Private life insurers have seen their new business growth slow down to a mere 2% even as Life Insurance Corporation regained market share with a 23% jump in premium collections to Rs 86,444 crore for the financial year 2010-11. Life insurers have found it a challenge to grow business after new regulations came into effect from September 2010.
According to data collated by the Insurance Regulatory and Development Authority, private life companies' growth came from group insurance. They posted new business premium collection of Rs 39,281 crore. Premium from individuals, which excludes
payments for group policies made by corporates, shrunk by 4% to Rs 3041 crore for the private life industry.
payments for group policies made by corporates, shrunk by 4% to Rs 3041 crore for the private life industry.
But Life Insurance Corporation (LIC) managed to beat the trend due to three factors; firstly, its economies of scale allow it to sell single premium policies. Secondly, it has a strong base of traditional products (non unit-linked plans) which were unaffected by the guidelines; and thirdly, its group retirement products have done very well.
Following the sharp growth in new business premium, LIC's market share in premium from new policies has jumped four percentage points from 64.86% in March 2010 to 68.7% in March 2011. The other companies among the top five in terms of market share include ICICI Pru Life (6.25%), SBI Life (6.01%), HDFC Life (3.23%) and Bajaj Allianz (2.75%)
For private companies, besides the inability to sell policies that were predominantly investment products, there were two other limitations. Most private life companies were under pressure from their promoters to shift focus from topline to profits after turning in losses for over eight years. Also, private companies were hit by their inability to sell pension plans which constituted a large chunk of their business.
The performance of the insurance industry this year comes out better than it actually is because IRDA numbers give full credit for single-premium policies. These are covers where premium for subsequent years is collected in the first year. If, like in other markets, the collection from single premium plans were annualized, the private life insurers would not have recorded any growth.
Last year, following charges by Sebi that life insurers were selling mutual fund schemes under the guise of unit-linked life insurance, the insurance regulator cracked down on life companies and came out with stringent norms. The new guidelines drastically reduced charges that companies could deduct from the investment component. They also forced insurers to offer a minimum level of insurance with every policy. Following the new norms, customers, particularly high net-worth investors, did not find it worthwhile to route their stock market investments through unit-linked policies. Pension plans, which constituted 30-40% of premium for several companies, also took a hit after IRDA made it mandatory for life insurers to guarantee a minimum level of return.
Source: The Times of India
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