Private life insurers have seen their new business growth slow down to a mere 2% even as Life Insurance Corporation regained market share with a 23% jump in premium collections to Rs 86,444 crore for the financial year 2010-11. Life insurers have found it a challenge to grow business after new regulations came into effect from September 2010.
According to data collated by the Insurance Regulatory and Development Authority, private life companies' growth came from group insurance. They posted new business premium collection of Rs 39,281 crore. Premium from individuals, which excludes payments for group policies made by corporate, shrunk by 4% to Rs 3041 crore for the private life industry.
But Life Insurance Corporation (LIC) managed to beat the trend due to three factors; firstly, its economies of scale allow it to sell single premium policies. Secondly, it has a strong base of traditional products (non unit-linked plans) which were unaffected by the guidelines; and thirdly, its group retirement products have done very well.
Following the sharp growth in new business premium, LIC's market share in premium from new policies has jumped four percentage points from 64.86% in March 2010 to 68.7% in March 2011. The other companies among the top five in terms of market share include ICICI Pru Life (6.25%), SBI Life (6.01%), HDFC Life (3.23%) and Bajaj Allianz (2.75%)
For private companies, besides the inability to sell policies that were predominantly investment products, there were two other limitations. Most private life companies were under pressure from their promoters to shift focus from topline to profits after turning in losses for over eight years. Also, private companies were hit by their inability to sell pension plans which constituted a large chunk of their business.
The performance of the insurance industry this year comes out better than it actually is because IRDA numbers give full credit for single-premium policies. These are covers where premium for subsequent years is collected in the first year. If, like in other markets, the collection from single premium plans were annualized, the private life insurers would not have recorded any growth.
Last year, following charges by Sebi that life insurers were selling mutual fund schemes under the guise of unit-linked life insurance, the insurance regulator cracked down on life companies and came out with stringent norms. The new guidelines drastically reduced charges that companies could deduct from the investment component. They also forced insurers to offer a minimum level of insurance with every policy. Following the new norms, customers, particularly high net-worth investors, did not find it worthwhile to route their stock market investments through unit-linked policies. Pension plans, which constituted 30-40% of premium for several companies, also took a hit after IRDA made it mandatory for life insurers to guarantee a minimum level of return.
Showing posts with label Pension Plan. Show all posts
Showing posts with label Pension Plan. Show all posts
Tuesday, April 26, 2011
LIC regains market share, private company slip
Tuesday, August 10, 2010
Only for the risk-disinclined
Despite Irda’s good moves, insurance policies should be bought for cover, and not for investment.
Those planning to buy unit-linked insurance plans (Ulips) might as well wait for some time. This is because products launched from September 1 will be quite different from the existing ones
This is a crucial phase where the regulator, the Insurance Regulatory and Development Authority (Irda), and insurers are exchanging notes to fine-tune the products. Since June 28, when the first round of guidelines came, more changes have been introduced. Last week, Irda issued another set of clarifications that would change things further.
GUIDELINES
• 4.5 per cent guaranteed return for Ulip pension plan on gross premium till March 2011
• After March 2011, returns will be 50 basis points above the average of reverse repo rate at each quarter-end in the 3-6
per cent range
• Difference between minimum and maximum distribution charges to not be more than 1.5 times
• From 5th year onwards, minimum difference to be given on completed year
• Life cover on top-up premium to be based at the age of payment and not at the entry age
Pension plans
Pension plans will certainly look better. But, only for the risk-averse who have more than Rs 70,000 to invest annually. With a guaranteed return of 4.5 per cent on Ulip pension plans on gross premiums, returns will be higher than the existing savings deposit rate of 3.5 per cent.
But this 4.5 per cent will only be paid till March 11, 2011. After that, the returns will be linked to the reverse repo rate. Policyholders will get 0.5 per cent more than the average reverse repo rate at the end of each quarter. The regulator has asked insurers to give in the range of three-six per cent on pension plans after March 2011.
Since policyholders cannot withdraw money in the interim, liquidity could be an issue. For liquidity seekers, it makes sense to look at fixed deposits. State Bank of India is offering 7.25 per cent on five to eight years and 7.5 per cent on eight to 10 years deposits.
Also, most people already have exposure to the higher paying employee provident fund (8.5 per cent annually) and the public provident fund (8 per cent annually). But returns from these two can get capped as one can invest only up to Rs 70,000 annually. For ones who wish to invest more than this, this option could be good.
