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Pension Products Not At Par With NPS: Say Insurers

Posted on April 26, 2013 by
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Pension products might take a little longer to be counted among big contributors to the portfolio of life insurers. These used to be 25% of the total offerings and now down to single digit.  While life insurers have started introducing new products in this segment, insurers admit they are at a disadvantageous position, compared to the New Pension System (NPS) by the Pension Fund Regulatory and Development Authority (PFRDA).

In January 2012, the Insurance Regulatory and Development Authority (IRDA) had said that pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said that annuity had to be bought from the same company.

These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap filled after some private life insurers launched pension products.

Most life insurers feel that the guarantee element has made pension products different from NPS, while their fundamental structures are the same.

Unlike NPS, the service tax is applicable to pension products.

Insurers say that reasons which are restraining life insurers from competing effectively in the pension space include, insistence on annuity being bought from the same insurer, no partial withdrawals allowed etc.

With the current regulations in place, insurers are not comfortable offering non-zero guarantee for pension.

Insurers had shied away from introducing pension products due to the guarantee return requirement. NPS is not mandated to offer these returns. And that skews the pension playing field. So selling pension on the insurance platform is that much more difficult and requires the building of significant pool, say insurers.

Insurers say that they also have to maintain a conservative strategy in terms of investment, to give these non-zero returns.

Insurers say that until these challenges are addressed, pension growth is likely to remain muted.

Life insurers are also planning to take up this issue with the IRDA. Insurers will request the IRDA to make pensions at par with NPS.

However, insurers are hopeful that these issues will get resolved as they move ahead.

With the right nudge, insurance companies can make a significant contribution in pensions since they have the distribution backbone to reach these products to a large audience, say insurers.

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IRDA Clears Air, Pension Products Get Variety

Posted on April 1, 2013 by
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Consumers looking at retirement products for pension planning will have a lot to choose from with a number of life insurance companies planning to launch pension products, following recent guidelines issued by the Insurance Regulatory and Development Authority (IRDA) on pension products.

Against the current practice of no guaranteed return, policyholders are now being offered a capital guarantee –where the insured will at least get back the total premium paid.

Life Insurance Corporation of India (LIC), HDFC Life Insurance, Birla Sun Life Insurance and ICICI Prudential Life Insurance has already launched pension products while few others including Bajaj Allianz Life and Aegon Religare Life Insurance are mulling options.

Companies are now launching pension products as there is clarity from IRDA regarding pension plans.

Life insurers offering pension plans withdrew them last year following IRDA’s guidelines relating to pension plans that said all unit-linked pension plans (in which a part of fund is invested in stocks or bonds) should specify assured benefits on pension plans, applicable on death, surrender or maturity.

Pension plans earlier were not offering guaranteed amount to the policyholders while new pension plans are offering assured benefits to the policyholders. There is a capital guarantee for the policyholder which means that the family gets a specified amount in case of a mishap.

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LIC to Launch ULIP After Almost Two Years

Posted on December 3, 2012 by
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ULIP-Unit-Linked-Insurance-PlanAfter nearly two years, country’s largest insurer, Life Insurance Corporation of India (LIC) will launch a Unit-Linked Insurance Plan (ULIP) with intention to take advantage of prevailing positive sentiment in the stock markets.

This would also help LIC to achieve its target of Rs 45,000 crores of new premium income in financial year 2012-13 and increase its market share.

At present, LIC has market share of 75% in terms of premium and 81% in terms of number of policies sold. LIC’s last ULIP –Samridhi Plus –, a guaranteed NAV plan, was launched in February 2011.

ULIP used to be a favorite investment option for investors pre-September 2010, when Insurance Regulatory and Development Authority (IRDA) came out with stiff norms. IRDA mandated minimum mortality cover and increased lock-in period from three years to five years. As a result, ULIPs took a huge beating and ULIP premiums, which accounted for 90% of first-year collection of life insurance companies, saw their share fall to less than 30%. As of 31 March 2012, share of ULIPs in LIC’s premium was 20% down from over 70% in pre-2010 period.

