digital wallets like PayTM and of access details to your UPI account, either through BHIM or other apps that run on UPI such as Google Pay or Whatsapp.
This will have details of your broker account, NSDL account, the platform you use to invest into stocks, bonds and mutual funds. Usernames and passwords along with details of each account. Here is a list of the various kinds of assets an average family has. Put down the location of the papers and files that go with each account.
You need to document all the properties you have. The location of the papers and loans if any. Document if any of these are on rent, where the rent agreement is located and how much rent comes each month.
Life, health, vehicle and home covers are the most often used insurance covers. You need to put down details of each policy. Then name of the policy is important. People often say to me: I have XYZ policy. Now XYZ is the name of the company that has at least 25-30 products. You need to put down the name of the company, the name of your policy, the number of your policy, the premium you pay each year on what date, what is the date of the policy maturity and if you know, what the policy pays out. Document the name of the beneficiary of the policy. Putting down the name and contact details of the person who sold you the policy is also a good idea. Write the location of the policy documents.
An average household has a home loan, a car loan and sometimes a personal loan. Put down the details of how much was taken, when for what interest and what is the EMI you are paying and when this gets over. If there is a relationship manager who is attached toy our loan, document his or her contact details here. Again this information will keep changing, so keep one sheet per loan.
Read this piece here to get a list of all the different digital footprints we leave and how the family can access some of it. The details of accessing your computers, tablets, phones, email accounts, social media accounts, apps such as digi-locker need to be shared. Again one page per gadget or service provider. Remember that your phone is one of the most important parts of the financial reconstruction for the family. Smart phones have pins, patterns, facial recognition and fingerprint locks. Whatever you choose, remember to put two locks, so that if your finger or face is not around, the family can use the pin or pattern to unlock. Some people actually put the spouse’s finger print as the alternate print that unlocks the phone. Just as an aside – no your dead finger or face will not work on the phone. Morbid, but true. Telecom service providers too need to have a nominee feature now that the phone is such an important device in the financial life of a person.
This will have details of all your utility service providers such as water, electricity, gas, wifi, phone and whatever else you are using. Most of these will also have a digital interface with usernames and passwords. Keep a sheet for each relationship. You might even want to put down the location of the physical bills here.
Our passwords have become the crucial link to opening digital locks to much of our money life. Different people use different ways to remember their passwords. You need to have a password protocol in place for you and your spouse. Some logic that you use to design PINs and passwords so that even if the password was changed before you could document it, the spouse might be able to figure it out.
Update the file. This is a habit that you will need to work on because the work is not done when you create the file, it is continuous. Each time something changes you need to update the file. Most often it will be passwords. Less often it will be a financial service provider. Whatever the change, it needs to be recorded in the file.
You might even want to leave instructions on how to invest the money from the life insurance proceeds and warnings of what not to do. Read this for more ideas on what the family will do in the first six months after you have passed.
Keep this information safe. This digital or physical data is really the key to your entire money life. So have your security protocols in place and the spouse needs to know how to find this digital or physical file.
When you begin creating this file it might feel like a sombre process – it is never easy to contemplate your own death. But once you do it for a while and get more comfortable with your own mortality, the process becomes easier and the unintended consequence is that you begin to value close relationships even more. Each time you look at that file it is a reminder on the fragility of life and the good fortune that you still have it. Some people I know even put in cutesy messages in that file so that when it is finally accessed, the family will get a smile in a hard time on their faces!
Do not rush into anything. Slow and steady steps will take you towards a more secure future.
Even though we believe that we will not be able to live without a loved one, the physical body has a routine that will prevail. The running of the house too has a rhythm that will ask to be maintained. And in dealing with the demands of the body, the family, the work and the home gives us the external push to limp back to some sort of order. If the principal income earner has passed away, we will need a lot of work to get the financial life in order. Here are six steps towards a financial recovery. Small alert: this is not going to be an easy exercise and you will need to mentally prepare yourself for some hard work and decisions.
1. No hasty decisions. The months immediately after are the most emotionally charged ones and it is best to keep the cold money decisions away from the surge of emotions that well up. I have known people walk away from family assets in a fit of emotion. Others might want to relocate at once and make hasty real estate decisions. Yet others rush into investing the insurance money chased as they are by their banks. Do not allow your bank to suggest products from your insurance money proceeds. In the first six months after the passing of a spouse (I will use the word spouse here, but replace it with an appropriate relation depending on your situation), do not take any big financial decisions. Park them for a time when you have a better grip on the ground reality, when all the paperwork is done, when all the assets and liabilities are in place and when you know how much you need and what you have. Six months later you might be in a better place emotionally to take a more rational decision.
