Insurer insure thyself

Insurer insure थ्य्सेल्फ़'

September was the first month in which the life insurance industry worked with the new guidelines for policies put out by the Irda. As expected, business was dull; annualised premium equivalents (APE) for the industry rose just 1.3% year-on-year while for the private sector players it fell 13% year-on-year. In July, the APE for the industry had risen 20% year-on-year. Some of this can be explained by the fact that life insurers worked overtime in August, selling as much as they could before the new rules became applicable. But it’s not as though life insurers are going to be back in business any time soon; given the manner in which charges have been brought down, bottom lines are going to take a hit before they recover. More important, for at least some time before companies optimise their cost structures, small savers are not going to be on their radar. With...the regulator changing the rules, it may be unviable for private life insurers to cater to individuals who pay premiums of less than Rs 15,000 a year. In fact, some players believe that if they have to make money, monthly premiums need to be upwards of Rs 3,000. That’s a pity in a country where there’s no social security but, over the long run, the economies of scale should allow life insurers to also cater to the relatively less affluent.

One can’t really blame the regulator because many customers were being billed high charges on Ulips and many of these plans were being missold.

As much as 30% of the first year’s premium was taken away in the form of one charge or the other, with the percentage coming down over the life of the product. A fair share of this was paid to the agent and on average, for the...industry, agents were making a commission of close to 15-16% of the premium. That says the consensus will now come down to sub-10% in the new regulatory framework. Logically speaking, this should be incentive enough for an agent because if he was selling mutual products at commissions that were far lower of 2-3% or maybe a slightly higher amount for a New Fund Offering (NFO), 8-9% is way higher. It’s true that although a Ulip may be nothing more than a mutual fund scheme bundled together with an insurance cover, it is harder to sell simply because most individuals in this country don’t recognise the importance of insurance. To that extent, Ulips are more of a push product than mutual funds. But a commission of 7-8% should be incentive enough. In the UK, for instance, commissions are going to be reduced drastically by 2012.