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.
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.
The year 2020 was one of fear for our health, jobs and net worth. A small section of the Indian investors – those with the right exposure to equity and with a good blend of bonds and stocks – did well. The rest just looked on from the sidelines and wished they had the mindset to step away from the purchasing-power-depleting fixed deposits and other fixed-return financial products towards equity. Minus another global pandemic or something similar that we cannot blend into our predictions for the year, 2021 is being seen as the year that we recover our lives. But along with this recovery comes big change. We are told that the world has changed forever. That the dollar will lose its crown. That gold and Bitcoin will rule. That the stock market will collapse. It is frightening to hear these doomsday predictions and continue to think about our own financial futures with any confidence. As you hear these aggressive predictions, just do a quick search online to see that almost every year there has been a new reason for the financial world to end. The pandemic is just a larger and all-pervasive global event, but this too will pass.
Along with the Covid vaccine, you need to vaccinate yourself against reacting with fear or greed. While my money advice remains the old boring stuff of asset allocation, diversification and making your investing a matter of habit rather than a one-time decision, we must not bury our heads in the sand and look around for new information as it comes. 2021 will mean different things for different parts of our asset pie.
Fixed income. When central banks ease money supply by lowering the benchmark rate (the rate at which they lend to banks) or when they print money (as some of the hard currency countries are doing), there are fears of inflation and asset bubbles. Inflation is the result of too much money in the system that drives up prices – our rupee buys less and less. With low policy rates reflecting in a saving deposit rate of as low as 2.75% and FD rates of less than 6%. With inflation beginning to gather buoyancy, the post-tax return of the fixed-return investor will be negative. For the fully risk-averse investor in 2021, blending in some gold will be a good idea to build in some hedge against inflation. But do it only through the government sovereign gold bonds. Also remember, investing in corporate bonds that give a few percentage points higher return than bank FDs is actually far risker than having an equity exposure. Also, as an FD investor if you are thinking of unregulated investments including crypto currencies, you should really worry about your financial future.
Equity. Related to the easy money story are asset bubbles. Asset bubbles get formed when there is almost free money being given away by banks and these bubbles form across stock markets, real estate, alternate investments, art, wine – whatever the really wealthy funnel money into as they borrow at almost nothing and look for a quick short-term return. This makes for global headlines about rising and falling values of different asset classes making the average retail investor greedy or fearful. Equity investors in 2021 have just been through the rapids of 2020 and should be geared up for volatility. Having a good mix of broad market index, mid and small cap funds is your best path to getting an equity exposure to your long-term money. Find good funds and then stay with them till the data changes. Steady investors have done much better in 2020 than people who have tried to move in and out of the market. 2021 will be no different.
Real estate. For a decade the developers and brokers have been saying that this will be the year that real estate will revive hoping to draw investors in. But a mix of outright frauds, builder gouging and pure builder greed has taken investor interest out of real estate. An overall tightening of the system against black money too has worked to take the froth off. Real estate even today is a very long-term deal, the flip-and-double-in-a-year days are gone. Invest only if you see yields of at least 4% (annual rent divided by capital value of the property) and that too with cash down and not on a loan. Remember that Indian lending rates are nowhere near zero.
Gold. In times of global distress this metal does very well and so it has over 2020. Keep your exposure to gold between 5% and 10% of your net worth. Use the sovereign gold bonds to invest – you get an annual taxable interest (gold in other forms does not throw off rent, dividend or interest) and at maturity you get a free pass on the capital gains tax on these bonds.
Bitcoin. The case for bitcoin and other crypto currencies is being made keeping in mind the devaluation of the dollar due to the huge flood of money that the Fed has been releasing over the years. The search for a store of value and a hedge against potential inflation is for real – fixed return investors need to think about this. But the answer for such risk-averse investors is surely not an unregulated ‘asset’. Doomsday prophets like to think of a world where they are the wealthy owners of Bitcoin where the rest of the world currencies are fully debased. Such doomsday schemes only work out in movies. This is not to say that none of the Bitcoin investors will make money, but for pure retail investors who hesitate to step even into index funds, this is not where you put your money.
