Life insurers take to suicidal pricing

Imagine selling sugar at Rs 11 per kilo when the market rate of Rs 16. Now imagine being able to get an insurance policy at just Re 1 for a sum assured of Rs 1,000.

Such is the suicidal pricing strategy being adopted by Indian life insurers desperate to beef up their market share.

Many are also using group term insurance as a carrot to compete for the more profitable corporate group superannuation and gratuity business.

"The scene in the life insurance industry is no different from the non-life sector where cross-subsidisation is rampant," said a senior insurance analyst.

"Group insurance rates today are audaciously low and risks are high. It's cut-throat competition in this line of business where companies are not making much money," said S Krishnamurthy, CEO SBI Life.

Global reinsurance companies are concerned over the way insurance players are 'irrationally' pricing these products.

"Many companies are under undue pressure today. Group insurance pricing needs to be rationalised," say reinsurance companies, many of which are trying to address the issue with their Indian clients "" the life insurance companies.

"We are trying to reinforce the need for rational pricing and going back to the basic concept when it comes to group risk selection. It is necessary to come out with terms and pricing of group business that reflect the risks associated," stated a senior executive of a leading global reinsurance company.

ICICI Prudential Life has been choosy on the business it underwrites. "Group term is a commodity, and as business is purely rate driven, this is not our focus area," said the company's CEO Shikha Sharma.

Today it is possible for an individual suffering from a fatal ailment to open an account with a bank and in the bargain be entitled to an insurance product that will pay his beneficiary a handsome amount in the range of Rs 1 lakh plus.

This is a group product offered to banks and credit card companies for their customers. Insurance companies also tend to compete aggressively for large corporate, white-collared employer-employee group business as this means huge premiums.

Tata AIG Life Insurance Company struck one of the largest single life insurance deals in the country last year when it covered 17,226 employees of the GE Group of Companies in India for a total sum assured of Rs 1,865 crore.

The Life Insurance Corporation of India (LIC) had the year before bagged the largest group cover when it insured the 13,000 employees of Infosys Technologies for a sum assured of Rs 1,300 crore.

Insurance companies are tapping large-sized corporate accounts as this offers higher premium income with little of the hassles of marketing and collecting premium individually. Business is given to the insurance company offering the lowest quote.

The advantage of offering group term insurance cover is that the insured employee does not need to undergo any prior medical examination.

It is also used as human resources tool by corporate employers to ensure employee loyalty. Unfortunately, in the process some insurance companies tend to price group term products 30-50 per cent lower than the competition.

"It is important that insurance companies design innovative products for different types of customers. Product have to be priced properly to ensure against losses," said reinsurance executives.