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Life insurance: More sops for long-term savings

February 23, 2010 13:00 IST

India's Life Insurance industry is one of the fastest growing sectors with 23 licensed players operating in the sector. The Life Insurance Corporation of India (LIC), the sole public sector player accounts for more than 70% of the business, while the 22 private players occupies the rest of the business.

In 1999 the Insurance Regulatory and Development Authority Act was passed leading to privatization and growth of the industry. Until then, LIC was the sole player in the Indian life insurance sector.

The entry of private players, de-tariffing and recently the cap on commissions has increased the competition and proliferation of products. Compounded Annual Growth Rate (CAGR) of the life insurance industry for the period 2000-01 to 2007-08 has been rapid at 26%.

The performance of the insurance sector in financial year 2008-09 was largely influenced by the sub-prime crisis. Life insurance industry recorded a 10.15% growth in total premium income to Rs 221791.26 crore during 2008-09 as against 29.0% growth posted at Rs.201351.41 crore in 2007-08. The total issuance of new policies rose marginally by 0.1% to 5.09 crore in 2008-09, compared to 10.23% growth recorded in last fiscal

The cumulative new premium collection surged 29.2% to Rs 67557.61 crore during April-December 2009, compared with the collection of Rs 52298.86 crore in corresponding previous years period. The actual growth in new business premium collection during April-December 2009 has been substantially higher than Life Insurance Council's projection of 15% growth for 2009-10.

Insurance penetration in the country is growing but still very low. Tax benefits have been a significant driver of insurance sales over the years with almost 40% of the business in a particular year coming in the last quarter of the fiscal year (with almost 20% of annual sales happening in March).

Industry Expectations

"Align charges in investments in ULIP to that of mutual funds"-Vivek Sood, Chief Financial Officer, Tata AIG Life Insurance Company

"Pass insurance (amendment) bill to allow more FDI in insurance sector"-Kapil Mehta, Managing Director & CEO, DLF Pramerica Life Insurance Company

"Increase period for carry forward of losses for insurance sector to 12 years"-TR Ramachandran, CEO & MD, Aviva India

"FDI limit for Insurance should be increased from 26% to 49%"-Deepak Sood, CEO & MD, Future Generali India Life Insurance

"Institute separate limit of tax exemption for long-term saving instruments"- Raman Garg, deputy CFO, Max New York Life

"Continue tax benefits for life insurance with separate limit"-G V Nageswara Rao, MD & CEO, IDBI Fortis Life Insurance

"Service tax payable on Ulips should be changed to bring parity with products of mutual funds" SB Mathur, Secretary General, Life Insurance Council

Outlook

Many of the new players are yet to break even, despite 10 years since private players were allowed into Indian Insurance sector. In this background, some of the insurance players have sought carry forward of the losses to 10 to 15 years, from the existing 8 year period.  Considering the huge funds required, they also seek hike in FDI limit in insurance from 26% to 49%.

The recent guideline by the insurance regulator on ULIPs and improvement in the economic growth is expected to further boost sales of life insurance industry. Thus, the insurers are optimistic about sales during the last three months of the financial year, which accounts for almost 40% of the total business of life insurance companies. Overall, the Union Budget 2010-11 is likely to be neutral with positive bias for the Indian life insurance sector.

New premium income of Life Insurers in 2009-10 (figures in Rs crore)

Insurers

April-December

Var (%)

December

Var (%)

Share (%)

 

2008

2009

2008

2009

LIC

29457

44178

50

4237

7729

82.4

65.4

SBI Life

3690

4392

19

398

868

117.9

6.5

ICICI Prudential

4677

3833

-18

428

801

87

5.7

Bajaj Allianz

3003

2526

-15.9

333

436

31

3.7

Reliance Life

2303

2170

-5.8

352

424

20.2

3.2

HDFC Standard Life

1840

1999

8.6

198

391

97.5

3

Birla Sunlife

1789

2043

14.2

260

455

74.7

3

Private total

22842

23380

2.4

2724

4472

64.2

34.6

Total

52299

67558

29.2

6961

12201

75.3

100

 

 Premium Underwritten by Life-Insurers (Rs crore)

Scheme

LIC

Private Sector

Total

2007-08

2008-09

2007-08

2008-09

2007-08

2008-09

Regular Premium

26222

19140.61

28666.15

30229.95

54888.16

49370.56

Single Premium

33774.56

34038.47

5049.8

3597.2

38824.36

37635.67

First Year Premium

59996.57

53179.08

33715.95

33827.15

93712.52

87006.23

Renewal Premium

89793.42

104109

17845.47

30676.07

107638.9

134786.6

Total Premium

149790

157288

51561.42

64503.22

201351.4

221791.3

Growth (%)

 

 

 

 

 

 

Regular Premium

-12.26

-27.01

85.24

5.46

21

-10.05

Single Premium

28.24

0.78

27.82

-28.77

28.18

-3.06

First Year Premium

6.71

-11.36

73.56

0.33

23.88

-7.16

Renewal Premium

25.41

15.94

102.16

71.9

33.83

25.22

Total Premium

17.19

5.01

33.83

25.1

29.01

10.15

Source: IRDA

New Policies Issued by Life Insurers

Insurer

2007-08

2008-09

Growth (%)

2007-08

2008-09

LIC

37612599

35912667

-1.61

-4.52

Private Sector

13261558

15010710

67.4

13.19

Total

50874157

50923377

10.23

0.1

Source: IRDA

 Commission expense of life insurers (Rs crore)

Scheme

LIC

Private Sector

Total

Variation

2007-08

2008-09

2007-08

2008-09

2007-08

2008-09

+/-

%

Regular

4459.48

4350.91

4460.49

4559.3

8919.97

8910.21

-9.76

-0.11

Single premium

504.33

432.81

50.65

37.81

554.98

470.62

-84.36

-15.2

First year

4963.81

4783.72

4511.15

4597.11

9474.95

9380.83

-94.12

-0.99

Renewal

4650.89

5271.37

578.46

880.78

5229.35

6152.15

922.8

17.65

Total

9614.69

10055.09

5089.61

5477.89

14704.3

15532.98

828.68

5.64

Commission Expense Ratio (%)

Scheme

LIC

Private Sector

Total

2007-08

2008-09

2007-08

2008-09

2007-08

2008-09

Regular

17.01

22.73

15.56

15.08

16.25

18.05

Single Premium

1.49

1.27

1

1.05

1.43

1.25

First Year

8.27

9

13.38

13.59

10.11

10.78

Renewal

5.18

5.06

3.24

2.87

4.86

4.56

Total

6.42

6.39

9.87

8.49

7.3

7

Source: IRDA,

 

 

 

 

 

 

Note: Commission expenses ratio is the ratio between commission expenses and the premium underwritten by life insurers

Market Share of Life Insurer (%)

Scheme

LIC

Private Sector

2007-08

2008-09

2007-08

2008-09

Regular Premium

47.77

38.77

52.23

61.23

Single Premium

86.99

90.44

13.01

9.56

First Year Premium

64.02

61.12

35.98

38.88

Renewal Premium

83.42

77.24

16.58

22.76

Total Premium

74.39

70.92

25.61

29.08



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