The current financial year would be a year to forget for the Indian life insurance industry. New business premium during 2011-12 is expected to decline 15-20 per cent, the worst slide since the industry was opened up in 2000.
In 2008-09, new premium collection fell 6.81 per cent compared to the previous year, and this was primarily due to the fall in Life Insurance Corp’s (LIC) premium collection, as private players had managed to grow 1.29 per cent.
This financial year however, private life insurers are set to witness a slide in new premium collection --- the first time since the sector was opened up. During the April-December period, premiums collected by 24 life insurance companies fell 17 per cent to Rs 71,953.5 crore from Rs 86,698.8 crore in the year-ago period.
G N Agarwal, chief actuary, Future Generali Life insurance, said, “By the end of FY12, the premium collected by life insurers will see an overall dip in the range of about 20-25 per cent. In spite of the regulatory actions, the industry has failed to show any signs of a revival. The key drivers for this de-growth are the fluctuating market conditions and the increasing interest rates, which moved a lot of people to banks. The industry would start seeing marginal growth from the first half of FY13, compared to the same period last year.”
The choppy equity market, the high inflationary climate and regulatory changes were the key reasons behind this unprecedented fall in new business premium, say insurers. Though the last quarter is considered the busiest season, industry players are not seeing any upside in premium collection. They say the downward trend is likely to continue.
LIC, the country’s largest life insurer, isn’t optimistic of touching last year’s premium collection numbers. “Though we are trying our best to match last year’s collection, during 2011-12, we might see a slight shortfall,” said an LIC official. LIC’s collection in the current financial year fell 15 per cent, marginally better than the fall seen by its private peers, which stood at about 20 per cent.
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Sales in the busy tax-saving season have also taken a hit due to the lack of pension plans in the market, insurers said. A shift in the product mix in favour of traditional plans, which brought down the average ticket size of policies, was also one of the critical reasons for the slide in new business.
G V Nageswara Rao, managing director and chief executive, IDBI Federal life insurance company, said, “Preferences are moving more towards traditional products because the average ticket size of traditional products is lower than that of Ulips (unit-linked insurance products) now. Since the pension market is next to negligible, the renewal business has taken a hit, too, adding to the de-growth significantly.”
Since September 2010, when stringent norms on unit-linked guidelines came into effect, insurance companies started focusing more on traditional plans and Ulip sales fell. In the current financial year, the downward trend continued, with a choppy equity market and high inflation adding to the woes. Currently, Ulips account for about 25 per cent of total sales, with the remaining 75 per cent being traditional plans.