Insurance products with an innovative touch

In the last six years, the insurance sector has introduced innovative products. The wide range of products are designed as per the needs of the people. Here are some of the interesting insurance products offered by different insurers.

General insurance
Event cancellation insurance:
It is designed to cover loss caused in case an event gets cancelled, relocated or postponed for defined triggers. Events like musical concerts, dance programmes, weddings and cricket matches can be covered under this product. Premium charged differs as the risk associated with each event is different. Poor weather conditions, non appearance of the performers and relocating the events due to security reason are a few triggers which may lead to cancellation of events. This insurance also covers public liability policies, where it can cover for any liability on the host or event planner for causing bodily injury or property damage to the guests at the venue. For wedding insurance, the premiums range between Rs2,200 and Rs8,200, where the cover is anywhere between Rs20 lakh and Rs73 lakh.

Card sure package policy: This covers customers of banks, financial institutions and customers from any other banking and financial service Industry (BFSI) which provide a credit, debit, ATM (automated teller machine) or any other cards launched by them. A person will be covered if he is a customer, account holder, unit holder (in case of mutual funds) or has taken loan from that respective financial institution. The policy offers combinations of coverages and the insured can opt for the relevant sections depending on the coverage requirements and limit of liability required by the insured. The premium ranges from Rs3 to Rs1000, where as the sum assured offered is from Rs10,000 to Rs50 lakh.

Life insurance VIP (Variable insurance plan): VIPs are modified form of universal life plans. VIPs ensure guaranteed returns like traditional plans. It has a more transparent charge structure as one knows the amount deducted from his premium before the balance amount is invested. In Ulips (unit-linked insurance plans) too the transparency is ensured but the benefits are market linked and hence, it depends on the market movements. In VIPs, the rate of interest is declared at the end of the year and is used to calculate the year-end fund value.

“The product is good for people having a low risk appetite,” Suresh Sadagopan, Ladder7 Financial Services, said.

Life stage based products (LSBP): The emergence of LSBPs ensures the fulfillment of specific customer needs falling into various age groups. Child plans and retirement plans fall under this category. Child plan covers the risk and helps parents in keeping sufficient amount for their child’s future. Both, traditional and Ulip plans are available under this. Increasing longevity and rise in cost of living makes people worried about their retirement hence, making retirement products more popular.

“Child plans seem to have taken off as majority of parents are keen on insuring their children and ensuring their financial security,” says V Viswanand, director and head- product management, Max New York Life.

Highest NAV (net asset value) guarantee: The rising concern of the customers during the financial crisis has led to the design of such a product. It provides security against the market fluctuations. It is a typical Ulip (unit-linked insurance plan) which gives returns on the performance of the fund’s NAV. Under this plan, even though the NAV is low on the maturity date, policy holder will be entitled to receive the maturity amount on the basis of highest NAV. In this plan, the fund is proportionally divided into equity and debt market. When the highest NAV under the plan is reached, it is secured by shifting equity proportion to debt and by doing so the customer will get the highest NAV on maturity. But it cannot promise a high return. People who are risk averse can opt for this plan and it is costlier than a normal Ulip.

Life insurance cos premium income slips 28%, non-life cos see 22% growth in Q1

The life insurance segment has reported a 28% fall in premium income during the first quarter of 2011 compared with its non-life counterparts which registered a robust 22% growth during the period, according to data compiled by Irda. Growth in premium income for non-life companies during the previous corresponding period was a shade lower at 21%.

The numbers indicated that public sector insurers -New India Assurance, United India Insurance, Oriental Insurance and National Insurance - registered a collective growth of 19% during the quarter against a 22% growth in the previous corresponding period.

In the life insurance sector, LIC witnessed a 29% decline compared with private life insurers' 27% fall. Experts feel the introduction of a host of guidelines for Ulips and the subsequent withdrawal of policies last September are showing their gradual effects on the segment.

Private companies in the non-life segment, including the three standalone health insurers, registered a 27% growth in Q1 against 21% in the previous period. The only company that registered a fall in premium income is Agriculture Insurance of India (-2%). Nevertheless, private companies now command close to 43% of the total market share while public sector companies hold 56%. The rest belongs to Export Guarantee Corporation and Agriculture Insurance of India.

