Sudden slowdown in new insurance premium

Substantiating this trend is the sharp drop in new premium collection by life insurance companies in the April-May 2011 period. According to data released by the insurance regulator Irda, all 23 companies together collected Rs 12,253 crore from new insurance premium in April-May 2011, 12 per cent lower than Rs 13,966 crore it had collected in the same months previous year.

The performance of the 22 private companies was worse as their new premium collection dropped by 23 per cent to Rs 2,980 crore in April-May 2011. The public sector insurer Life Insurance Corporation (LIC), a market leader with 76 per cent share, also showed a decline of 8 per cent in new premium collection to Rs 9,273 crore (See table). Among the older private sector players Reliance Life had the steepest fall of 52 per cent followed by Bajaj Allianz (-41 per cent), Birla Sunlife (-35 per cent), ICICI Prudential (-29 per cent), etc.

The main reason for the decline, according to industry sources, was the introduction of new guidelines for ULIPs (Unit Linked Insurance Plan) in September 2010, which required insurance companies to offer a minimum guarantee on pension plans. “Major changes in ULIP regulations and the change in the system of remunerating the agents were the two main reasons for the decline in premium collection,” said Life Insurance Council President S B Mathur.

After the change, companies took long time to design new ULIP products that conforms to the new IRDA norms and that led to sharp decline in new premium collection. “As against 500 ULIP products, you may see just about 125 products this year. It takes time design new products and to get market acceptance,” Mathur added.

“As ULIPS contributed to a significant proportion of premium sales, the impact of the change was significant,” agreed Aviva India CEO & MD R Ramachandran. “But we believe that this is a short term impact and ULIPs still contribute to about 70 per cent of sales.”

The marketing head of another large private life insurance company pointed out that with the investor-friendly changes brought in by the regulator the revised ULIPs have become even more customer friendly. As result, he expects the market to pick up in the second half of the current financial year.

Positive fallout

Decline in new business, interestingly, has forced life insurance companies to focus more on renewal premiums. HDFC Life, for example, increased its renewal premium collection by a huge 36 per cent in 2010-11 and MetLife India raised the same by 22 per cent. This also helped them to improve profits in the last financial year.  

Said HDFC Life CEO & MD Amitabh Chaudhry, “High quality of existing policies and continuous focus on persistency lead to 36 per cent increase in renewal premium to Rs 4,924 crore from Rs 3,627 crore in 2009-10.” The crunch also made insurance companies focus more on cost and reduce operational expenses, Mathur said.