Each year will throw up a new winning asset class. By chasing last year’s winners, don’t wager your financial security. The era of uncertainty is here – steady money is your vaccine.
Monika writes on household finance, policy and regulation.
A far more confident, poised and assertive Nirmala Sitharaman looked nothing like the fumbling FM just a few months ago when she announced the first fiscal package. The almost ₹1 trillion of spending plus infra push announced can be criticized by arguing that the government is not really spending anything much. And where is the ₹10 trillion that all the NRI economists are so fond of recommending? But if we stop being attached to seeing an actual spend from the government coffers and look at what the FM is trying to do, putting our political biases aside, then the story that emerges looks like this to me.
First, the package announced is this: Central government and central government enterprise employees can choose to either lapse their LTA this financial year or get the benefit in cash equal to leave encashment plus three times ticket fare. ₹10,000 worth of festival advance will be available for all such employees. State governments and the private sector can also do the same. For an infrastructure push, a ₹12,000 crore zero-interest 50-year loan to the states is being given and another ₹25,000 crore as a capital expenditure boost to the existing ₹4.13 trillion already announced in Budget 2020-21. The value of these measures is about ₹1 trillion. The sleight of hand is that this will be spent without the government actually spending that much more.
The average width of a kiosk selling stuff on the road is as wide as an arm span. That is what it needs to take your khokha (shanty shop) and run when the municipal corporation comes on its “inspection” to remove the illegal entrepreneurs off the pavements and roads. They dive into the nearby residential areas with their khokhas, leave them in friendly homes and then put them right back where they were, after the usual bribes have been paid to the police and the municipal corporation.
The Indian state has crushed enterprise for decades by its rent seeking on account of a labyrinth of rules that nobody really understands. The story of the Indian IT industry that boomed in the 1990s was just this—the babus simply did not “get” technology and by the time they got to know the industry was a well-established tax-paying success.
The choices that the ongoing covid-19 pandemic is forcing us to make are not the ones we had ever thought we would need to make. Some countries in the West debated the human life value of the old versus the young and then decided to take the aged off ventilators to make way for those with a longer life runway ahead of them. India, luckily so far, has not been at that crossroad.
But there are a number of economic choices that we have been forced to make as incomes, jobs and livelihoods have been under stress. Last week, Adhil Shetty, CEO of Bankbazaar.com, spoke to me on the three toughest money choices during the covid-19 crisis during a live interview. Each question had two parts and as we moved from question one to three, the choices got harder and harder. These are questions that all of us need to face and then try and answer even if our backs are not yet against the wall. As I keep saying, we are far from done with this crisis, and it is best that we belt up for a rough ride for a while.
If you are worried about your equity portfolio, you are not alone. Whether or not to continue SIPs and whether or not to get out of the market would have been the most asked questions in almost every webinar that I have been a part of since end March 2020. The fear is not just about the market crash in March, but also about the possibility of a global recession and the ability of India’s already slowing and now negative growth to recover from this shock. It is a valid fear and unless India is able to get its growth back on track, targeting at least 8%, if not more, the fruits of demography, of a geopolitical advantage today and of servicing a large domestic market will all be frittered away.
Economist and former Reserve Bank of India (RBI) deputy governor Rakesh Mohan wrote in a superb 2019 paper, titled Moving India to a new Growth Trajectory: Need for a Comprehensive Big Push (read it here), that to get to the needed 8-9% GDP growth, other than a push to financial savings, there is a need to “revive animal spirits in the private sector…particularly in internationally competitive manufacturing sector”. He wrote that there seems to be an acceptance of the fact that India has missed the bus in manufacturing but that there are plenty of buses still to board, if we make the needed changes in regulatory structures that impede enterprise, both Indian and foreign, from making investments in manufacturing.