2. Cash flow audit. If the first step is to not do anything, the second one is to understand the rhythm of money in and out of the house. You need to understand the monthly, quarterly, annual inflows and outflows of money. For salaried people it is relatively easy to check the monthly credit into the bank, for business owners the mapping will be a bit more complicated. Next, itemise the regular monthly spends. You will need an excel sheet or a notebook to put down the regular recurring expenses each month. The bank and credit card statements will be a good starting point for this exercise. You can reach out for help with this here and here.
3. The spending audit. From the cash flow audit you have now got the main items of expenditure. From this we need to put down the must-do ones. EMI, rent, utilities, school fees, domestic help salaries, groceries, premiums into health, home and vehicle covers are spends that you will need to continue. Stop all investments that have no cost of a mid-way exit such as a mutual fund. You might even be able to pause some investment-oriented insurance policies if you speak with the company. Till you get an audit of the income you can draw from your assets, curtail discretionary spends as much as you can.
4. The asset audit. See this article to understand what the asset pile can look like and find what you own now and what is it worth. If there was a life insurance policy whose money will get paid to you, it is best to park it in a six month deposit before you decide on how it is to be invested. Include proceeds from the provident fund account, the gratuity if any, PPF, mutual funds, stocks. If there are more than one real estate assets, consider (but do not decide just yet) if you want to rent it or will be better off selling and investing the money for a regular income. Count the money in the other assets so that you can put a number down. The goal is to see how much the total pool of money is so that we can work on drawing rent, interest, dividend or profit from it. The income from your assets will have to replace the income of the deceased.
5. The liability audit. You might find that the asset you thought was yours actually belongs to the bank. This could be a house or a car. Add up all the loans value and check if there was an insurance against that loan. If there was, then the insurance will pay the remaining loan left leaving the asset in your possession. If not, you will have to decide if you have the money to keep paying the EMI – for example, if you plan to go to work to replace at least a part of the income, then you could keep the loan. But in most cases, it is best to be loan free and pre-pay loans if you can.
6. Big decisions. After the grunge work of figuring out your financial situation, now you can take important decisions about your future. Decisions such as relocating to a cheaper city, or with parents or siblings might be needed if there are few assets and debts are large. You might plan to go to work, or a young adult in the house could need to forego the higher education plans and get a job quickly. You may need to sell some assets such as jewellery, vehicles, additional real estate holdings so that there is money to put into income generating assets such as FDs, bonds and mutual funds. These decisions will depend on how much the total net worth number looks like and how you are able to deploy it to meet your costs over the rest of your life. These costs will only rise due to inflation, so ideally the asset pool must be so large that it can support an increasing spend over your lifetime.
Ideally use the services of a financial planner to rebuild your financial life. And you put down detailed notes for others to follow as you figure out your financial life, so that the cycle of unknowing does not repeat.
Next up. How to make the If-I-Die-Before-You file.
It helps to have a list of things we are searching for and know where to look
We’re trying to reconstruct the money life of the person who is suddenly not there to look after all the things that needed to be done. In this piece, I discussed the seven important people to contact as the first step and in this one I listed out the seven digital footprints to follow to rebuild the financial life.
Today I will list out most of the documents you need to find and possible locations for them. You need personal identifiers, papers that show ownership of assets and debts. Documents such as certificates of death, succession and legal heir are to be got from the government departments, but to begin on that, you need to have some documents that you can show to prove that you are indeed the legal heir or beneficiary.
Remember that this work is tedious enough, but this is just the beginning. Even for people with most of these in place, dealing with a multitude of government agencies and financial service providers is going to prove exhausting. Mentally prepare for a long haul on this money trail.
You will need documents that prove the identity of the deceased and your own identity and relation with him or her. To be a legal heir you need to have a Will that gives you the assets. In the absence of that, you will need a legal heir certificate and a succession certificate. Google on how to get these – there are plenty of resources that take you through this process.
Will. The family financial planner or lawyer are the first two people who might have this document. It may also be in the locker in the bank or at home.