Private life insurers view this development of LIC as positive step for the industry. If LIC goes aggressive on ULIPs and launches new products, it will benefit the industry as a whole. LIC has greater reach and with its huge agency network it will be able to reach thousands of customers and explain the advantages of ULIPs. And people would be able to re-accept ULIP as good product for long term investment purpose. LIC’s these efforts would be able to bring ULIPs back to prominence in the market.

In addition, LIC will also launch a pension product shortly. LIC has filed both products with IRDA for approval and expecting approvals soon.

On the pension product front, LIC is the sole player till now. In January 2012, IRDA has said that pension products will have to guarantee an assured benefit in the form of non-zero rate of return that would be disclosed upfront. New regulations had led to slower approval of pension products which has resulted in dearth of pension products in the market.

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Insurers Turning Away from Offering Pension Products

Posted on July 16, 2012 by
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PensionDearth of pension products in the market has started showing its impact on new business premium of life insurers garnered from pension plans.

During 2011-12 new business premium collected from individual pension plans slumped to Rs 1,139 crore from Rs 19,257 crore in 2010-11.

This drastic decline assumes significance as new business premium generated from pension policies generally formed a major chunk of life insurer’s total new business premium.

In 2009-10, individual pension premium accounted for Rs 26,389 crore of the total new business premium of Rs 1, 06,453 crore. And in 2010-11, individual pension accounted for Rs 19,257 crore of total new business premium of Rs 1, 25,618 crore.

As per insurers, main reason behind this huge fall is regulatory environment, which was not conducive to offer pension plans.

Last year Insurance Regulatory and Development Authority (IRDA) issued new guidelines for pension plans, which mandated, among others, that the pension products should carry an assured benefits which should be disclosed upfront at the time of sale.

IRDA is also of the view that insurers should ideally offer annuity products instead of directing their customers to Life Insurance Corporation of India (LIC). As per IRDA concept of insurers providing a monthly income (annuity) is mostly missing in India.

As insurers did not find these guidelines feasible, hence, last year Most of the insurers withdrew their pension products from the market and at present only few insurers including LIC are offering pension products.

However, as recently IRDA has revised some of the regulations regarding pension plans hence, it is expected that in future insurers may come up with new pension plans.

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IRDA Likely to End Guaranteed Returns on Surrendered Pension Policies

Posted on May 10, 2012 by
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PensionGiving a big relief to insurance companies, Insurance Regulatory and Development Authority (IRDA) is likely to end guaranteed returns at the time of policy surrender. IRDA may also allow insurers to impose surrender charges on discontinued pension policies.

Insurers had objected to guaranteed returns on surrender saying that if a policyholder chooses to discontinue within months of purchase, then there is no way that a policyholder should get guaranteed returns.

As per insurers, it will be difficult for insurers to offer assured guarantees on surrendered policies because liquidation will be an issue. It will be a tough time for companies due to asset-liability mismatches. Insurers further cited that guarantee clause will force insurers to tilt their total investments towards debt which will keep away people with risk apatite.

IRDA had come out with revised guideline on pension products in November 2011, which had specified that all pension products should come with an assured benefit in case of death, vesting and surrender. That means insurers needed to provide non-zero return or capital guarantee in the case of death, vesting or surrender on their pension products.

Insurers filed revised pension products in January 2012 but IRDA rejected them and asked companies to refile by offering guaranteed surrender charges.

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IRDA to Come Up With Some Changes for Pension Products

Posted on May 9, 2012 by
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PensionInsurance companies have to wait for some more time before they could start selling pension products as Insurance Regulatory and Development Authority (IRDA) is mulling some fresh changes for pension products.

Most insurers filed their pension products with IRDA for approval in December 2011 after IRDA abolished 4.5% minimum guaranteed return clause on pension products on insurer’s demand.