Costs
The newly-inserted clause...“the maximum and the minimum charges shall not vary by more than 1.5 times” should come as a relief.
For instance, if one considers a policy that was charging a premium allocation charge (PAC) of 50-60 per cent in the first three years, earlier, the cost in the first year could have been 30 per cent in the first year, 20 in the second and 10 in the third.
Now, because of the formula, the charge will be over five years. So, one could see numbers like these: If an insurer is charging, say, eight per cent in the fifth year, he cannot charge more than 12 per cent in the first year. Accordingly, PAC will be between a 44 and 56 per cent, spread over five years.
Besides the formula and spread over five years, the difference between the net and gross premium has to be maintained – four per cent in the fifth year (for a 10-year policy), 3.75 per cent in the sixth year, and so on.
“The regulator has also clarified that the minimum returns prescribed starting from the 5th policy year will be given on completed years,” said an actuary of a life insurance company.
Where the policyholder could possibly lose out is top-up premiums. In new guidelines, Irda said top-up premiums would be used to purchase an additional cover and not invested entirely. But latest clarifications specify that policyholders will not be allowed to pay top-up premiums in the first five years. After that, top-up premiums will be used to purchase cover, but according to the existing age.
As a result, the mortality rate will come into play. If a person purchases a policy at the age of 30 and starts top-ups at 35, he will have to pay higher mortality fees.
“The new notifications remove all ambiguity. Manufacturers cannot interpret the guidelines in their own ways. Of course, if the policyholder has a very long-term perspective, he should look at insurance.
Otherwise, if you have a horizon less than five years, mutual funds, bank deposits and the likes suit you,” said P Nandagopal, managing director & CEO, IndiFirst Life.
Those planning to buy unit-linked insurance plans (Ulips) might as well wait for some time. This is because products launched from September 1 will be quite different from the existing ones
This is a crucial phase where the regulator, the Insurance Regulatory and Development Authority (Irda), and insurers are exchanging notes to fine-tune the products. Since June 28, when the first round of guidelines came, more changes have been introduced. Last week, Irda issued another set of clarifications that would change things further.
GUIDELINES
• 4.5 per cent guaranteed return for Ulip pension plan on gross premium till March 2011
• After March 2011, returns will be 50 basis points above the average of reverse repo rate at each quarter-end in the 3-6
per cent range
• Difference between minimum and maximum distribution charges to not be more than 1.5 times
• From 5th year onwards, minimum difference to be given on completed year
• Life cover on top-up premium to be based at the age of payment and not at the entry age
Pension plans
Pension plans will certainly look better. But, only for the risk-averse who have more than Rs 70,000 to invest annually. With a guaranteed return of 4.5 per cent on Ulip pension plans on gross premiums, returns will be higher than the existing savings deposit rate of 3.5 per cent.
But this 4.5 per cent will only be paid till March 11, 2011. After that, the returns will be linked to the reverse repo rate. Policyholders will get 0.5 per cent more than the average reverse repo rate at the end of each quarter. The regulator has asked insurers to give in the range of three-six per cent on pension plans after March 2011.
Since policyholders cannot withdraw money in the interim, liquidity could be an issue. For liquidity seekers, it makes sense to look at fixed deposits. State Bank of India is offering 7.25 per cent on five to eight years and 7.5 per cent on eight to 10 years deposits.
Also, most people already have exposure to the higher paying employee provident fund (8.5 per cent annually) and the public provident fund (8 per cent annually). But returns from these two can get capped as one can invest only up to Rs 70,000 annually. For ones who wish to invest more than this, this option could be good.
Costs
The newly-inserted clause...“the maximum and the minimum charges shall not vary by more than 1.5 times” should come as a relief.
For instance, if one considers a policy that was charging a premium allocation charge (PAC) of 50-60 per cent in the first three years, earlier, the cost in the first year could have been 30 per cent in the first year, 20 in the second and 10 in the third.
Now, because of the formula, the charge will be over five years. So, one could see numbers like these: If an insurer is charging, say, eight per cent in the fifth year, he cannot charge more than 12 per cent in the first year. Accordingly, PAC will be between a 44 and 56 per cent, spread over five years.
Besides the formula and spread over five years, the difference between the net and gross premium has to be maintained – four per cent in the fifth year (for a 10-year policy), 3.75 per cent in the sixth year, and so on.
