After four difficult years, during which it faced frequent and fairly disrupting regulatory changes, the life insurance sector is slowly getting back on its feet. New business premiums for the sector grew 11.4% last year, after de-growing in the previous two years but it was Life Insurance Corporation that managed to corner much of the business—first-year premium collections at the state-owned insurer increased 17.6% in FY14 to R90,124 crore, following two consecutive years of de-growth. Private sector players as a whole continued to struggle; they are yet to recover from the sharp drop in sales of Unit Linked Insurance Products (ULIPs) resulting from the reduced commissions for agents nearly four years ago. First-year premiums collected by private life insurers, at R29,517 crore, were smaller than the collections in the previous year and a good 25% smaller than the peak amounts mopped up in FY11. It could be a while before collections increase meaningfully, given the product suite has needed to be completely revamped following the new rules rolled out by the regulator. Moreover, selling longer-term products, as favoured by IRDA, is turning out to be much harder. However, the regulator is right in wanting to encourage buyers to stay with a product rather than trading in them, as was happening four years back. So, while there may be some pain for insurers in the short term, the right way to position insurance policies would be as long-term products.
Agents have a big role to play in convincing customers not to keeping churning but to stay invested. Over the past few years, the share of sales through agents has fallen off—after commissions were reduced. Given insurance remains a push product, however, there is probably a case for better incentivising them. The fact is that the idea of banks turning brokers might not take off. It is not hard to understand why banks are reluctant to take on the responsibility of selling policies of all insurers given how technical the subject can be, the extent of preparedness required and how onerous the compliance can be. Since the fees are not exactly lucrative, banks wouldn’t want to focus too much on the business and it would not be right to force them into it. The bancassurance channel in its current form, therefore, is probably best left untouched. Meanwhile, a hike in the FDI cap to 49% would help insurers attract fresh capital and