Insurers shift product mix away from Ulips
05 Feb, 2014 03:03 PM
Under the new norms life insurers have to replace their existing products with new ones meeting the regulatory criteria.

With life insurers reshuffling their product mix to comply with the new guidelines, the focus seems to have shifted away from unit-linked insurance plans (Ulips) to traditional insurance products.

Life Insurance Corporation of India (LIC), the country’s largest insurer, has not introduced any Ulips so far this calendar year. Ulips’ share is currently less than 10 per cent of the state-run insurer’s product mix. “We are concentrating on our traditional products. We do not see any immediate need to launch new unit-linked plans,” a senior executive at LIC told Business Standard.

The new guidelines on linked and non-linked insurance policies for the life insurance sector became effective on January 1, 2014. The rules mandated changes in the product structure and surrender benefits, in order to make insurance policies more transparent. Under the new norms, life insurers have to replace their existing products with new ones meeting the regulatory criteria.

Traditional products now appear to be more popular among private insurers as well. “Insurers have not completely shunned away from Ulips. But with all products being withdrawn, the need was to get the basic traditional products approved. We will apply to Irda (Insurance Regulatory and Development Authority) for approval of new Ulips, but the number of these products will be fewer than last year,” said the CEO of a large private insurer. He expects new Ulips to be introduced in the market only after March 2014.

Ulips, which used to be the preferred product for customers, had taken a beating following stiff norms set by the insurance regulator in September 2010. Irda mandated a minimum mortality cover and increased the lock-in period to five years from three years earlier.

While the move persuaded insurers to shift their product mix towards traditional insurance products, insurance companies started reintroducing Ulips from 2012. Executives said that while insurers still sell a large number of Ulips, they earn lower margins due to revised norms.

From October 2010 onwards, Ulip premiums, which accounted for 90 per cent of the first-year premium of life insurance firms, saw their share fall to less than 30 per cent. At present, they range between 30 and 35 per cent of total premiums.

Industry players point out the changing business mix and regulatory environment have also impacted their margins in the October-December 2013 quarter.

During a recent interaction with analysts, N S Kannan, executive director of ICICI Bank, said: “As a result of the change in business mix as well as regulatory changes in the charge structure for products, the new business margins for the company were lower at 10.9 per cent in the third quarter. We will continue to assess how the business evolves and take steps to optimise margins and profits.”
Source : Business Standard

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