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Insurance sales feel rule pinch

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The new Ulip norms are taking its toll on policy sales by life insurers, including the Life Insurance Corporation of India (LIC). The new regulations came into force in September and premium income from new policy sales in the month is nearly half of that in August this year.

According to experts, the minimum premium for Ulips has gone up under the new regime leading to lower sales.  Moreover, the new norms have trimmed the agent’s commission for selling Ulips, who are no longer pushing these products aggressively.

Ulips make up almost 55 per cent of all insurance policies sold in the country. These policies constitute almost 80 per cent of a private life insurer’s business portfolio.

In August, life insurers together collected Rs 18,500.49 crore as premium from sale of new policies. However, premium income from new policies in September stood at Rs 9,612.74 crore, a month-on-month decline of 48.04 per cent.

The business of private life insurance companies slipped 21.85 per cent to Rs 3,006.10 crore in September from Rs 3,846.67 crore in August.

The steep decline in life insurance business in September can be attributed mostly to the LIC, which recorded a first-year premium income of Rs 6,606.64 crore last month against Rs 14,653.82 crore collected in August, a decline of nearly 55 per cent. Keeping the September deadline in mind, the LIC had been aggressively selling its unit-linked Market Plus-I plan between April and August this year. LIC controls a 74 per cent share of the new business premium market.

Among the front-running private players, SBI Life lost the least, while Birla Sun Life’s business declined the most. SBI Life’s first premium income in September dipped only 8 per cent, while that of Birla Sun Life plummeted 43 per cent.

Earlier this month, Reliance Life’s executive director and president Malay Ghosh had said that Ulip sales had come down in September after the new regulations came into force. “The minimum premium for Ulips have gone up under the new regime leading to lower sales in September,” he said.

However, Ghosh denied that lower agency commissions under the new regulations had much to do with lower sales. “Because in many of our products, particularly almost in 80 per cent of our Ulips, agency commission before September was less than 10 per cent,” he said.

In case of Reliance Life Insurance, premium income from new businesses went down 33 per cent in September from the previous month.

“Sales of Ulips will go down by 20 to 40 per cent depending on how companies follow the new regulations,” said R. Krishnamurthy, managing director (India) of Towers Watson, a risk consulting firm.

“Insurance companies will now have to take a relook at their respective business and distribution model,” he added.

Given the fact that traditionally September-March is the peak period for life insurance policy sales in India, it will be interesting to see how insurers gear up to cope with this situation. They had done brisk business during April-August this year, particularly by selling single-premium unit-linked pension plans.

Interestingly, a number of insurers, such as Aegon Religare and Reliance Life have already launched defined benefit health insurance plans to diversify their product portfolio and thereby shore up premium income. Some insurers, such as ICICI Prudential, have started focusing on selling single-premium Ulips.

While premium income from new businesses has declined in September, the average size of premium ticket has gone up for all insurers, except for the LIC. This is because insurers have increased their threshold premium for Ulips.

Source : Telegraph India