PNB buys 30% stake in MetLife India

Public sector Punjab National Bank (PNB) has decided to acquire 30 per cent stake in MetLife India, an affiliate of MetLife Inc, and become a joint venture partner in the life insurance company. Following the closing of the transaction, the joint venture will rebrand as PNB MetLife o leverage the strengths of the two brands in the Indian market.

PNB started the process in December last year when it invited expression of interest from insurance companies across the world.

The bank received responses from 26 Indian and international companies proposing different models.

After evaluation of the various models, the bank opted to participate in a brownfield venture by acquiring stake in an existing Indian life insurance company. Accordingly, RFP was issued to 10 Indian insurance companies which had proposed this model. The bank shortlisted three life insurance companies after evaluating the technical bids: Bharti AXA, Aviva and MetLife, and based on the financial bids accepted MetLife India’s offer. PNB did not reveal the financial details of the deal. The transaction is subject to approvals from the Irda, the Reserve Bank of India and other regulatory bodies.

PNB, Metlife partner for life insurance venture

The country's second largest public sector lender, Punjab National Bank (PNB), today said it has selected Metlife as its partner for a proposed foray into the life insurance segment.

"We have considered offers made by various companies and selected MetLife as our partner," PNB chairman and managing director KR Kamath told reporters here after announcing the bank's quarterly numbers.

PNB had earlier shortlisted 10 entities from a preliminary list of 41 and further narrowed it to three for forming a partnership in the life insurance venture.

The three shortlisted life insurers were Bharti AXA, Aviva and Metlife.

Metlife India stakeholders include Jammu and Kashmir Bank, Shapoorji Pallonji and other investors, besides Metlife of the US.

Last year, PNB announced plans for a strategic partnership with an insurance player. The bank said it has decided to participate in the life insurance venture through "a corporate agency tie-up along with equity participation in an existing Indian life insurance company".

PNB is among the few banks with a large branch network that do not have a stake in a life insurance company.

Last year, PNB decided to part ways with its foreign partner in a proposed life insurance joint venture it set up four years ago.

PNB bought the entire 26% stake held by Principal Financial Group and the 32% participating interest of domestic firm UK (Berger) Paints in Principal PNB Life Insurance Company.

PNB's stake in the proposed joint venture was 30 per cent, while that of Vijaya Bank was 12%.

Max New York Life expects new Ulip norms to dent its margins

Max New York Life Insurance, a private insurer, is expecting a significant fall in business margins and profitability after the new unit-linked insurance plan (Ulip) norms became operative beginning September 2010.

“At a time when the industry is struggling with regulatory changes, we have done very well. But, certainly, there will be an impact on margins. Even though we have done better than the industry, we expect margins to fall from 19 per cent last year to 13 per cent,” said Rajesh Sud, CEO, Max New York Life Insurance.

In a bid to put a break on the rampant misselling of Insurance products by companies and insurance agents, the Insurance Regulatory and Development Authority (Irda) tightened the guidelines for Ulips.

These guidelines made previous Ulip schemes sold in the market redundant and the insurers were asked to launch Ulips based on revised norms. Till last year, 90 per cent of new business sales of life insurance industry came from Ulips. Now, share of Ulips in overall sales has fallen to 70-75 per cent. These new guidelines squeezed excess margins from insurance companies and forced insurers to look beyond Ulips.

Max New York Life Insurance received total new business premium of Rs 2,059.33 crore in financial year 2010-11, compared with 1,847.77 crore in the previous year. Max New York Life has done better than the life insurance industry due to lesser dependence on Ulips. The company gets more than 40 per cent of new business premium from traditional plans.

Max New York Life is also expecting to wipe out its accumulated losses of Rs 800 crore and break even by 2013.

Bajaj Allianz declares Bonus Rates for FY 2010-11

Bajaj Allianz Life Insurance has declared the bonus rates for its participating policies. The bonuses are calculated by applying the bonus rates on the sum assured plus already attached bonuses of the policy and in most cases are payable on maturity or surrender of the policy or on death of the life assured.

The compound reversionary bonus rates (CRB) for FY 10-11 for some of the popular products are given below.

