Life insurance contracts are long term in nature and are entered into either with an individual or a corporate group for providing insurance solutions for the group members. The former is called the individual segment business where as the latter is termed as group segment business.
The premiums are collected at the beginning of the contract.
One-time collection of premium is called single premium. Premiums collected at periodical intervals, say monthly/quarterly/half yearly/annually, are called non-single or regular premiums.
The premium collected in the first year of the contract is classified under First Year Premium or New Business Premium. The premium collected from second year onwards under non-single premium policies are called renewal premium. The monthly performance of life insurance companies on First Year Premium (during the month and up to the month) is collated and published by the Insurance Regulatory and Development Authority (Irda) every month. It provides data on individual or group segment and single or non-single (regular) premium. The performances are published under combinations of four categories ? individual single, individual non-single, group single and group non-single.
Individual vs Group Business
The individual business consists of protection, unit-linked, endowment or savings and pension or annuity plans. Individual segment provides stability to the growth of business, provided the renewal premiums are collected in the subsequent years. Surrenders and lapsation of policies affect renewal collections, which are measured through persistency ratio. Persistency ratios are published by the companies every quarter.
The group business covers group retirement solutions, i.e, group gratuity, group leave encashment, group superannuation, group savings linked insurance in lieu of Employee Deposited Link Insurance Scheme and group insurance plans ? group protection, group loan protection, group Ulip, group savings, etc.
Group retirement solutions are more of a funds management business and are price sensitive and volatile in nature. Group loan protection has proved to be beneficial for companies having tie-ups with banks since it provides regular flow of business.
Single vs Non-Single (Regular) Premium
Single premium are preferred for loan protection products or buying of annuities by retirees. Single premium products are also issued to take advantage of favourable market condition by investing in high-yielding debt securities. Earlier, single premium policies were supposed to provide sum assured of five times the annual premium, which has been increased to a minimum of 10 times for being eligible for tax benefit. Consequently, the increase in the mortality charges will reduce the returns on single premium policies. Non-single premiums are a regular source of income for the companies through collection of various charges every year. Non-single premiums encourage saving habit and are preferable to policyholders from the affordability point of view. These are best suited to overcome market volatility by investing premiums over different market conditions.
Year-End Business
Historically, growth of life insurance business picks up in the last quarter of the year, which is known as the JFM (January-February-March) factor, partly due to prospects being awakened to the need for tax savings and partly due to active tracking of topline target achievements by companies. Since insurance is a long-term business, the healthy growth of the bottomline has to be built over a period of time. The growth in individual non-single premium, spread over the year, will make it easier for the companies to move in this direction.
The writer is chief financial planner, Max Secure Financial Planners
