MUMBAI: Birla Sun Life Insurance (BSLI) has decided to reposition all its unit-linked insurance plans following the insurance regulator’s decision to cap charges.Instead of having highly flexible schemes, the company will now have a bouquet of plans under a new programme christened Swagatam. Each plan will be standardised and structured so that it can be explained and sold with less effort. The biggest advantage of the new product is the higher return following the reduction in charges.
“We have decided to take advantage of the IRDA directive to cap charges on all ULIPs as an opportunity to enhance competitiveness. Based on feedback, we are revamping our entire portfolio to make them simpler to understand,” said BSLI CFO Mayank Bathwal.
Instead of offering the same product with a variety of investment option, the companies has decided to pre-package products according to the buyer’s profile and sell products that are specific to the individual’s requirements.
For instance, the earlier Saral Jeevan has been replaced with three plans, Saral Jeevan Wealth, Saral Jeevan Health and Saral Jeevan Guaranteed option. Those who have a low risk taking ability can go for the guaranteed option under the same scheme.
The cap on charges imposed by the regulator has forced all insurers to cut distribution costs and reduce frills on policies. However, since the amount being deducted from policyholder contributions has come down, the overall return to policyholder has improved.
In absolute terms, the returns under BSLI’s reworked plans on maturity can be higher by up to 10 per cent compared to BSLI’s old policy. For instance, under the earlier Saral Jeevan, with an annual premium of Rs 20,580, a 35-year old could buy a Rs 2.2 lakh policy that would accumulate savings ranging from Rs 5.6 lakh to Rs 8.9 lakh at maturity. Under the new Saral Jeevan, the same policy holder would get a sum insured of Rs 1.2 lakh and accumulate savings ranging from Rs 6.18 lakh to Rs 9.57 lakh. The returns are calculated estimating a yield of six per cent at the minimum side and 10 per cent at the higher end.
“The biggest contributors to the charges are the fund management charges which are fixed for the entire term of the policy. We have decided that the ceiling on fund management charge 135 basis points will apply not merely on new plans but on all existing policies as well” said Mr. Bathwal.
source: The Economic Times 11 Dec 2009, 0328 hrs IST, ET Bureau
