Regular premium policies bear sales dip

Regular premium policy sales by private life insurers plunged 43.27 % after September 2010 compared with a 15.47 % rise in the first six months of the 2010-11 economic year.

During the October-March time, considered as the highest selling months in the life insurance business, private insurers could collect a premium income of Rs 10,320.74 crore from new regular premium policies against Rs 18,194.26 crore a year ago.

Regular premium policies account for the bulk of the premium income from new businesses by private insurers — nearly 75 % at the end of March 2010. However, because of a 15.47 % growth in sales during the first six months of 2010-11, regular premium policies still account for 56.36 % of private insurers' premium income from new businesses.

The premium income from new policies declined despite a steep increase in the threshold premium rates, particularly in unit-linked plans, after the new regulations came into effect in September.

"Unit-linked plans accounted for 80 % of the business portfolio of private insurers before the new regulations came in," said Suresh Agarwal, executive vice-president, Kotak Life Insurance Company.

Before September, regular premium Ulips had higher profit margins than single premium and traditional policies. After the new regulations, margins from regular premium Ulips shrank, while those from single-premium plans increased because the lock-in period had now been increased to five years from three.

"So, most insurers launched one single premium and one regular premium Ulips post September — the regulator allowed each insurer to launch two plans under the new dispensation during the six months through March 2011," Agarwal said.

While sales of regular premium policies declined in the second half of 2010-11, sales of single premium plans grew in triple digits from the very beginning of the financial year.

According to Agarwal, private insurers' business portfolios, which were earlier lopsided towards regular premium Ulips, have now become more balanced with single and regular premium Ulips and traditional plans each accounting for a third of premium income.

"This will be the strategic business mix going forward, too," he said.

Meanwhile, a number of insurers have tweaked the cost structure while launching single-premium Ulips compliant with new regulations. Though the maximum commission income for agents from a single premium policy remained the same at 2 % of the premium paid, insurers such as Kotak Life and ICICI Prudential increased the premium allocation charges and reduced the policy administration charges.

Premium allocation charges are deducted from the premium at the very beginning and the remaining portion is invested according to the policyholder's choice of fund.

Policy administration charges as a percentage of the premium paid are deducted every month by knocking off units of equivalent amount in the policyholder's investment fund

Source: [telegraphindia]