But now IRDA has stopped approval process as it has to take some policy decisions. Hence, if fresh changes are made then insurers have to restructure their product filings and go for fresh approvals, and it will take another six months.

IRDA made it mandatory for insurers to offer minimum guaranteed return of 4.5% per annum on pension products from September 2010, in 2011 this clause was scrapped and IRDA asked insurers to offer non-zero positive return both on maturity and in case of surrender.

However, Guarantee in case of surrender has been a major issue with insurers and they are demanding to roll-back it and it is expected IRDA may also roll it back.

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IRDA Rejecting All Filed Pension Plans Without Any Proper Reason; Life Insurers

Posted on March 28, 2012 by
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PensionLife insurers have alleged that Insurance Regulatory and Development Authority (IRDA) is rejecting all pension plans that were filed in last three months that even without giving any proper reason. As per insurers it is difficult to understand what is that IRDA is looking for.

 

Pension is an important product category hence this situation is not beneficial for both insurance companies and customers.

 

Pension schemes use to contribute 30% to the total sales of life insurers before September 2010 when IRDA came out with 4.5% guaranteed return clause for pension plans.

 

Later IRDA revised guidelines for pension plans and allowed insurers to fix their own guarantees.  However, these guidelines will be applicable on traditional plans as well.

 

Following revised guidelines insurers had withdrawn all pension plans from the market from first January 2012 and currently there is no pension plan available in the market.

 

At present life insurance industry is reporting overall decline in growth and main reason that can be attributed for this trend is absence of pension products in the market and delay in approval of products by IRDA.

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Rift between IRDA and Life Insurers Broadened

Posted on March 22, 2012 by
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IRDAAt a time when life insurance industry is going through most challenging time rift between insurance regulator and life insurers has broadened. Insurance Regulatory and Development Authority (IRDA) is all set to bring sweeping changes to curve mis-selling but life insurance companies are reluctant to accept it citing that it is happening too fast and they need time to adapt to new regulations.

 

Representative body of life insurance industry, Life Insurance Council has approached government to resolve the matter. Government is also seriously looking into the matter. Government is also of the view that some of the regulatory decisions have played a key role in the unprecedented slide in the premium collection in current fiscal.

 

Government is planning to set up advisory groups across the segments to discuss issues impacting the sector and finding solutions for these problems. Groups will especially look into issues related to growth, insurance penetration, product development and regulations.

 

Latest phase-off has been triggered by the IRDA’s recent proposal which has suggested several changes in product designing process. In its letter IRDA has suggested wholesome changes in products, group long term covers, products offering low covers, single premium or products with limited premium term, NAV guaranteed products and benefit illustration procedures.

 

As per IRDA these changes are required to protect the interest of policyholders and to ensure the orderly growth of the industry.

 

But insurers says that lately all the popular products have come under the scanner of the IRDA whether it be pension plan, highest NAV guaranteed plans or single premium products over last one year. They further say though changes for the betterment are welcome but insurers should be given adequate time to adjust as it is not easy to realign business model overnight.

 

Though as per IRDA these changes are good for the industry in long term but numbers in terms of premium collection tells a different story.

 

Since the regulations on Unit-Linked Insurance Plan (ULIPs) and pension plans came in September 2010 sales of life insurers is going down. Initially it was expected that industry will recover within six months but things did not turn out that way.

 

During April-December 2011 premium collection by writing new policies by all 24 life insurers slumped by 17% at Rs 71,950.54 crore from Rs 86,698.84 crore in corresponding period previous year. Number of policies issued also dipped by 11% during the same period.

 

First resistance of the industry came into notice when none of the private life insurer launched based on the revised guidelines that came in September 2010 which mandated 4.5% guaranteed returns.

