Even as insurance players await the final guidelines for 18 standard products, the industry seems to be favouring unit-linked insurance policies (Ulips) again. Most private insurers intend to maintain a high concentration of unit-linked products in their portfolio while those with a smaller unit-linked business are planning to ramp it up.
"There is demand for linked products but the difference in distributor fees for traditional and unit-linked products has seen traditional products being pushed more,” said a senior official with a private insurance firm.
According to the latest announcement by Insurance Regulatory Development Authority (Irda), the regulator wants to extend caps on commissions to some segments of traditional products too. This, insurers believe, will create more of a level playing field between traditional and linked policies.
In 2008-09, the distributor fee for ULIPs used to be as high as 40% of the first year premium, making it highly attractive for agents. This lead to a lot of consumer complaints after they realised that the returns on these were not as high as what they were promised by agents.
As a result, the insurance regulator capped charges on linked products in September 2010. Despite the odds being against the product, insurers continued to push for linked products, while agents sold more of traditional policies, which offer 25-30% commissions in the first year, as against unit-linked products which garner 5-8% commission.
The average commission in ULIPs as a percentage to premiums collected fell to 4% in 2011-12, from 10% in 2009-10. Individual breakup regarding ULIP products for the first six months of this fiscal are yet to be announced.
"Post charge cap in September 2010, our ULIP share for FY11 was at 86% and for FY12 it was 56% . For the current year, ULIP share stands at 55%. We would focus on maintaining the ratio at this level going forward,” said Amitabh Chaudhry, managing director and chief executive officer, HDFC Life.
Mayank Bathwal, chief financial officer and head institutional sales, Birla Sun Life Insurance pointed out that ULIPs contribute to 46% of total business at Birla Sun Life. Bathwal does not expect the ratio to change significantly in the next two or three years.
"However, this may alter in the medium to long term as the equity markets starts improving and customers look forward to investing in market linked savings instruments," he said.
In a previous interview, IDBI Federal Life had also indicated that they would look at increasing the ratio of their ULIP products. Out of its total business, ULIPs form only 30% for IDBI Federal, and traditional insurance constituted 70%.
Premium collections during the first half of the fiscal have fallen by 6% on a year-on-year basis for private insurers, to Rs 11,621.29 crore. When collections from LIC are added to this, the fall in Apr-Sep 2012 narrows to 4.2% annually.