Product Name	Compound Reversionary Bonus Rate*	Terminal Bonus Rate**
Bajaj Allianz Super Saver	1.25%	0.5%
Bajaj Allianz Child Gain	2.50%	1.5%
Bajaj Allianz Invest Gain	2.25%	0.5%
Bajaj Allianz Super Cash Gain Insurance Plan	2.25%	0.5%
Bajaj Allianz Cash Rich Insurance Plan	3.00%	0.5%

* Compound Reversionary Bonus (CRB) is calculated as a percentage of Sum Assured plus all previously accrued bonuses.

** Terminal Bonus is calculated on the sum assured and for each completed year of the policy subject to at least 5 years and is payable on maturity or death during the FY 2011-12.

Example of Compound Reversionary Bonus Rate vs Simple Reversionary Bonus Rate
let’s take the example of Bajaj Allianz Cash Rich Insurance Plan. For this plan, the declared Compound Reversionary Bonus (CRB) is 3.00% in FY 10-11, as mentioned above. If we take a policy of sum assured of Rs.10, 00,000 and premium paying term of 30 years and assuming the company will declare same CRB rate every year, the total accrued CRB will be Rs. 14, 27,262 at the end of 30 years. The bonus rate if declared as Simple Reversionary Bonus, then the equivalent rate will be Rs. 4.758% or Rs. 47.58 per 1000 sum assured at the end of the 30 years.

Other Notes

· A participating policy (often referred as par policy) or with-profits policy is an insurance contract that participates in the surplus generated in the participating fund. The insurance company aims to distribute part of its surplus to the with-profits policyholders in the form of a bonus attached to their policy.

· How insurer declares bonus - The bonus rate is decided after considering a variety of factors such as the return on the underlying assets, the level of bonuses declared in previous years and other actuarial assumptions (especially future liabilities and anticipated investment returns), as well as marketing considerations.

About Bajaj Allianz
Bajaj Allianz is one of the leading Private Sector life & general insurance companies in India. Bajaj Allianz is a union between Allianz SE, the world’s leading insurer and Bajaj Finserv Limited (financial arm of Bajaj Group). Allianz SE is a leading insurance conglomerate globally and one of the largest asset managers in the world, managing assets worth over a Trillion Euros (over Rs. 55, 00,000 crores). At Bajaj Allianz, customer delight is our guiding principle. Ensuring world class solutions by offering you customized products with transparent benefits supported by the best technology is our business philosophy. Bajaj Allianz began its operations in 2001 and today has a pan-India presence with over with offices and presence in over 1100+ towns in the country. The companies have been constantly expanding its operations to be close to their customers. Bajaj Allianz Life Insurance has developed insurance solutions that cater to every segment and age-income profiles. Currently Bajaj Allianz has a strong product portfolio of over 30 flexible products and caters to all kinds of customer needs from ULIPs to Child plans, from group insurance to health insurance.

Sovereign guarantee for all policies issued by LIC will continue

Sovereign guarantee for all policies issued by Life Insurance Corporation (LIC) will continue, a government official said, allaying fears of millions of clients of the country’s largest life insurer.

The government has decided to drop a clause from the Life Insurance Corporation (Amendment) Bill 2009 that suggested limits on the sovereign guarantee available to the country’s largest life insurer.

“It has been decided to continue with government guarantee to LIC,” the official told ET.

The government has also decided to retain a clause that allows the insurer to regulate the terms and conditions of its agents and the recruitment procedure for employees and agents. The provision gives the insurer powers to decide on the commission benefits of over 14 lakh agents.

The finance ministry has circulated a draft cabinet note on the changes to be made to the legislation before it is taken up for approval in the monsoon session of Parliament.

LIC, which is governed by a 50-year-old Act, has government backing for all its policies. The public-sector behemoth had 65% market share in first-year premium and 70.8 % share in total policies in 2010. The insurer sold over 37 million policies in the last fiscal.

The relaxation in sovereign backing comes despite the government tightening conditions under which such guarantee can be made available.

The Standing Committee on Finance had strongly opposed the provision in the Bill that empowered the government to limit the extent of sovereign guarantee.

The amendment Bill was reintroduced by the finance minister after it lapsed following the dissolution of the previous Lok Sabha.

The dropping of the clause, seen smoothening the passage the Bill in Parliament, comes amid stiff opposition from private-sector players. State backing for LIC has also been criticized by the Insurance Regulator Development Authority for not allowing a level playing field.

