Rough patch for life insurance industry

The Indian life insurance industry has been on a roller-coaster ride in this past year and since financial services in general have been under tremendous pressure

The Indian life insurance industry has been on a roller-coaster ride in this past year and since financial services in general have been under tremendous pressure,the insurance industry has also witnessed its fair share of downfalls. Deterred due to the regulatory changes,low margins and lack of a policy road map,the life insurance industry today is reeling under the effect of negative growth.

The unabated inflation,recessionary trends and fall in industrial production have all had their impact on the economy which has led to the economy growth rate hovering at just about 7 per cent. Throughout the year,the stock markets witnessed violent swings,coupled with reduction in margins on account of new guidelines,which dented the performance of ULIPs. Policy sales registering a sharp 40 per cent dip in the first half of the financial year as private players had a total sale of 35,88,869 policies (Apr to Sep 2011) as against 55,88,804 policies the year ago.

The pension category didnt revive after the IRDA guidelines on pensions last year. Wealth building does not happen by chance. It requires careful planning of expenditure vis-à-vis savings or investment. Though we all dream of accumulating wealth,we need to do something concrete in the direction of savings as well. Carefully designed pension plans offer a good option to build for the future,particularly when traditional pension benefits like provident fund and gratuity are on the wane in the emerging employment-by-contract regime.

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The industry,therefore,began to look at a strategy shift and offer traditional products that imply long term need-based savings required at various junctures of life be it endowment plans, money back plans,guaranteed return plans and need-based plans like child plans.

Given the digital revolution in India,the industry was quite concerned with the growing trend of online comparison of insurance products. While it offered an additional service to the buyer who could get to see the various products available in a particular category,it left room for biased information which could at times mislead the consumer. IRDA has banned online comparison of insurance products to ensure a level playing field for all.

Another dark cloud looming on the industry would be of the Direct Tax Code (DTC). The latest draft threatens to remove tax incentives from the life insurance products. Implementation of DTC in its current form,especially with the no-grandfathering provision,bodes ill for the industrys long-term growth outlook.

With the business becoming increasingly competitive,private insurance companies will now be forced to look at newer marketing and distribution strategies. For instance,focus on banking sector as the power house of distribution could turn out to be beneficial especially after the regulatory changes on the bancassurance model. We believe that product innovation will drive better value for the customer and the stakeholders. New product structures could play a key role in reviving need-based products like pensions and ULIPs.

 Author is MD & CEO,IDBI Federal Life Insurance

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