New surrender value norms: Life insurers turn to policies with high value

Life insurers shifted their focus to selling high-value policies in October as the transition to new surrender value norms, effective October 1, limited their ability to roll out all products in their portfolio. This had led to a 40 per cent year-on-year (Y-o-Y) drop in the number of policies sold in October.

 

Additionally, distributors had engaged in a fire sale of policies in September due to uncertainty about the impact of the new norms on their commission structures. This advance selling made an impact in October, as distributors slowed down on promoting new products.

 

Data from the Life Insurance Council shows, the number of policies sold by insurers in October dropped 41.6 per Y-o-Y to nearly 1.2 million. In contrast, policy sales in September rose nearly 432 per cent to 11.7 million from 2.21 million in the year-ago month.

 

According to Saurabh Bhalerao, head of BFSI Research at CareEdge Ratings, the drop in policy sales is due to the introduction of the new surrender value norms and companies’ inability to launch all their products in time.

 

Despite the fall in number of policies, the new business premiums of life insurers grew in double digits. “… insurers have focused on selling higher-value policies and unit-linked insurance plans, which has helped mitigate the impact on premium income,” Bhalerao said.

 

The revised surrender value norms require life insurers to pay a higher special surrender value to policyholders after the completion of the first policy year, provided the customer has paid one full year’s premium. Earlier, companies did not pay such amount to customers surrendering their policies in the first year.

 

Rushabh Gandhi, managing director (MD) and chief executive officer (CEO) of IndiaFirst Life Insurance, “Because of uncertainty around product constructs and commission structures, distributors seem to have hastened the October business into September. It should be noted that this volatility is muted in the case of private sector companies.”

 

State-owned Life Insurance Corporation of India saw a 60 per cent Y-o-Y decline in policy sales in October at 572,000 from 1.42 million in the year-ago period. Private insurers, on the other hand, recorded a 1.07 per cent decline at 628,000 policies.

 

“In the new product offerings, we have revised the minimum sum assured levels due to challenges in terms of persistency,” LIC management said during a post-earnings call.

 

“We are aware that, in the initial phases, intermediaries adapt to the higher ticket size or appropriate ticket size, which is essential not only from a persistency point of view but also for the ultimate customer delivery. So, we were aware that this month could see an impact, but we are confident that going forward, sales will pick up,” the LIC management said.

 

Pankaj Gupta, MD & CEO of Pramerica Life Insurance, agreed that with the recent adjustments in surrender norms, distributors might have concentrated their efforts in September.  “Also, customers and distributors might be taking some time to adapt to the updated products and changes following the new norms,” said Gupta.

 

However, both analysts and insurers are optimistic about recovery going forward. “This decline is expected to be temporary, and policy sales are anticipated to normalise in the near future,” Bhalerao said.