In the Union Budget for 2011-12, the government disclosed for the first time the total financial guarantees given, in order to present a clearer picture of its financial position.

The clause allowing the insurer to frame rules for its agents and the method and decide on the recruitment process of staff had not found favour with the parliamentary panel and insurance agents.

However, the official said, “The corporation should have powers to decide about the welfare of its agents and employees.”

A petition was filed in the Supreme Court challenging the bill but was rejected by the court.

The bill seeks to raise the capital base of the state-owned insurer to 100 crore from 5 crore, bringing it on a par with private insurers, both in life and non-life segments, which are required to have a minimum capital base of 100 crore as per IRDA norms.

The bill also seeks to allow LIC to allocate 90% or more such surplus – excess of assets over liabilities – for life insurance policy-holders and the rest to a separate account maintained by LIC.

The account would be utilised by the government for any purpose it decides on, while the rest would be paid as dividend. At present, the insurer is required to set aside at least 95% of the surplus, while rest goes to the government.

Aegon Religare to offer more online products

In the backdrop of positive response received for its online unit-linked products, iTerm and iMaximise, Aegon Religare Life Insurance (ARLI) today said it was planning to launch several Internet offerings over the next few months.

"After the success of iTerm, we launched our second unit-linked on-line product iMaximise for High Networth Individuals through invitation strategy at February end. Till date, we have received Rs 8.71 crore as premium," AEGON Religare Life Insurance Company Chief Marketing Officer Yateesh Srivastava told reporters here.

After success of both iTerm and iMaximise, the company is planning to come out with several on-line products offerings over the next few months, he said.

"We have already filed one on-line health product with the regulator awaiting their approval. We are also planning on one protection product and a few hybrid offerings," Srivastava added.

About 10 per cent of the company's business comes from the on-line offerings, while the rest 90 per cent from the off-line products.

AEGON Religare Life Insurance has 16 off-line products and is also aiming at around 10 percent growth from its on-line product offerings, the chief marketing officer said.

Insurance regulator slaps Rs 70 lakh fine on SBI Life

Insurance regulator Irda on Friday imposed a fine of Rs 70 lakh on SBI Life Insurance for paying excess commission to the agents in violation of the group insurance guidelines.

"Considering the gross and continued nature of the violations, the Authority has come to the conclusion that it is just and proper to impose a penalty of Rs 5 lakh each for such payments made in 14 instances to Corporate Agents and Master Policy Holders totalling Rs 70 lakh," Irda said in an order.

The Insurance regulatory and development Authority (Irda) said that as per the guidelines, SBI Life was required to pay group administration expenses to Master Policyholders.

Under the guidelines, insurers can pay commission only to agents or corporate agents within the limits prescribed by the Authority.

SBI Life, Irda added, has paid commission to 14 master policyholders in violation of the guidelines.

"The insurer has failed to adhere to the guideline every time such payment is made," added the order, issued by Irda Chairman J Hari Narayan.

SBI Life Insurance is a joint venture between State Bank of India and BNP Paribas Cardif. SBI owns 74 per cent of the total capital and BNP the remaining 26 per cent.

To go for a rider or a cover

While riders come cheap, stand-alone policies provide comprehensive insurance

When Ashish Patkar wanted to buy an accidental death-benefit policy, he had the option to do so from a life insurer or a general one.

While the former offered it as a rider or extra benefit along with the base policy, the latter was selling it as a separate policy. As Patkar found, there are differences in the coverage and premium offered by the two. However, critical illness is a benefit common to both.

SOME DECIDING FACTORS

Riders cheaper than stand-alone policies Premiums for critical illness based on age and medical history Riders offer limited benefits compared to stand-alone policies Riders get discontinued when polices lapse or are surrendered

Riders cost less than standalone policies. It would cost Patkar just Rs 450 annually for buying an accidental death rider, offering a sum assured of Rs 5 lakh for 10 years. However, the same from a general insurer would cost him an annual Rs 3,000 for 5 years.

“Riders from life insurers do not have any expense loading on the rider premium as the same has already been claimed for the base policy. However, expense loading is charged separately in a standalone policy, making it expensive,” says, Rajeev Kumar, vice-president (products & pricing), Bharti Axa Life Insurance.

