Stormy weather for insurance firms

Total premia of life insurance industry increased by 23 per cent to Rs 1,25,254 crore.
BY Rachita Arya Mumbai

Insurancecompanies are under severe pressure to improve their bottom-line. Evenas private players take a while to come to terms with the new insuranceULIP norms as compared to the public sector behemoth Life InsuranceCorporation, the insurance sector is taking baby-steps to countertoday's uncertain environment.

Notwithstandingthe new regulatory regime by the Insurance Regulatory and DevelopmentAuthority (IRDA), the total premia of the life insurance industryincreased by 23 per cent to Rs 1,25,254 crore, as of September 2010,according to data released by Life Insurance Corporation (LIC).

SB Mathur, secretary general, Life Insurance Council said, “While thenumbers reflect well, it is better to be cautious about the immediatefuture. Some of the private players might take some more time to adjustto the new regulatory framework.”

Mathurwas referring to the new norms rolled out by IRDA, which encompassesmore investor friendly terms. The new norms ensure that the minimumterm of Unit Linked Insurance Plans (ULIPs) is fixed at five years andhad made life-cover compulsory for pension funds.

Ithad also asked agents selling ULIPs to disclose to the customer theexact amount of commission they earned. ULIPs, which had been adominant player of the life insurance industry, recently came under thespotlight when the Securities and Exchange Board of India (SEBI), onApril 9, asked 14 life insurers not to sell ULIPs without its approval.

Thoughthis month all of them have been cleared once again, private playershave fared rather badly. Amitabh Chaudhry, MD & CEO, HDFC StandardLife reaffirmed the same.

"Septemberwas a really bad month for the industry as a whole. The figures do notreveal the whole truth,'' he said, when confronted about the rise inpremia. "The fact is that some of the first-year premium collection inthe month of September was a spill over from the month of August. Ifone negates that, September was a horrific month," he added.

Confirmingthe same, Rajesh Sud, CEO of Max New York Life Insurance said thatSeptember was not the best of months, but overall the firm hasperformed in line with expectations and saw some spillage from themonth of August in premium collections.

Asfor LIC, Mathur noted that renewal premium continued to remain flatwith a marginal increase in traditional business. As per data fromIRDA, the first year premium collection in the month of September wasto the tune of Rs 9,612 crore, as against Rs 18,499 crore in the monthof August. In July, the collection was Rs 8,724 crore.

"MaxNew York Life is countering the uncertainty by maintaining relationswith old customers, and is ensuring prompt collection of premiums witha quick and efficient work force,” added Max New York Life's Sud. Hewas referring to the fact that several firms had cut down on theworkforce to battle the severe environment. Several insurance firmshave undertaken severe cost reduction drives. Many in the industrypointed out that the number of offices has come down by 250, out ofwhich 64 per cent belong to the private players. Rajesh Sud of Max NewYork Life added that the firm has undertaken cost reduction steps byfollowing a price controlled product regime. "We are in the process ofaltering our distribution and productivity tactics to meet the requirednorms”, he said.

Privateinsurance companies have cut their workforce by 5,840 and agency forceby 1,56,675. This measure was reflected in the cost ratio which camedown from 10.34 per cent as of Sept 2009, to 9.48 per cent as ofSeptember 2010. The commission ratio also came down from 6.23 per centas of Sept 2009, to 5.43 per cent as of September 2010, for theindustry as a whole.

Recently,Max New York launched a couple of new ULIP products, and has a specialproduct called Platinum Protect. The CEO said that these products wouldtake some time to pick up, as "they are still in the initial stages.''

Incidentally,because of the changes initiaited in the ULIP policies, there has beenan increase in the average annual premium and average sum assured perpolicy. The average premium per policy for a non single product hasincreased from Rs 10,233 (in Sep 2009) to Rs 12,887 (in Sept 2010).

LIC'sMathur added that the growth was all the more noticeable since theperiod was marked by significant changes in product profile of ULIPs.He added that the growth in total premium was due to the increase inLIC's new business premium by 60 per cent.