Low Sales of Unit-Linked and Pension Products Drag Down New Life Premium in India

India's life insurance sector saw new business premium drop 21% to 490 billion rupees (US$9.4 billion) in the first half of 2011 fiscal year, which ended Sept. 30. The drop reflects the continuing slowdown of unit-linked insurance and individual pension products.

Lackluster performance by the pension segment dragged down new premium for the industry, said India'sLife Insurance Council in a statement. Total life premium dropped 2% to 1.2 trillion rupees in the first half.

Looking ahead, the life council said "the remaining second half appears to be better" based on the lackluster performance of the industry in last year's second half. However, it added "companies need to introduce new products at regular intervals to sustain the interest of consumers."

The Insurance Regulatory and Development Authority's recent guidelines on compulsory annuitization "may hamper growth of the industry," said S.B. Mathur, secretary general of Life Insurance Council. Insurers have to pay a positive return over a period of time and need to provide annuities for pension policies.

Data show that voluntary contributions to individual pensions have dried up, said Mathur. Not many insurers launched retail pension products due to concerns about their ability to offer guarantees and provide equity growth for policyholders under the current economic conditions.

In this first half, new business premium for individual pensions dropped to 6 billion rupees from 177 billion rupees a year ago. The individual pension segment had been a major contributor to new life premium, according to the life council. However, the share of new individual pension to total new life premium dropped to 1.2% in this first half from 28.3% a year ago.

IRDA recently introduced the flexible unit-linked pension policies. Private life insurers will be allowed to offer unit-linked pension policies with the flexibility to fix the guaranteed returns amid investment market uncertainty (Best's News Service, Nov. 15, 2011). Mathur said he welcomed these new pension guidelines.

However, companies need to widen products offerings and "there is a need to offer non-guaranteed pension products to investors who have a larger risk appetite," said Mathur. Total group and individual pension products account for about 28% of total new life business. India currently does not have any products offering long-term, interest-rate guarantee.

Renewal life insurance premiums rose 17% to 736 billion rupees in the first half, according to the life council. Renewal linked and non-linked premiums grew 5.5% and 24%, to 242 billion rupees and 494 billion rupees, respectively. The renewals growth indicated policyholders continue to have faith and confidence in life products, said the life council.

The persistency rate requirements will be effective for all corporate agency renewals effective July 2014. "Maintenance of records of policies sold and their persistency on a year-to-year basis needs to be compiled by all agents and life insurers as stipulated," said J Hari Narayan, chairman of IRDA in a recent statement.

The life industry added more than 5,400 direct employees and 26,000 new agents in this first half. Life insurers injected more than 327 billion rupees as capital. Investment in infrastructure by life insurers reached 2 trillion rupees.

In a recent draft on bancassurance guidelines, IRDA suggested banks continue to tie up with one insurance company in the life, nonlife and stand-alone health sectors but in a specified number of states. Banks may be allowed to sell products of multiple insurers in destined areas. The draft guidelines also allow banks to tie up with an additional nonlife company just to sell health insurance in case the existing nonlife insurers does not have any health products.

(By Iris Lai, Hong Kong bureau manager: [email protected])