Companies expect sales to pick up only in December-January.
The profits of life insurers rose during the second quarter of the financial year due to lower new business strain and cost control.
Business strain occurs because of initial outgoes such as commissions and expenses when a policy is written. However, the future income is expected to cover the initial outgo.
| BOOM TIME PROFIT IN QUARTER ENDED SEPTEMBER (Figures in Rs crore) | |||
| Insurers | 2009 | 2010 | % change |
| SBI | 77.00 | 103.00 | 33.77 |
| ICICI Prudential | -51.00 | 15.00 | NA |
| HDFC Life | -41.40 | -64.50 | NA |
| Birla Sun Life | -124.00 | 22.48 | NA |
| Bajaj Allianz | 125.00 | 199.00 | 59.20 |
| Kotak Life | 4.40 | 13.40 | 204.55 |
| ICICI Prudential reported Rs 51 crore loss during April-Sept 2009-10 Source: Companies | |||
The largest private sector life insurance company, SBI Life, reported a net profit of Rs 103 crore, compared to Rs 77 crore in the same period last year. ICICI Prudential Life Insurance reported a profit of Rs 15 crore, compared to a loss of Rs 69 crore a year earlier.
Insurers reduced costs across all segments — infrastructure, people and commission. The old players in the industry saw their workforce shrink by 2,000 to 2,500 after the Insurance Regulatory and Development Authority cracked the whip on high commission-yielding products, which accounted for 80 per cent of the industry’s business.
“We are also selling a lot of single premium policies, which do not come up for renewal,’’ said Sanjiv Bajaj, managing director of Bajaj Finserv. “Also, policyholders encashed policies after the first three-year lock-in got over.’’
Apart from lower new sales, insurers are also reducing operational costs, for example by rationalising workforce. Most insurance companies have raised productivity targets for agents.
Insurers, however, are likely to see a fall in new business under the new regulations. The strain from the renewal business also fell, as the first three-year lock-in got over and people redeemed policies.
Insurance companies expect sales to pick up only in December-January. Generally, insurers earn 40 per cent of their premium in the last quarter. Executive says if sales do not pick up in the fourth quarter, insurance companies will be in trouble.
“The industry may see some knee-jerk reaction to the new norms, but it is a very good step by the regulator,’’ said Sandeep Bakshi, managing director and chief executive officer of ICICI Prudential Life Insurance. “These steps are good for both the companies and the policyholders.’’
On the contrary, HDFC Standard Life saw an increase in losses because of capital strain. “Our expense has gone up by almost 10 per cent compared to last year. The expense ratio has come down by 500 basis points, but since 70 per cent of our expenses are fixed, it has gone up to around Rs 770 crore,” said Vibha Padalkar, CFO of HDFC Standard Life.