In case of critical illness riders and policies, age is a deciding factor for the premium you end up paying. “Those in the lower age group, or, with a clean medical history can buy it cheaper. However, even here, a rider will cost you less than a standalone policy,” says, Abhishek Bondia, business head, Secure Now Insurance Broker.

So, for a 25-year-old, when bought from a non-life insurer, a critical illness cover for five years will cost Rs 2,534 for coverage of Rs 5 lakh. In contrast, the same bought as a rider will cost Rs 1,355 for a period of 10 years.

Also, premiums for riders remain constant for the full term of the policy, unless specifically mentioned in the contract. Most non-life insurers offer polices on an annual, three-year, or, a maximum five-year period. So, the premium on your general insurance policy changing is likely to change more often.

According to insurance regulations, the sum assured for riders isn’t allowed to exceed that of the base plan. Also, rider premiums cannot exceed 30 per cent of the base premium.

Yet, within that, one could actually increase his/her sum assured using a rider. So, if a 35-year-old buys a policy offering a sum assured of Rs 25 lakh and also opts for an accidental death or disability rider of Rs 25 lakh, he will get Rs 50 lakh in the event of death due to an accident. This would come at an additional premium cost of about Rs 2,000 over the approximate Rs 12,000 he would pay for his base policy.

Other than cost, one also neds to look at the cover offered by a rider, as against a standalone policy. For instance, opting for an accidental death benefit comes into force only if the death has occurred due to an accident. But, the same policy from a general insurer might be more useful as it covers both partial and full disability in the event of an accident. Some life insurers have introduced a separate death and disability rider to meet the competition head on. However, even these cover just permanent partial and total disability.

In case of critical illness, both life and general insurers cover around 10 ailments. Again, product innovation has seen some life insurers introducing critical illness products covering almost 30-plus ailments. These are sold as standalone products and are rather expensive.

Both life and general insurers have mandatory medical tests only for first-time buyers of critical illness plans or riders.

But, one of the biggest disadvantages of buying a rider vis-à-vis a stand-alone policy is that riders automatically get discontinued when base policies are surrendered or lapse.

Birla Sun Life launched two variants of term plans

Private insurer Birla Sun Life Insurance (BSLI) on Thursday launched protector plans in two variants.

BSLI Protector Plan and BSLI Protector Plus Plan offer flexibility to customers by giving them the option to hike their sum assured over a period arising out of increasing responsibilities and inflation, at no extra cost, the company said in a release here.

"Keeping the customer needs in mind for a term plan that can grow with growing responsibilities, BSLI has introduced Protector Plans that aim to ensure a family's financial security as per their evolving life cycle needs at affordable cost," BSLI Chief Financial Officer and Head - Institutional Sales Mayank Bathwal said.

Both plans offer customers the flexibility of opting for a constant or increasing sum assured at inception.

Customers, who opt for an increase in sum assured, will have the option of increasing it by 5 per cent or 10 per cent every year, in order to factor in growing needs and responsibilities. On every policy anniversary the sum assured increases by 5 per cent or 10 per cent, the release said.

BSLI is a joint venture between Aditya Birla Group and Canada-headquartered international financial services company Sun Life Financial Inc.

The private insurer's asset under management was Rs 19,760 crore and it has a capital base of over Rs 2,450 crore as of March 31.

High sum assured may not give enough cover

The policy, as the name suggests, provides term insurance to senior citizens.The minimum and the maximum entry age are 50 and 85, respectively. Though the product offers a whole life cover, it does not ask buyers to undergo medical tests. The premium paying term, though, will end at age 90.

The company offers a maximum sum assured of Rs 5 lakh. The minimum sum assured is as low as Rs 2,338. Both these apply only two years after the policy has been bought. If the policyholder dies before two years, the dependents will be paid 125 per cent of the total premium paid till date.

But despite the bonus of 25 per cent over the premium paid, the product is expensive, as compared to other term plans available. The annual premium for a 50-year male seeking maximum cover under IDBI’s Termsurance Seniors Insurance Plan is Rs 18,195. If the same cover is bought at the age of 85, it will cost Rs 213,890. The same person can buy a 10-15 year simple term from other insurers at Rs 6,000 annually.

However, there are differences in the features offered by the senior’s insurance plan that make it difficult to compare the product with other term insurance in the market. The maximum entry age for most term insurers is 65 years and they do not extend cover beyond age 75. Also, no term insurer gives a whole life cover.