Passport. Most families have one location for all passports. Find it there.
Aadhaar card. The wallet or a box that has all the important cards is the usual place for this. It can also be downloaded from here.
Driving license. Wallet is the usual place for this.
Voter ID Card. Usually there is a box with all important cards.
PAN card. People either carry it in the wallet or keep it in a safe box.
Birth certificate. In the absence of a birth certificate, the class X mark sheet is used often to prove the date of birth.
Marriage certificate. Some people don’t register their marriages. If the spouse’s name is on the passport, then that works to establish relationship.
Any other document that establishes your status as an heir and beneficiary.
Tax and Bank
Tax filing papers. Usually there is a file with the various years tax returns. Find the papers there hopefully. The tax filing site too has a lot of this data. You will need to access it using the PAN number plus mobile OTP.
Bank statements. These will establish the inflow and outflow of money. You will get a fair idea of how much was getting saved and possibly where those savings were going. You will also find a list of the most important spends that need to continue.
Cheque book stubs. Other than the regular income that comes via a bank transfer, sometimes there can be credits that are deposited through a cheque. Look at the stubs to see who paid and for what.
Fixed deposit certificates. Some banks still issue physical FD certificates and others just give a digital copy.
Corporate deposit certificates. These should have certificates. These are investments made in company bonds.
Bonds. There could be government bonds or other tax saving bonds like 56 EC to offset profits of a previous real estate transaction. Some people buy them online now, so getting to the banker and broker will be crucial to find these bonds.
Post office deposit certificates. Good old fashioned post office deposits will have certificates. Usually stored in a safe box or look for a digital copy.
National Saving Certificates. Likewise, try and see if there are any certificates. Some banks offer online as well.
Provident Fund, gratuity and other dues from the place of work. Locate the UAN number to access the PF. Or the office accountant will help.
Public Provident Fund documents. Some banks still give physical certificates, others just give a digital copy and account statement.
Home ownership papers. This is a fat bunch of papers. Will be hard to miss.
National Pension Scheme (NPS) PRAN number. Both digital and physical documents should be there for the NPS account, if any.
Combined Account Statement for mutual funds. The R&T agents Karvy and Cams give a combined account statement of all the mutual funds held. The Association of Mutual Funds in India (AMFI) tells you how to access it.
Stock broker accounts. Mostly digital now, find clues on who is the service provider from emails and bank statements. It is crucial to find the assets listed with the broker account.
NSDL monthly statements. The National Securities Depository Ltd gives a monthly statement of the stocks, mutual funds, bonds, gold bonds owned by a person. Look for emails from NSDL.
Gold. The location of jewellery in the home is usually a shared piece of information with the close family members, but do look out for gold held through mutual funds and sovereign gold bonds.
Car and other vehicle papers. Find the RC, the pollution certificate and now the FAST tag information.
Life. There might be a term plan. If you know about this, then it is crucial to find the policy because if you are the beneficiary, you will get the proceeds of the policy. There could be others like Ulips, endowment plans, money back plans and whole life policies. At this stage just collect the policy documents, we will figure out what to do with each later. The bank or agent should help.
Some offices too insure their employees. Find out from the office if there is such a policy.
Health. You might have already used the health cover, but it now important to rework the policy. Get hold of the agent who sold this policy.
Vehicle. This is an annual renewal. Find the insurance papers. Usually a copy is in the dashboard of the car’s glove compartment.
Home. If you have a home cover, that too will itemise the valuables that were insured. This too is an annual cover and will need to be updated.
Annuities. This is a regular income and if there is such a policy, you will need to find the document and begin the process of getting it to start paying.
Loan documents. Find out what you owe. This is important to keep the loan payments going or will help you to close the loans that you want to exit by prepaying them. Usually there is a home loan, a vehicle loan, gadget loans and personal loans. Find out from the credit rating agencies the list of all loans in his or her name. See more about this here.
Credit and debit cards. You will need to find the cards and then begin the process of cancelling them.
Where to look
Locating these documents will be easy or impossible depending on how organised the deceased was. Most people have a system they use to store their paperwork. The well organised have files neatly labelled stores in file managers or cupboards that too have lables. These kind of people put a label on a label maker! But these are rare. You will most probably need to look in a variety of places to collect all these documents. Look in:
Bank lockers. The location and number of the locker and code will be crucial to accessing the locker after the bank has done the legal formalities and allows you to access the locker.
