Life insurance business remains almost stagnant
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The life insurance industry in India is still struggling on the growth front while the general insurance industry seems to be doing well. The life insurance industry grew by a marginal 1.4 pct while the general insurance industry grew by 18.3 pct. This is based on data released by Insurance Regulatory and Development Authority (IRDA) for the first two months of the financial year.
While April & May 2012 may not really decide which way the year will close, the numbers throw up some interesting facts on the way the industry will go. I will focus on the life insurance space here because this is the one that has been sluggish last year too, due to a variety of reasons.
– Interestingly, while LIC was more or less flat with a growth of -0.6 pct, private players as a whole grew by 7.8 pct. Just for the record, there are 23 private players and LIC still retained a share of almost 75 pct of the market.
– In absolute numbers, the biggest growth was shown by HDFC Life followed by Metlife and Aviva.
– All but one of the companies has shown a drop in business in the individual single premium segment. Hence, this seems to be a conscious move by the industry to move away from this product. This could be because of the last budget that had provided tax benefits only for those plans which offer 10 times cover of the premium paid. And most of the single premium plans did not meet that criterion.
– While a large majority of private players have seen a dip in the sale of standard regular premium plans, LIC has seen a remarkable 50 pct increase in sales here. These plans are great to have on the books of the insurance companies as they bring in renewal premiums every year, something which single premium plans do not do. Of course, these are harder to sell too.
– Strangely, the exact reverse has happened in the group insurance business. The group single premium business has seen a 70 pct increase while the group non-single premium has seen a 70 pct drop in premium collection.
There seems to be a clear direction which the industry seems to have taken by reducing focus on single premium plans being sold to retail customers. It could have been the tax rules which forced it or it could be a push from the regulator. This poses a big challenge to life insurers as selling policies with long-term payment commitment from customers is much tougher and with cost pressures, it is going to be an increasingly difficult task. On a long-term basis and from an “insurance” perspective, this is the right thing to do though.
Only time will tell if tax-efficient single premium plans are launched and they too become the flavour of the season. For one, they will be more expensive, so it will be tougher to sell. Let’s wait and see.
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