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.

PNB shortlists Aviva, MetLife & Bharti Axa for Life Venture

Punjab National Bank, a state-run lender, will choose from a list of life insurance companies - Bharti Axa Life, Aviva Life and MetLife - to buy an equity stake, after dropping Reliance Life and Birla Sun Life , among others, from potential investments. The bank will call for commercial bids this week and evaluate on the tie-up.

The bank will finalize a partner based on the evaluation of the proposals submitted by these insurance companies. "We had divided the companies in three bands. Aviva, Bharti Axa and MetLife are in band 1. We will call for commercial bids this week and decide on a partner," said PNB chairman KR Kamath. Sources close to the development said the bank was interested in taking a substantial stake, and therefore , opted for smaller companies.

In order to achieve scale within the new distribution cost structure prescribed by the regulator, the smaller players are willing to offer a high stake. Off late, it has become essential for insurers to bring down their distribution cost. Bancassurance provides low cost of distribution as insurers sell policies through bank branches. Aviva, MetLife and Bharti Axa had a market share of 2.4%, 2.1% and 1.4%, respectively, at the end of February.

On a year up to February, Aviva saw its new business income slip by 13% while MetLife saw a drop of 45% in new business income. Bharti Axa Life Insurance registered a fall of 1.4% in income by selling new policies. Mr Kamath said the bank would look at non-life venture after forming a life insurance venture.

LIC, Bharti AXA & HDFC Standard represent IrDA

Apex insurance controller Insurance Regulatory & Development Authority (Irda) has said, on the rural sector front, all 21 life insurers have satisfied their obligations, except HDFC Standard.
The number of policies underwritten by them in the rural sector as a per cent of the total policies underwritten in the year 2008-09 was as per the obligations appropriate to them.
However, Life Insurance Corporation (LIC) is non-compliant with its obligations in the rural sector as it underwrote a lower number of policies, than the arranged 25 % during 2008-09.
In case of social sector obligations, all the 21 private life insurance companies fulfilled their obligations during 2008-09. The number of lives covered by them in the social sector was above the fixed obligations. LIC Policy complied with its social sector obligations and covered more lives than the prescribed 20 lakh for 2008-09.
In case of general insurance industry for the rural sector, obligations division out of the 15 private sector non-life insurers except Bharti AXA Insurance & Apollo DKV, all others met their rural sector obligations in 2008-09.
The gross direct premium underwritten by them in the sector, as a percentage of total premiums underwritten in 2008-09, was above the approved terms.
All the four public sector insurers have complied with the rural sector obligations for 2008-09, with 7% of the quantum of Insurance business carried by them for the period.
In case of social sector obligations, all private sector non-life insurers, except Bharti AXA & Apollo DKV, met their obligations for the period.
Meanwhile, as on March 31, 2008, there were 1,017 complaints pending with the authority for want of resolution by Life Insurance Companies.
During 2008-09, Irda received 1,794 complaints, out of which 481 were related to LIC and 1,313 to private sector insurers. While private life insurers have resolved 83.47% of the complaints registered, LIC has resolved 84.05% of the complaints filed against it with the authority.
458 complaints were still pending with the insurance companies as on March 31 last year.