Office. Check with the boss or assistant so that all personal files and documents from the office can be shipped to you. Some people keep documents in office where they are most likely to do the work of updating and maintaining.
Locker at home. The good old Godrej cupboards have a safe. I’m sure that is the first place you would have checked in any case.
Document cupboards at home. If there is a study, look there. If the dining room is used as the mini office, then search the cabinets in that room for files.
Some people maintain registers or notebooks where they document the financial details. You might strike lucky and find a list of passwords for various account in such a register.
We are still just collecting all the documents and papers. The work of putting them to work is still to be done. Next time I will write on how negotiate the few months post the death and build a plan for the future.
How to retrace the digital footprints of the deceased
This is a series to help reconstruct the financial life of a person who is no more. While death never came with just old age, but the Wuhan virus has brought the fragility of life right into our homes. In this piece, I discussed the seven important people to contact as the first step of rebuilding the money life of a person who is not there to tell you what is where.
The next step is to use the deceased person’s digital exhaust to trace out some important details of their finances. Our digital footprint reveals a lot about who we are and what we do. Big tech platforms use this to direct advertising at us. You too can use the footprints to find some missing pieces of the money jigsaw you are trying to make.
Phone. One of the key devices to help you trace out the money profile of a person. Your first gate to unlock will be the phone password that locks the device. I am hoping that the password is something you either already know or can guess given the set of passwords a family tends to use. We all have a certain method in using passwords and plenty of couples share the mobile pins with each other. If the phone has a face or fingerprint lock, you will need some techie help to unlock the phone. There are resources on the web that deal with this, but are specific to the kind of phone, the version and the associated platforms used. So, yes, there might be a way to unlock, but no, I won’t go into it. You will need to get some techie in the extended family or friends to help with this.
What are we looking for? We are looking for phone numbers of the people mentioned in the earlier story on who to contact. Look in the ‘recently called’ list. Take an hour’s time and then search through the entire phone list and forward to yourself numbers that have anything to do with finances. Most people save numbers with the function or the contact details will have the name of the firm the person works for or runs. We are also looking into the photos and specifically for pictures of documents that the person might have saved. Some people save images of their important documents like PAN, Aadhar, passport, driving license and such like on their phones. You might even find images or PDFs of insurance policies, mutual fund account statements, bank account statements and other such documents on the phone itself. The deceased might be using an app to manage the budget and that too will give plenty of clues as to the regular outflows. You might see the premium for an insurance policy that you did not know about. You might see systematic investment plan (SIP) outflows on a monthly basis.
Computer. A desktop and or laptop is also an extremely useful device to unpack since it is a significant storehouse of the deceased person’s digital footprints. Again, I am hoping that the passwords are shared with you and you can access the computer. If not, get some techie or use google to figure out how to open a locked computer. Assuming that you are able to open the device, you are looking for documents scanned and stored. Documents such as PAN, Aadhar and other identifiers. Downloaded insurance policies – most car, home and life insurance policies are now sent in a digital form as well – are usually stored in the hard disk of the computer. Look for a folder with tax details. Another one might have bank details. There could be NSDL (depository) monthly statements on shares and mutual funds held. Property papers might have been scanned and stored. Some net worth and asset lists might be maintained. There may be an excel sheet or a word file with a list of regular payments that are due, such as rent, EMI, premiums, SIPs. Speak to the office assistant or boss for help with an office computer.
Tablets. Most people today have a multiple set of devices. Look for a tablet such as an Ipad or an android tablet. If the person preferred to use the tablet more than the laptop or desk top, you might find the details stored in this device.
Email. Unlocking the emails is another way to access the financial details of the person. Even if you cannot access the phone or computer, you can try and open the email if you know the password. The combination of a one-time password (OTP) along with an email address registered with service providers will give you access to most accounts.
Whatsapp (or Signal or Telegram – some messaging app) messages. Assuming that you have been able to unlock some device, now go through the messages. The messages to a financial service provider will give clues to what bank accounts, what assets and what liabilities the person had. Some people message themselves important updates and details on whatsapp instead of using the ‘notes’ features on phones and laptops.
Digi-locker. Few people will be using this cool new app (https://digilocker.gov.in) that aims to store all your original documents in one place. This is a government portal and app and some people are already using it to store documents. Again some combination of OTP plus email will be needed to unlock this app as well. The documents stored here are treated as originals.