“The regulator has also clarified that the minimum returns prescribed starting from the 5th policy year will be given on completed years,” said an actuary of a life insurance company.
Where the policyholder could possibly lose out is top-up premiums. In new guidelines, Irda said top-up premiums would be used to purchase an additional cover and not invested entirely. But latest clarifications specify that policyholders will not be allowed to pay top-up premiums in the first five years. After that, top-up premiums will be used to purchase cover, but according to the existing age.
As a result, the mortality rate will come into play. If a person purchases a policy at the age of 30 and starts top-ups at 35, he will have to pay higher mortality fees.
“The new notifications remove all ambiguity. Manufacturers cannot interpret the guidelines in their own ways. Of course, if the policyholder has a very long-term perspective, he should look at insurance.
Otherwise, if you have a horizon less than five years, mutual funds, bank deposits and the likes suit you,” said P Nandagopal, managing director & CEO, IndiFirst Life.
Monday, June 21, 2010
Heat up on insurance agents
Life insurance agents are probable to face difficult times.
The regulator has planned to make the norms for selling policies more stringent, while insurers are planning to update their tied agent force to increase productivity as their limits have come under pressure following rule changes over the past 12 months.
The insurance regulator has projected to amend the IRDA Regulations for Protection of Policyholders’ Interests so that the policies are sold based only on the need of the buyer.
The IRDA wants to make it compulsory for agents to prepare a “need analysis document” before selling a policy. “There should be a proper monitoring of implementation of the need analysis by insurers of all the intermediaries they deal through,” the regulator said.
It also said the training set of courses for agents should give high priority to the need analysis. “The regulatory changes will shake out the 30-lakh plus agency force in the life insurance industry,” said Shekhar Bhandari, business head (tied agency), Kotak Mahindra Old Mutual Life Insurance Company. “Not all of them will find it simple to stay in the business.”
According to Bhandari, insurers are feeling the heat of the changes in Ulip charges and others. “In 2008-09, insurers have rationalised their administrative and operating costs and expenses. We’ll have to focus on increasing the productivity of distribution channels,” he said.
Tied agents — entities selling products of one company — is the costliest sharing channel for an insurer. “Agents should now understand that they need to pull up their socks and get double the business to earn the same level of commission they had been earning so far,” Bhandari said.
Birla Sun Life Insurance Company’s chief financial officer Mayank Bathwal spoke along parallel lines. “Agency productivity has to be increased. Besides, an insurer also should look for innovative distribution channels which cost lower.”
The pending Insurance Bill also does away with Section 40A of the Insurance Act that prescribes commission. At present, an insurance company, which is yet to complete 10 years, can pay a maximum of 40(%) per cent commission on the first year premium income, 7.5(%) per cent on the renewal premium income for the second and third years and 5(%) per cent thereafter.
Insurers who have finished 10 years can pay a maximum 35(%) per cent as commission on the first year premium income, 7.5(%) per cent for the second and third years and 5(%) per cent thereafter.
For single premium policies, the commission is 2(%) per cent and it is 7.5(%) per cent for pension plans.
After the insurance regulator has put a cap on Ulip charges, the commissions in an Ulip become less than in a traditional plan.
The regulator has planned to make the norms for selling policies more stringent, while insurers are planning to update their tied agent force to increase productivity as their limits have come under pressure following rule changes over the past 12 months.
The insurance regulator has projected to amend the IRDA Regulations for Protection of Policyholders’ Interests so that the policies are sold based only on the need of the buyer.
The IRDA wants to make it compulsory for agents to prepare a “need analysis document” before selling a policy. “There should be a proper monitoring of implementation of the need analysis by insurers of all the intermediaries they deal through,” the regulator said.
It also said the training set of courses for agents should give high priority to the need analysis. “The regulatory changes will shake out the 30-lakh plus agency force in the life insurance industry,” said Shekhar Bhandari, business head (tied agency), Kotak Mahindra Old Mutual Life Insurance Company. “Not all of them will find it simple to stay in the business.”
According to Bhandari, insurers are feeling the heat of the changes in Ulip charges and others. “In 2008-09, insurers have rationalised their administrative and operating costs and expenses. We’ll have to focus on increasing the productivity of distribution channels,” he said.