Those available today are offered by traditional and unit-linked insurance plans. While the waiver of medical tests is allowed by insurers, especially for the smaller sum assured of Rs 5-10 lakh, buyers in the 60-plus age bracket have to go through with it.

The company has positioned the product for people nearing retirement and with inadequate insurance to support kin after their demise. Experts feel senior citizens opting for the policy would require an income stream even after retirement.

If the buyer opts for the minimum sum assured at the minimum entry age of 50, where he needs to pay premiums as low as Rs 1,000 annually, the amount still might not suffice. This may limit the number of takers for the product, unless it is targeted at those in the lower income bracket.

PNB to finalise life insurance joint venture

Public sector Punjab National Bank (PNB) is likely to firm up its life insurance foray by this September, said a top official here Wednesday.

‘We are looking to tie with an existing life insurer, and have shortlisted companies like Aviva Life and Metlife Insurance,’ K.R. Kamath, chairman and managing director, told reporters.

With public sector banks like State Bank of India, Canara Bank, Oriental Bank of Commerce, Bank of India and others having a major presence in the life insurance sector leveraging their vast branch network, it is logical for PNB to look at the sector.

The bank was also in talks with Bharti Axa Life. However, the Bharti group recently announced its stake sale to Reliance Industries.

According to Kamath, the pressure on the net interest margin (NIM) due to upward revision in interest rates by the Reserve Bank of India (RBI), the PNB is not looking at increasing its non interest income through loan syndication activities and others.

PNB has syndication cells in New Delhi, Chenai and Mumbai and has done a business of around Rs.60 crore.

IRDA scraps profit rule for life insurance IPOs

The insurance regulator has scrapped the minimum three year profitability clause for life insurers to float initial public offerings, throwing a lifeline for many companies that would have struggled for capital. The Insurance Regulatory and Development Authority, or Irda, took the decision in a recent board meeting, two people familiar with the matter said.

The decision to do away with the requirement, which was part of the draft guidelines for IPOs, follows lobbying by insurance firms that the absence of higher foreign investment and access to public funds could cripple their businesses.

This would be a relief to a number of insurance companies such as ICICI Prudential, HDFC Life and Max New York Life, which have been in operation for 10 years but do not have a three-year profitability record. "The industry raised concerns on the profit requirement,'' said an Irda official who did not want to be identified.

"We are addressing them." IPO norms for life insurance companies have been dragging on for years as Irda debated how to be in line with the requirements stipulated by the market regulator and also facilitate fund-raising by insurers. Insurance officials believe their business is unique and can't be clubbed with other businesses for which the Securities & Exchange Board of India sets rules. Foreign direct investment in insurance is promised to be increased to 49% from 26%.

Valuing insurance companies in India may become tricky with some arguing they are at a growth stage and the market has huge potential. While insurers may look for high valuations due to market potential, their losses could be talked down as it happened in the case of dotcom companies. The insurance regulator had prescribed a minimum embedded value for which the insurers objected to and sought flexibility.

Embedded value is the current value of future profits of a company. "Embedded value cannot be the magic ratio. Minimum stipulations do not help investors to take a decision. There are other factors like persistency, conservation ratio, productivity of the sales force, new business written and the analysts report investors can look at," said Sanjiv Pujari, appointed actuary at SBI Life

Bharti AXA Life Insurance launches Monthly Income Plan

Private insurer Bharti AXA Life Insurance today launched a traditional participating money-back plan - 'Bharti AXA Life Monthly Income Plan'.

"Bharti AXA Life Monthly Income Plan is the first regular monthly income product in our portfolio. This is in line with our brand positioning of 'Jeevan Suraksha ka Naya Nazariya' that has customer centricity and trust at its core," company Chief Marketing and Operations Officer Mark Meehan said in a statement issued here.

From a financial perspective, he said, a supplementary income can help bridge the gap in meeting the intended goals.

Bharti AXA Life Monthly Income Plan guarantees the policyholder additional monthly income.

The plan also provides the policyholder with life cover, financially protecting the nominee, in case of the unfortunate death of the policyholder.

The private life Insurance company is a joint venture between Bharti Enterprises and AXA, leading financial protection and wealth manager.