Cloud. The deceased might have been using some kind of a cloud service such as Google Drive, iCloud, Dropbox or some other service. These help store files and data not just in the hard disk but in remote servers that can be configured so that all the devises can access the data. OTP, passwords and emails are again crucial keys to open this lock as well.
Often, most used sites and programmes are left open on laptops or office desk tops. If you are able to access these devices, then just keying in the name of the site might open it up for you. Children and young adults are usually good with technology, so if you are unable to do this yourself, enlist the help of trusted extended family members to help you out.
Next time, we will go on a physical search of places to search for files, documents and paperwork. This is a tough time. We all need to just belt up and keep going.
The rebuilding of a financial picture of the person who is no more is key to getting back on your financial feet
The calls for help are many. Somebody has lost a spouse. Somebody a parent. Somebody has lost a sibling or a close relative or friend. The healthcare battle being lost, we now need to begin on the wealth care front. The emotional issues will take a lifetime to work through, but the push of bills, EMIs, rent, school fees, groceries and suchlike expenses and dues is a clock that does not stop ticking.
Covid is leaving spouses, children and dependant parents suddenly having to deal with the absence of the people running the home both physically and financially. Even for people with Wills, those left behind may not know the details of all the assets and liabilities, of all the insurances and financial relationships in place. Trying to piece together a financial picture of the person gone is not an easy task even for those who have been fairly organised.
I am writing a series that will help put together this financial identity. Think of it as a reconstruction of the financial life of the person gone and we are looking for clues, resources and documents to put the pieces together. I will begin with identifying the people who could help. These will be either service providers or in the know of the financial map of the person who can no longer pull out the file to point out the details. Death is so final. Only when you experience it close hand can you actually understand the finality. We are all devastated by our collective loss. Here is hoping that at least the financial picture can be better seen with these resources.
So, who should be your first port of call?
Financial Planner. If you are lucky, then you have been working with a financial planner who has full oversight of your entire money life. That planner would have ensured that the nominations were in place and the Wills were written, signed and witnessed. The planner is your gateway to financial stability. But since we still hesitate to engage fee-for full service financial planners and there are very few who would be in this place.
CA. The second person you call is the family’s chartered accountant. The CA or whoever files the taxes again has oversight over most of the financial pieces of a person’s life. The CA will have information on the income, expenses, savings, investments toward tax saving, bank accounts, documents like PAN, Aadhaar and others. The CA may also know of other financial relationships and assets and could also have access to documents.
Boss. The third call is to the office and the person who the deceased would report to is a good person to begin with. The boss can then ask the office HR and accounts to help with information and documents they might have. A personal assistant, secretary will also have access to many pieces of the money puzzle. Details such as monthly income, bonus or commissions and insurance if any can be got from the office. Also details of loans if any taken. A good company will waive the loan given the pandemic.
Bank relationship manager. Next, speak with the bank relationship manager if you know who he or she is. For the bank to officially talk to you, you will need to have documents such as the death certificate, Will, legal heir certificate and/or succession certificate in place. The bank will be able to give you statements that will provide clues to the inflows and outflows.
Agents and brokers. Then figure out who the financial agents the person has been working with. Typically there will be insurance agents, mutual fund agents, stock brokers, real estate brokers. You may remember from shared conversations the identity of some of these service providers and can contact them to figure out what the asset picture looks like. They will be able to give details of products held, account statements and help with the filing of claims.
Lawyer. You should also speak to the family lawyer if any. A lawyer might have access to some documents, some paperwork and might have clues to what assets or liabilities the deceased had.
Friends and colleagues. There is usually two or three confidants of a person who they discuss money matters with. You may be familiar with such a relative or close family friend who was part of the money conversation of the person who is not there anymore. They will give direction to your search for assets and the location of the paperwork and people you might have missed knowing in the list above.
Keep a diary in which you take notes because the final picture will take a long time to build. Remember, at this stage we are just putting down a list of people to contact. What we want from them and how we go about it is in the next few posts. Next I will list out the digital exhaust that an average person emits and how you can use it to build the money jigsaw.
