The sluggish life insurance sector may be headed for better times
A series of investor-friendly rules framed by the Insurance Regulatory and Development Authority (IRDA), coupled with lacklustre equity markets over the past one year, is choking the life insurance industry. During April-May 2011, first premium income for private insurers fell 23 percent while that for Life Insurance Corporation, the biggest and only state-owned life insurer, went down by 8 percent.
Much of the crash can be blamed on the industry’s over-reliance on a single product, unit-linked insurance plans (ULIPs). ULIPs accounted for more than 90 percent of revenues, but tighter regulations caught the industry napping. Beginning September 2010, the IRDA cut commissions and made ULIPs — which offer life cover with a chance to profit from the stock market — more transparent and customer friendly. Private companies that rely on independent distributors have been hit hardest as the distributors do not want to settle for the lower commissions. Commissions on first-year premiums — sometimes close to 40 percent but generally about 20 percent — have fallen to about 12 percent.
(This story appears in the 29 July, 2011 issue of Forbes India. To visit our Archives, click here.)