SBI Life launched variable insurance plan

Private sector SBI Life on Monday launched a variable plan, which aims to provide stable returns to investors.

The variable non-participating insurance plan — Flexi Smart Insurance — would provide safety for customer’s investment and stable returns to risk-averse customers having preference for non-market linked plans, SBI Life said in a statement.

A customer would have to pay a minimum premium amount of Rs 1,500 per month to subscribe to the plan, with an option to pay premiums at yearly, half-yearly, quarterly or monthly.

The product would give investors an option to change the sum assured and flexibility of premium payment and interim and additional interest rates.

“We will continue to strengthen our simple and smart series so as to cater to the protection and savings needs of multiple customer segments with varied risk— appetite,” SBI Life MD & CEO M.N. Rao said.

The premiums paid by the policyholder will earn an interim interest rate of 7 per cent during the financial year 2011-12 and the additional interest rate would be declared at the end of the financial year.

In November last year, the IRDA had barred life insurance companies from selling Variable Insurance Products (VIPs), which have greater flexibility over traditional plans, as unit-linked products (ULIPs), which invest major portion of money in capital markets.

VIPs, earlier known as Universal Life Products (ULPs), have greater flexibility over traditional plans and insurance companies used to mix the traits of ULIPs into VIPs.

SBI Life is the first private life insurer to launch a VIP and it becomes the second VIP to be available in the market after LIC Bima Account 2.

During the last financial year 2010-11, SBI Life Insurance posted a 33 per cent increase in net profit at Rs 366 crore, up by 33 per cent. Its total premium collection grew 28 per cent to Rs 12,912 crore.

As of May 2011, SBI Life is the largest private sector players with a market share of 19.84 per cent. In the life insurance market it has a total share of 4.83 per cent.

SBI Life Insurance is a joint venture between State Bank of India and BNP Paribas, wherein SBI owns 74 per cent and BNP Paribas the remaining 26 per cent.

Riders get rewarding for life insurers

Life insurance companies and agents are looking at life beyond strict regulatory guidelines. Lending a helping hand are ‘riders’, that is, the add-ons with the base policy.

Since last September, when the Insurance Regulatory and Development Authority (Irda) capped distribution costs of unit-linked insurance plans (Ulips), the number of policies with riders being sold had risen from 5 per cent of the total to 20 per cent, said insurers.

Mayank Bathwal, chief financial officer & head (institutional sales), Birla Sun Life Insurance, said the company saw close to 36 per cent increase in demand for policies with riders in the September-March period as compared to the previous year. The number continues to rise. He said customisation and flexibility had become the focus.

Riders are an alternative source of income. So both insurers and agents are happy pushing these. After Irda capped the commission to agents for selling Ulips, most of them get 5-10 per cent of the first year’s premium instead of the earlier 25-30 per cent. By adding riders, they can raise their income significantly. They earn 22-25 per cent on riders, say industry players.

A number of riders can be purchased. These include surgical care, hospital care, and waiver of premium care, critical illness, accident benefit, permanent disability benefit and guardian benefit. The cost of riders can range from 2-20 per cent of the policy premium. Irda has said the total premium for riders cannot be more than 30 per cent of the base policy premium.

“While riders were always there, they were not being sold aggressively by agents before the Irda guidelines on Ulips came into force,” said Rajeev Kumar, vice-president, product & pricing, Bharti Axa Life Insurance.

Kumar says customer profiling shows that policyholders are more likely to continue a policy that has riders.

For some life insurance companies, the sale of riders has increased significantly. For instance, Kotak Life sold 70,000 riders in 2010-11 vis a vis 21,000 in 2009-10.

Riders offer customers extra benefits with the base plan. Taking a rider can increase benefits at a low cost. A 30-year male buying an endowment plan for 30 years, for a sum assured of Rs 5 lakh, can buy a term benefit or a life guardian benefit rider for 18 per cent and 6 per cent policy premium, respectively.

This gives an additional Rs 5 lakh cover in case of disability due to accident. In case of death, the premium will be waived.

Last September, Irda capped commissions and increased the lock-in period of Ulips from three to five years. It capped the sum assured at 10 times the premium for pension products. This resulted in a sharp drop in sales of Ulips, which accounted for more than 80 per cent sales of life insurance companies.