Private life insurers see revival of interest in unit-linked insurance plans

Stock market buoyancy and improvement in the overall economic environment have led to unit-linked insurance plans (ULIPs) making a comeback.

For the last two years, the private life insurance industry had primarily moved to selling traditional products after the insurance regulator revamped ULIP norms in 2010 by increasing the lock-in period, capping surrender charges and lowering commissions on their sale. This led to a massive dip in ULIP sales.

Sanjay Tripathy, Senior Executive Vice-President, HDFC Life Insurance, said, “We have seen a surge in the ULIP business in the last six to seven months, primarily due to stock market surge.

“Since ULIPs account for more than 50 per cent of our portfolio, the inflow into these is helping us get new business premium with a growth of around 20 per cent from last year for the same period.”

Similarly, Max Life Insurance has seen an increase in business coming from ULIPs in the first half of the current fiscal compared to the same period last fiscal, according to Aalok Bhan, Director and Head - Product Solutions Management.

Bhan said typically, when stock markets move northwards, a lot of customers tend to surrender their policies to book profits but in the first half of this fiscal, Max Life has seen a fall in surrender of ULIPs. Mayank Bathwal, Deputy CEO, Birla Sun Life Insurance, said, “The increase in interest in ULIP products has been a good opportunity for insurers to move towards a balanced product mix in line with customer needs, unlike earlier where the industry witnessed a more dominant mix in favour of either ULIPs or traditional products.”

However, while Birla Sun Life has seen an increase in customer interest in ULIPs, there has not been a significant uptick in actual volumes as customers are still cautious on committing to long-term savings products, he added.

Life insurers are also encouraging customers to hold on to their ULIP products for at least 8-10 years to avail themselves of maximum product benefits.

The insurance regulator too has taken a cautious note of the surge in ULIP sales, particularly, after the 2005 stock market boom when private life insurers’ ULIP sales surged and the industry faced several complaints of mis-selling. In a recent guideline, the Insurance Regulatory and Development Authority had asked insurers to structure ULIPs as long-term investment products and return at least 90 per cent of premiums paid by the policyholder.

Sunil Sharma, Appointed Actuary, Kotak Life Insurance, said, “The regulator wants ULIPs to act as a savings product rather than a term product, especially discouraging them for older age groups where mortality charge is higher. The regulator is trying to address issues of customer grievances at the product design stage to reduce any chances of mis-selling.”