Private life insurance companies still struggling
(The views expressed in this column are the author’s own and do not represent those of Reuters)
The Life Insurance Corporation of India (LIC) has again come to the rescue of the industry in the financial year ending July 2012. While 23 private players together have a marginal dip in business (-1 pct), LIC has powered ahead with 23 pct growth in new business premium collection.
I sometimes wonder how this is possible. How is it that LIC manages to stay ahead most of the time. “Frequent changes in regulations” is what we hear most when we try to assign a reason for the dip in business for private life insurance companies.
In spite of a being such a large organisation with an equally large agent force, LIC seems to be able to come up on top. Surely, the changes in regulations are much more difficult to drive down with such a large agent force. And given the changes in regulations and the cut in commission levels of some products, it would have been quite a task to motivate and direct the large agent force. A more detailed analysis on this probably at a later date.
Coming back to industry performance, clearly non-linked insurance plans seem to be the flavour of this financial year. In the individual plans, almost 88 pct of the premium collection is in the non-linked category. The unit linked insurance plans or ULIPs as they are better known were bashed so badly that no one seems to want to sell it any more. Of course, one reason is because the commission rates in unit linked insurance plans have been slashed considerably.
There is a bit of a sad story here too. Now with reduced commission rates and higher incentives to stay invested for longer periods of time, ULIPs are actually a much better product. If you plan to stay invested for 15 to 20 years, chances are ULIPs would give you much better returns than the traditional plans being sold today. Here it seems it is the middle-man’s income which decides the product which should be purchased by the consumer. Very sad, very wrong but true.
In the general insurance industry, growth has been good and much more secular. Almost all players have shown double-digit growth and the overall industry grew by 21 pct. Here the big four public sector insurers collectively have close to 60 pct of market share. With a gradual increase in premiums by some of the players, the general insurance industry might see much better growth rates in the current financial year. Even the government has given very clear directions to the public sector insurers to price-to-risk and not only to garner market share.
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