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Unit-linked insurance plans take a beating

Niladri Bhattacharya / Mumbai 13 Jul 12 | 12:40 AM

From more than 70 per cent of sales during 2008-09, the share of Ulips in new business premium dropped to a mere 15 per cent in the last financial year

The verdict is out: Unit-linked insurance policies, or Ulips, are no more catching customers’ fancy.

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Be it due to regulatory changes or a volatile stock market, over the last two years, Ulip sales have taken a beating.

From more than 70 per cent of sales during 2008-09, the share of Ulips in new business premium dropped to a mere 15 per cent in the last financial year.

According to data collected by the Life Insurance Council, during 2011-12, premium collection from Ulips fell 67 per cent to Rs 17,455 crore compared with Rs 52,739 crore in the corresponding period a year ago, accounting for only 15.35 per cent of the total new business premium collection.

In the same time, non-linked or traditional business showed a growth of 32 per cent to Rs 96,224 crore, accounting for nearly 85 per cent of the total new business. During 2010-11, Ulips accounted for nearly 41 per cent of the new business premium.

Ulip sales have sunk since September 2010, when new regulations by the Insurance Regulatory and Development Authority (Irda) made selling of these hybrid plans less lucrative for both life companies and agents.

Ever since new guidelines came into force, traditional plans, which earn a relatively higher commission, have gained the sellers’ attention.

Another reason behind the drop in sales in Ulips is the absence of pension products from the market.

Individual pension plans, which accounted for a little over 50 per cent in the sales of Ulips two years ago, declined drastically, and accounted for less than two per cent in 2011-12. Premiums collected from individual pension policies during FY12 shrank to Rs 1,139 crore compared with Rs 19,257 crore in 2010-11 and Rs 26,389 crore in 2009-10, the data showed.

(Rs  crore) 2010-11 Share
2011-12 Share
Linked 52,739 41.98 17,455 15.35 -66.90
Non-linked 72,878 58.02 96,244 84.65 32.06
New business 1,25,617 100 1,13,699 100 -9.49
Renewal premium  1,65,988   1,69,616   2.19
Total premium  2,91,605   2,83,315   -2.84
Source: Life Insurance Council

This drop in total premium can be attributed to the change in regulatory road map, declining number of products and disappearance of pension business in the individual segment, according to S B Mathur, secretary-general of the Life Insurance Council.

Lower sales in Ulips have also impacted equity investment by insurance companies. Insurance officials say equity inflows have fallen, as the sales mix has shifted in favour of traditional policies. Unlike Ulips, where up to 95 per cent of the funds can be deployed in equity, traditional plans cap equity exposure at 25 per cent.

Subsequently, during 2011-12, net investment by life insurers in equity stood at Rs 26,990 crore compared with Rs 30,565 crore in the previous year. “In 2009-10, the net buying done by life insurers was Rs 65,411 crore," Mathur noted.

“During the 2008-09 financial crisis, when foreign institutional investors withdrew Rs 46,000 crore from equity

markets, Indian life insurers had invested Rs 55, 000 crore, reducing volatility in the equity markets."

Though the new business premium collection was down nine per cent during 2011-12, total premium collection for the industry was down three per cent, courtesy a positive inflow in the renewal premium collection.

This was for the first time since the opening of the life insurance sector that the premium collection had shrunk.

The current financial year has seen a continuation of the downward trend, with a choppy equity market and high inflation adding to the woes.

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