Life insurance firms are shifting their focus from unit-linked insurance plans (Ulips) to traditional products such as endowment, money-back, pension and term plans.
After the fall in the stock markets last year, insurance firms felt that an equity-dominated portfolio was not balanced. Therefore, many firms are changing their product mix and moving towards traditional policies.
Reliance Life, Bajaj Allianz and state-owned Life Insurance Corporation of India are moving fast towards a traditional policy dominated product mix. For Bajaj Allianz, the share of Ulips is likely to be around 70 per cent this fiscal against over 80 per cent a year ago. Ulips constitute 65 per cent of LIC’s total sales.
Last fiscal, Ulips formed around 90 per cent of Reliance Life’s product mix. This has fallen to around 50 percent in the quarter ended June. However, for the full fiscal, the company expects the proportion of Ulips to be 60 per cent.
“From a customer perspective, traditional products are more relevant for middle and low-income groups in rural areas and smaller cities. So, as we increase our penetration in those areas, sale of traditional policies will be higher,” said Mayank Bathwal, CFO of Birla Sun Life Insurance.
In May, Birla Sun Life had launched endowment plans to cater to the increased demand for traditional products. Last year, Ulips had formed 90 per cent of its product mix, “which is likely to change soon”, Bathwal said.
Industry players said the stringent norms stipulated by the Insurance Regulatory and Development Authority for unit-linked hybrid products are also compelling insurers to change their product mix.
The new guidelines, which will come into force from September, will cap commission charges — a motivating factor for agents to sell certain category of policies. The first year commission charge for Ulips has been reduced to 10-15 per cent from 35 per cent. However, commissions for selling traditional plans are still 30-35 per cent.
According to provisional data by the Life Insurance Council, a representative body of life insurers in India, new business premium income during the last fiscal rose 25 per cent to Rs 1.09 trillion. Around 90 per cent of the premium came from Ulips.