Tied agents — entities selling products of one company — is the costliest sharing channel for an insurer. “Agents should now understand that they need to pull up their socks and get double the business to earn the same level of commission they had been earning so far,” Bhandari said.
Birla Sun Life Insurance Company’s chief financial officer Mayank Bathwal spoke along parallel lines. “Agency productivity has to be increased. Besides, an insurer also should look for innovative distribution channels which cost lower.”
The pending Insurance Bill also does away with Section 40A of the Insurance Act that prescribes commission. At present, an insurance company, which is yet to complete 10 years, can pay a maximum of 40(%) per cent commission on the first year premium income, 7.5(%) per cent on the renewal premium income for the second and third years and 5(%) per cent thereafter.
Insurers who have finished 10 years can pay a maximum 35(%) per cent as commission on the first year premium income, 7.5(%) per cent for the second and third years and 5(%) per cent thereafter.
For single premium policies, the commission is 2(%) per cent and it is 7.5(%) per cent for pension plans.
After the insurance regulator has put a cap on Ulip charges, the commissions in an Ulip become less than in a traditional plan.
Tuesday, June 8, 2010
Irda to control telemarketing of insurance
The Insurance Regulatory and Development Authority (Irda) has now planned to streamline the promotion of insurance products during distance sales channels, such as the telephone and the internet.
It has said it will subject rules in this regard and these will cover selling by ‘voice mode’, which includes telephone calls, ‘electronic mode’ (e-mails, internet and interactive television) and as well the ‘physical mode’, though postal mail and newspapers.
Web-based selling of insurance products is at an emerging stage in India. Although the volumes here are low, the regulator said the rule would cover distance marketing behavior of insurers, brokers at the stages of offer, negotiation and conclusion of sale. It has asked insurers to ensure every telecaller is trained either in-house or at an institute accredited for pre-license training of agents.
Moreover, insurers or brokers will have to get ready standardized scripts for presentation of benefits, features and disclosures under each of the products planned to be sold under telephonic mode. Irda wants the name of the insurer, name of the caller the language options available and the point of approach to be clearly highlighted.
The telecaller will have to ask if the customer is interested in continuing with the subject, and the process of solicitation should proceed further only if he gives his consent in explicit terms. There should be an exit option.
In case of life insurance, pension plan and other products with savings and investment components, the regulator says wherever the investment risk in the solicited product is to be borne by the client, this should be highly highlighted in the communication. The exact nature of the guarantee such as NAV guarantee, capital protection, etc and their implications will have to be clearly explained.
In addition, insurance brokers will be given the freedom to solicit insurance over distance mode. Brokers will, however, have to avoid promoting the products of any particular insurer or a few insurers exclusively, by symptomatic of a product that fits the client’s requirements.
The regulator said price comparison charts should be up to date. Brokers will not be paid any payment other than brokerage towards policies procured over distance mode.
Insurers will have to check the quality of sales through telephonic confirmation, post-sales, under all modes of marketing, including in-person and distance modes, by calling up not less than 20(%) per cent of all the policyholders every month.
It has said it will subject rules in this regard and these will cover selling by ‘voice mode’, which includes telephone calls, ‘electronic mode’ (e-mails, internet and interactive television) and as well the ‘physical mode’, though postal mail and newspapers.
Web-based selling of insurance products is at an emerging stage in India. Although the volumes here are low, the regulator said the rule would cover distance marketing behavior of insurers, brokers at the stages of offer, negotiation and conclusion of sale. It has asked insurers to ensure every telecaller is trained either in-house or at an institute accredited for pre-license training of agents.
Moreover, insurers or brokers will have to get ready standardized scripts for presentation of benefits, features and disclosures under each of the products planned to be sold under telephonic mode. Irda wants the name of the insurer, name of the caller the language options available and the point of approach to be clearly highlighted.
The telecaller will have to ask if the customer is interested in continuing with the subject, and the process of solicitation should proceed further only if he gives his consent in explicit terms. There should be an exit option.
In case of life insurance, pension plan and other products with savings and investment components, the regulator says wherever the investment risk in the solicited product is to be borne by the client, this should be highly highlighted in the communication. The exact nature of the guarantee such as NAV guarantee, capital protection, etc and their implications will have to be clearly explained.
In addition, insurance brokers will be given the freedom to solicit insurance over distance mode. Brokers will, however, have to avoid promoting the products of any particular insurer or a few insurers exclusively, by symptomatic of a product that fits the client’s requirements.
