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C. Shivkumar

BANGALORE, Dec. 26

FOR the new crop of life insurers, the race to achieve critical mass is being driven by term plans, powered by bancassurance — where insurance products are available off the counters.

SBI Life, the joint venture between SBI and Cardiff insurance of France have moved in to provide coverage to all the depositors and loan accounts. Besides, with a network of close to 9,000 branches, SBI Life gets a formidable reach through bancassurance. SBI Life's Managing Director, Mr R. Krishnamoorthy, however, is not stopping with SBI alone.

"We will finalise bancassurance and coverage of deposit/loan accounts of the all the SBI subsidiaries as well." That raises the reach by another 4,000 odd branches.

Ergo for HDFC Standard Life and ICICI Prudential who are leveraging on their parent's reach and position.

But both these institutions are in the process of sewing up bancassurance tie-ups with other private sector and public sector banks in the country. ICICI has just managed to tie up with Allahabad Bank to use the branch network for hawking its products. According to Mr K.K. Rai, Executive Director of Allahabad Bank, the risk cover will also be worked to deposit and loan account holders. Industry sources said that these tie-ups have actually helped the premium accretion of the private sector life insurers. This is because bancassurance cuts the gestation time for setting up a team of insurance agents.

Yet bancassurance notwithstanding, LIC is far ahead. In the first half of the year, LIC has received new premium income of over Rs 2,000 crore in the first nine months of the current fiscal. The private sector, including SBI Life has raked in less than 10 per cent of that figure. But LIC, though a late entrant in bancassurance has already mastered the game. LIC has arrangements, with both Corporation Bank and the Oriental Bank of Commerce. In both these banks LIC has equity stakes of 27 per cent and 10 per cent respectively and already provides to coverage to account holders in both these banks.

Despite such tie-ups substantial portions of new premium income have come through term plans instead of savings-linked policies. The disaggregated numbers are still not out, but what is increasingly evident is that the bias is clearly in favour of term plans to build up a critical mass of premium income and a customer base. Players such as Metlife Insurance Company Ltd, are using term plan variants through its bancassurance network. MetLife's tie-ups are with regional banks such as Karnataka Bank, Dhanalakshmi Bank and Jammu-Kashmir Bank. However, unlike SBI or HDFC or ICICI, MetLife's term plans are restrictive in coverage. Explained MetLife's Chief Executive Officer, Mr Venkatesh Mysore, "We offer group term products to the banks." This product, allows the banks substantial flexibility to provide coverage to a limited loan or deposit accounts.

The bias though is likely to be clearly in favour of high value loan accounts, admit bankers to eliminate risks of loan assets becoming non-performing in the event of the borrower's demise. Consequently, some of the policies are specifically structured. MetLife is offering a product called mortgage reducing term assurance plan. This term plan is structured in such a way so that premium payments drop in line with the borrower's principal repayments. Corporation Bank is also expected to offer a similar product for its housing loan borrowers. Mr Cherian Varghese, Corporation Bank's Chairman & Managing Director said, "LIC is structuring it for and this should be available soon."

For life insurers offering term plans during the initial stages has great advantage. One of the major advantages is that term plans offer just risk coverage and are not savings-linked. In savings-linked coverage, the insurers would have to offer a rate of return on the premium accretion of the policyholder. Since there are no returns payable to policyholders in term assurance, the retention income of the life insurers tends to be high.

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