The life insurance industry is likely to see a significant drop in new business premium collection following new regulations on unit-linked insurance plans, surrender charges and distribution channels.
“Our earlier projection was that the industry would grow 15 per cent but now it would be difficult to achieve even 5 per cent growth in new business premium for this financial year,” said S B Mathur, secretary general of Life Insurance Council.
The Insurance Regulatory & Development Authority (Irda) has brought in a host of changes, including ceiling on charges during the policy term, which will restrict companies from paying hefty commissions to agents. In addition, the regulator has capped the commission paid to referrals and introduced stringent norms, resulting in lesser players acting as referrals. On pension products, the regulator has introduced a guaranteed return of 4.5 per cent.
Mathur said training agents, after products were amended in September, would be a long process. Due to the uncertainty, no new Ulips were launched in the first quarter. Besides, all products will be revised by August to meet the new norms. Insurers also fear that given the cost structure, agents may not be interested in selling the product.
“The changes will make it harder to look at innovative distribution channels and will potentially make banks the key channel. We remain concerned that some of the changes may result in quality distributors exiting the insurance market,” said V Srinivasan, chief financial officer, Bharti AXA Life Insurance.
At present, existing regulations do not allow more than one life insurance company to tie up with a bank. Experts said existing players with bancassurance tie-ups would not be affected much.
“All non-banking finance companies and brokers cannot work as corporate agents. We will have to start thinking of new products like non-participatory and universal life policies,” said DLF Pramerica Life Insurance Managing Director and CEO Kapil Mehta. Srinivasan said it would be difficult to write new business as the focus would be to bring down fixed expenses.
In the last financial year, new business premium income rose 25 per cent to Rs 1,09,213 crore from Rs 87,006 crore in 2008-09. According to the council data, total premium rose 18 per cent during the last financial year to Rs 2,61,025 crore.
