JOIN US The growth in total premium is due to increase in new business premium by 453 per cent to Rs 9312.62 crore in H1’2010 from Rs 1,683.46 crore in H1’2009, as per the data available from Irda website.
State-owned LIC gained the most, with an increase of 88 per cent in new business premium income. At the same time, private sector insurance recorded a 34 per cent increase in income from sales of new policies, maintains the industry body, Life Insurance Council.
During the year, life insurance industry saw a slew of changes — especially after a spat between two regulators lasting for close to 3-months over who will regulate the unit-linked insurance plans (Ulips) settled — which resulted in the increase of average annual premium and average sum assured per policy. The average premium per policy for non-single product has increased from Rs 10,233 in September 2009 to Rs 12,887 in September 2010.
The enormity of the change is evident from the fact that Ulips account for more than three-fourths of all products sold by life-insurers. The regulator has increased the lock-in period for all Ulip products to five years from the current three years, thereby making them long-term financial instruments, which basically provide risk protection. It also mandated commission and expenses reduced by evenly distributing them throughout the lock-in period.
Moreover, Irda said insurers will provide a mortality cover or a health cover to all UlipS, other than pension and annuity products, thereby increasing the risk cover component on them. It has ordered life insurers to offer customers a guaranteed return of 4.5 per cent per annum on pension and annuity plans. As this would result in lower capital requirement for life insurers, the Irda has asked them to initiate the process of calculating ‘economic capital’ (EC) from March 2010.
Insurance being a capital intensive business, the need to improve the capital efficiency without threatening the solvency is crucial in the wake of the financial crisis which started in 2007. As such, EC reflects the optimum levels of capital required by an insurer and the main objective here is to separate the liability and risk parts clearly out of the total reserves (including solvency margin). Irda has asked life insurance companies to submit a detailed report setting out the Economic Capital from the fiscal 2010.
Irda views that the new investor-friendly policies will help cut costs and commissions, as well as improve returns for policy buyers. It has so far approved only two to three plans per insurer, from up to a dozen, thus helping investors avoid a maze of schemes.
For insurance companies to survive in a regime that squeezes margins and forces lower costs, they will have to ensure greater volumes to sustain margins. The key differentiator for policyholders will have to be the brand of the company, service offered, innovative fund options offered and investment performance of these funds.
Irda also issued ‘Guidelines for Grievance Redressal’, which lay down specific timeframes and turnaround times (TATs) for response and resolution, which will further strengthen redressal systems insurers already have in place. After the recent stand-off between regulatory changes apart, the sector witnessed a huge capital infusion as much as Rs 30,000 crore of capital as of September 30, 2010 by 23 life insurance companies in India, thereby emerging as the major contributor to the economic development, especially in infrastructure development. The total assets under management stood at Rs 14,35,206 crore as on September 30, 2010.
It is significant to note that the industry plays a critical role in savings mobilisation, providing risk cover and also a pivotal role in stabilising the financial markets. For instance, during the recent financial crisis, the industry invested more than Rs 51,562 crore in equity market, when FIIs pulled out over Rs 47,000 crore. In fiscal 2010, insurance contributed around 20 per cent of the total gross saving in household sector.