The regulator said price comparison charts should be up to date. Brokers will not be paid any payment other than brokerage towards policies procured over distance mode.
Insurers will have to check the quality of sales through telephonic confirmation, post-sales, under all modes of marketing, including in-person and distance modes, by calling up not less than 20(%) per cent of all the policyholders every month.
Wednesday, June 2, 2010
Hurry to sell Ulips in front of July 1
Insurance companies are in a hurry to sell as a lot of unit-linked plans as possible before the new strategy force them to package a life or health cover with these popular instruments that account for nearly half of their business.
Insurance executives think selling these policies will be difficult once the new guidelines planned by insurance regulator IRDA are introduced from July 1. Once the new norms are in force, agents will have to convince the customer to buy a health or insurance cover along with pension plans.
“It was an easy product to sell since you don’t have to ask the customer too lots of questions,” said the sales head at a leading insurance firm.
Some of the insurance companies and banks have revised sales targets and initiated incentive schemes such as foreign trips, easy loans and discounts to make sales. Unit linked plans constitute 46% per cent of the total business of insurance companies.
Pension products have been the favourite unit-linked products, as insurance cover was not compulsory with the policy. These were sold as an investment product wherein customer was currently given the option to surrender his policy after a 5-year lock in.
“Given this flexibility, it was easy for a customer as old as 70-years to invest in such plans. Besides the commission from selling a pension plan was more than that of other products,” said a relationship manager with a leading private sector bank.
Traditionally, all unit-linked plans are front loaded and an agent can earn a commission up to 20% per cent by selling such policies.
“This (the new norms) will need more documentation and if the amount is high then an income proof will also be necessary, which will deter customers,” said a sales head at an insurance firm.
As per existing laws, the insurance cover should be 5 times more than the premium paid.
Further, the new law will also limit the customer from surrendering their pension plans, as they will not get the full amount on surrendering their policy. The customers will only get one-third of the invested corpus and the rest amount through annuity or monthly/yearly payments.
Ashish Kapur, CEO of Invest Shopee, feels the new laws will aid the investor from needless buying an insurance product. “There was a lot of mis-selling earlier,” he said.
Of the Rs 2, 00,000 crore-plus life insurance premium collected in the first 11 months of 2009-10, more than Rs 91,000 crore came from Ulips, according to the Life Insurance Council of India, an industry body representing 23 life insurers
For More information about unit linked plan.
ICICI Pension Plan
LIC Pension Plan
Insurance executives think selling these policies will be difficult once the new guidelines planned by insurance regulator IRDA are introduced from July 1. Once the new norms are in force, agents will have to convince the customer to buy a health or insurance cover along with pension plans.
“It was an easy product to sell since you don’t have to ask the customer too lots of questions,” said the sales head at a leading insurance firm.
Some of the insurance companies and banks have revised sales targets and initiated incentive schemes such as foreign trips, easy loans and discounts to make sales. Unit linked plans constitute 46% per cent of the total business of insurance companies.
Pension products have been the favourite unit-linked products, as insurance cover was not compulsory with the policy. These were sold as an investment product wherein customer was currently given the option to surrender his policy after a 5-year lock in.
“Given this flexibility, it was easy for a customer as old as 70-years to invest in such plans. Besides the commission from selling a pension plan was more than that of other products,” said a relationship manager with a leading private sector bank.
Traditionally, all unit-linked plans are front loaded and an agent can earn a commission up to 20% per cent by selling such policies.
“This (the new norms) will need more documentation and if the amount is high then an income proof will also be necessary, which will deter customers,” said a sales head at an insurance firm.
As per existing laws, the insurance cover should be 5 times more than the premium paid.
Further, the new law will also limit the customer from surrendering their pension plans, as they will not get the full amount on surrendering their policy. The customers will only get one-third of the invested corpus and the rest amount through annuity or monthly/yearly payments.
Ashish Kapur, CEO of Invest Shopee, feels the new laws will aid the investor from needless buying an insurance product. “There was a lot of mis-selling earlier,” he said.
Of the Rs 2, 00,000 crore-plus life insurance premium collected in the first 11 months of 2009-10, more than Rs 91,000 crore came from Ulips, according to the Life Insurance Council of India, an industry body representing 23 life insurers
For More information about unit linked plan.
ICICI Pension Plan
LIC Pension Plan
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