Things looked up for life insurers last financial year. The decline in the first-year premium, the indication of new business coming in, was checked, if not completely arrested.
The first-year premium underwritten by life insurers declined 6.32 per cent, at Rs 1,07,013 crore, in the financial year ended March 31, 2013, compared with Rs 1,14,234 crore the previous year.
In the year ended March 31, 2012, the dip in the new business premium was 14 per cent.
Private insurance companies had collected Rs 20,767 crore premium, against Rs 32,728 crore in the previous year.
Life Insurance Corporation garnered Rs 76,245 crore as premium income (Rs 81,451 crore).
The industry was on a bumpy road for the most part of the FY13 owing to a variety of factors.
The legacy of tough norms for unit-linked insurance policies (ULIPs) and pension products introduced by the regulator over two years ago still haunt life-insurers. The ‘ULIP Bubble’ went bust, and the life insurance industry has been declining in terms of first-year premium.
Currently, ULIPs are not growing beyond 60 per cent of the private life insurance segment’s business. Before the new regulations were enforced in September 2010, unit-linked products accounted for about 95 per cent of the business of private life insurers.
And insurers had to come to terms with massive shifts in the demand curve in favour of traditional insurance products as ULIP, once the darling of customers, lost its charm following the cap on returns/commissions.
At the macro level, high inflation dealt another blow. When savings take a hit with high consumer prices, the decision on buying insurance is generally put off.
The response of insurers to these challenges was quite impressive and helped contain the dip in first-year premium growth in 2012-13 compared with the previous year.
Many companies, especially the major ones, had put in place robust agent training programmes to make up for the loss of patronage for ULIPs.
The general improvement in the macroeconomic situation in the last six months, with inflation coming down, might have also been a positive factor.
BIG QUESTION
While the improvement in new business premium should be heartening, life insurance companies need to brace themselves for greater challenges this year.
With new guidelines brought in by the IRDA a couple of months ago, a number of products have had to be recalled. Introducing new products would, of course, follow but not without questions about their acceptability in the market.
So, the new business premium is unlikely to quickly return to the growth path as expected earlier and may be negative in the current financial year as well.
It remains to be seen whether the new product norms will do a repeat of the new ULIP norms of 2010 and push the industry further down.
While the renewal premium might ensure top-line growth for insurers, new business is important in the long run as it improves insurance penetration and adds to industry size.
Hence, a sharper focus on new business may be helpful at this juncture under the new IRDA chief, T.S. Vijayan, seen as more industry-friendly than his predecessor, J. Hari Narayan.