With health insurance becoming more important than ever amidst the harsh second wave of covid-19, data from states across the country suggests that only 51% of the covid-19 claims received from the beginning of the pandemic have been settled. Tamanna Inamdar breaks down how to make your health insurance policy work for you on the India Development Debate tonight with Monika Halan, Author, Let’s Talk Money, Tarun Mathur, Co-Founder, Policybazaar.com and Naval Goel, CEO & Founder, PolicyX.com
On the India Development Debate, I spoke about the fact that insurance firms are not paying covid claims in full. The problem is only half with insurance contracts and firms. The other half has to do with hospitals padding costs. @TamannaInamdar@ETNOWlive
The problem with the insurance contracts are that they are mostly one-sided with the individual having very little bargaining power. Companies can refuse to pay or deduct the payout by interpreting the policy provisions in their own way. This is market failure. When there is market failure government needs to intervene to put down road rules. Insurance regulator needs an upgrade – that’s an easier part. India needs a regulator for hospitals urgently.
Insurance companies are in focus as the Insurance Regulatory and Development Authority of India (IRDAI) has received complaints about COVID policies not being offered and renewed. Atul Sahai, CMD of the New India Assurance Company and Monika Halan, Author of Let’s Talk Money shared their views.
“As far as New India Assurance is concerned, I don’t see this happening. This could be the approach adopted by some of the companies but in the wake of COVID, no new guidelines have been issued as far as we are concerned,” said Sahai.
“The need for health insurance has suddenly increased for most people. The new insurance buyer has got afraid that something may happen and is now running to buy insurance. Globally, insurance companies are struggling to understand this risk and to price this into premiums. So, different companies approach the cooling-off period differently. COVID-19 pandemic is a new event and everyone is struggling to find their balance with it and people seeking health insurance cover for the first time post COVID are in for a little bit of a rough ride unfortunately,” Halan added.
“This is a great time for the government and the regulator to set things right in terms of insurance,” Halan mentioned.
According to Halan, higher loading is expected for the new policy entrants.
“The companies will have to probably increase the premium for the entire age bucket. The price rise will be across the board and not specific to a person,” she mentioned.
Incurred Claim Ratio (ICR) is used to gauge whether this market is fair or not. The number is obtained by total claims paid divided by the total premium.
While explaining the current market condition, Halan shared, “If the net number is at 100 percent, then we are seeing a fair marketplace where after profit and cost, insurance companies are neutral.”
“According to data, the private insurance companies’ ICR is 53 percent, the standalone insurance companies’ number is 56 percent, and the PSUs are 92 percent, which means they are doing well. I think it is a complete regulatory failure because you are not being able to ensure that there is no gouging of the customer,” she further mentioned.
“We are not going to increase the premium till we tide over this crisis,” Sahai shared.
“Financial freedom is available to those who learn about it and work for it.” – Robert Kiyosaki Coronavirus pandemic has made us realize true importance of managing our own finances. In times like these when people are losing jobs, experiencing salary cuts, businesses suffering due to country wide lockdowns etc. we can understand why knowing about concepts like Emergency Funds is crucial. Vittshala, the financial literacy cell SRCC had the privilege to have ‘Monika Halan’ ma’am with us for E-Baithak- ‘Personal Finance Q&A with Monika Halan’ where she answered our queries and gave her insights in the field of personal finance. Monika Halan is a best selling author – “Let’s Talk Money”, adjunct Professor at Indian Institute of Corporate Affairs, finance journalist a speaker and a writer on financial literacy, regulation, inclusion and consumer issues in retail finance.
Mis-selling by banks has been flagged, caught and proven multiple times in the past decade, but nothing other than half-hearted circulars have emerged from the Reserve Bank of India (RBI). For a regulator, that is also the central bank for a $3 trillion economy, busy with large issues like monetary policy and government debt, the consumer protection department is where staff is sent to be sidelined.
When the Yes Bank AT1 Bonds were extinguished, retail investors who had been sold these as FDs with a higher rate of interest, had thought that the RBI will do something about it and protect their interest. RBI, according to news reports, took the view that the risks were explained and there was no mis-selling. Investors wrote to Sebi as well and some of them have gone to court over being mis-sold. Curiously, it is the capital market regulator that has come to the aid of retail investors. Sebi took the complaints seriously, did a full investigation and found Yes Bank and three of its officials guilty of mis-selling in a 12 April 2021 order. It has fined Yes Bank Rs 25 crore, and Vivek Kanwar (managing director of the private wealth management team) Rs 1 crore. His team members Ashish Nasa and Jasjit Singh Banga have been fined Rs 50 lakh each. The case against Rana Kapoor will be taken on a parallel track since he is already in jail and unable to join the investigation fully.