 

Prior September 2010 pension plans contributed one-third of the sales of life insurers. During first six months of current fiscal share of pension plans in terms of policy issuance stood at mere 0.36% as compared to 16% in corresponding period last year. Premium collection from pension plans during first six months of current fiscal stood at Rs 597 crore against Rs 17,675 crore year-on-year basis. Though IRDA again revised the guidelines related to pension plans but still there is no pension plan available in the market.

 

Other point of conflict between regulator and industry is on bancassurance draft guidelines. Life insurers especially bank-promoted once have objected to the bancassurance guidelines which recommended zone-wise distribution tie-ups between bank and insurance companies.

 

As per insurers zone-wise tie-ups will complicate things. It requires huge amount of commitment from both insurers and banks to set a successful bancassurance partnership and our market has not achieved that maturity hence, banks should be allowed to tie-up one or at the most two insurers. Besides, IRDA’s rigid approach on compensation structure on deals between banks and insurers and observation on selling practices has also not gone well down with insurers.

 

As per IRDA group policies are meant to provide insurance at low cost but banks are promoting it keeping interest of intermediaries in mind.

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Life insurance industry witnessing negative growth for the first time

Posted on January 18, 2012 by
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Life InsuranceFor the first time since the opening up of the insurance sector industry is witnessing the negative growth in premium income.

 

This can be attributed to regulatory changes brought in by Insurance Regulatory and Development Authority (IRDA) in September 2010 on Unit-Linked Insurance Plan (ULIPs) and investor’s indifference towards market linked products.

 

Decline in the sales of ULIPs and lack of pension products had an impact on industry’s total premium income which has been negative so far. Number of policies sold in last fiscal stood at 4.8 crore while in current fiscal till now industry has sold just 300 million policies. As only two months are remaining in this fiscal insurers are not expecting to match up with the last year’s sales figures. Renewal income has also come to 4% in current fiscal from 10%.

 

In 2010-11 average premium on policies increased to Rs 15,000 from Rs 5,002 therefore premium income was positive despite decrease in the number of policies sold.

 

IRDA’s regulatory changes hit the sales of ULIPs which use to be the best selling product of life insurers. New regulatory regulations rendered ULIPs unattractive hence policyholders started opting for conventional products such as money back and traditional pension policies.

 

Under new norms IRDA increased the lock-in period of ULIPs to five years from three years.

 

Increasing the woes of life insurers equity markets also remained volatile due to which insurers were not able to post good returns on ULIPs. This volatility also made investors risk averse and they are preferring products having guarantees.

 

Slowing down of economy and uncertainty also kept investors away from insurance products.

 

IRDA issued norms on pension products in September 2010; had deep impact on the sales of pension products which also came down drastically. This becomes evident as pension products use to account for around 25% of total sales of insurers now that share has come down to mere 2%.

 

IRDA issued revised guidelines on pension products in November 2011 and old policies had to be discontinued from 31 December 2011 this also created a void in the pension market.

 

But going ahead insurers are hopeful that things will change and some kind of momentum will come in the industry. Insurers are expecting to come back on track with the opening up of the bancassurance channel.

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Insurers filed 22 revised pension products with IRDA

Posted on January 10, 2012 by
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Pension India Policy MantraInsurance companies have filed 22 revised pension products with Insurance Regulatory and Development Authority (IRDA) which were not complying with the new guidelines of IRDA pertaining to assured returns. Of 22 products insurers have filed 21 products only in December 2011.

 

In November 2011 IRDA has asked all insurers who were selling pension products to disclose in the policy document maturity benefits for customers or else withdraw them from first January 2012.

 

As per the guidelines policy document must explicitly define assured benefits in the event of death of policyholder.

 

Clarifying the doubts of insurers IRDA also said that in the event of death of the policyholder during the tenure of the policy; his successor will be entitled to receive the sum equal to the premium paid at the guaranteed rate of return.

 

IRDA further said that insurers should guarantee either a non-zero rate of return on premium paid or an absolute amount on pension products. It should be disclosed at the time of the purchase of the policy.

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