Sebi found the following:
Yes Bank showcased the bond as a ‘Super FD’ and ‘as safe as FD’
The term sheet was not shared with all the investors
No sign off was taken from investors on their understanding of the features and risks of the product
Risk profiling of customers was not done, specially those who were more than 70/80/90 years of age
In the ‘verbal pitch’ shared by the private wealth management team with the Relationship Managers, the AT1 bonds were compared with fixed deposits on rate differential only, but omitted the risk differentials
There was a push from the MD & CEO of Yes Bank to down sell the AT1 bonds which led the private wealth management team to recklessly sell the bonds to individual investors
97% of the 1,311 individual investors who were sold these bonds were existing customers of Yes Bank
277 of these closed their FDs prematurely to invest in these bonds
Yes Bank and its officials had a fiduciary responsibility towards their customers and that was broken by selling them high risk bonds without explaining the full risk
Yes Bank did not have a system in place to ensure that a term sheet would be shared with retail investors nor was there any provision for taking a confirmation from investors with respect to their understanding of the risks
Policymakers, regulators and others working the space of consumer protection along with financialisation of Indian household savings must read the entire 61-page order carefully to see how an investigation must be done when dealing with disaggregated retail investors who do not have the ability to fight large corporations. In fact, I wrote a paper along with the team at Dvara Research that found retail investors were wary of buying AT1 bonds if the risk factors were clearly marked out. It seems that even this basic hygiene of just writing down the risk in the same manner that the returns were marked, was missing in the Yes Bank case.
Sebi has used RBI’s own regulations to find that Yes Bank was guilty of mis-selling. The order says that while initially RBI only allowed AT1 bonds to be sold to institutions, in a September 2014 order, it allowed them to be sold to retail as well, but with disclosures on the risks that such bonds carry. A specific sign off was required from retail investors saying that they understood the risks. RBI rules mandate that “all the publicity material, application form and other communication with the investor should clearly state in bold letters (with font size 14) how a subordinated bond is different from fixed deposit, highlighting that it is not covered by deposit insurance.” In addition, Sebi has used its own powers under the Sebi Act and under the Prevention of Fraudulent and Unfair Trade Practices Regulations and the fact that Sebi has oversight of listed bonds to carry out the investigation and pass this order.
The Sebi order has several non-linear take-aways. One, the naming of specific wealth managers and finding them guilty, rather than penalizing the lower staff should worry bank boards and managements that the long hand of Sebi can now reach them under the various regulations in place. I have always maintained that catching one junior bank employee will not solve the systemic problem of bank mis-selling in India. This has to be a board driven initiative.
Two, for Yes Bank this is an opportunity to transform the way banks in India treat their customers. Post the Rana Kapoor regime, the management has now been taken over by a bank consortium and there is a professional board in place. This crisis is a great opportunity for the bank to set a standard in customer protection by putting in place protocols that reinforce the fiduciary responsibility of a bank towards its customers.
Three, this may not end well for Sebi if the past is any indication of future events. Steps taken in earlier years with a view to protect retail investors have usually ended badly for those taking bold steps. In 2009 CB Bhave, the then chairman of Sebi did two big things in investor interest. One, he removed the front load in a mutual fund. Two, he went to court against the insurance regulator (IRDAI) saying that the Ulip was actually a mutual fund masquerading as an insurance since 90% of the premium was in a mutual fund like product. The government in 2010 issued an ordinance to rule that IRDAI controls the Ulips. Bhave was then moved out soon after. I fear that the investor-first team lead by Sebi chairman Ajay Tyagi is at risk in a similar fashion.
In fact, the recent Ministry of Finance intervention over the valuation of AT1 bonds that Sebi was putting in place in retail investor interest points to the road ahead. Bank lobbying derailed the move to provide safe spaces for pure retail investors to put their money to work.
Finance Minister Nirmala Sitharaman must look at the story from the point of view of retail investors and not from the lobbying by firms, other regulators and bureaucrats who have caused an open loot of retail money through regulated entities like banks and insurance companies over the years.
Monika Halan is India’s trusted personal finance writer, speaker and author who helps families get their money decisions right.