Share of ULIPs in New Business Premium Dropped to mere 15% in FY’12

Posted on July 13, 2012 by Akanksha

Unit-Linked Insurance Plan (ULIPs) is losing its sheen among customers this become evident as during 2008-09 ULIPs, which had accounted over 70% of new business premium of life insurers, has dropped to mere 15% in 2011-12.

This drop can be attributed to regulatory changes and volatile equity markets.

In FY’12 premium collection from ULIPs slumped 67% to Rs 17,455 crore compared with Rs 52,739 crore in FY’11, accounting for mere 15.35% of total new business premium. In FY’11 ULIPs had accounted for nearly 41% of total new business premium.

On the contrary, during same time non-linked or traditional business showed the growth of 32% to Rs 96,224 crore, accounting for around 85% of the total new business premium.

Sales of ULIPs started taking a hit since September 2010, when Insurance Regulatory and Development Authority (IRDA) made selling of these hybrid plans less lucrative for both insurance companies and agents. And therefore, traditional plans, which earn a relatively higher commission, have gained the seller’s attention.

Another reason behind the drop in sales of ULIPs is absence of pension plans from the market. Individual pension plans, which accounted for more than 50% in the sales of ULIPs two years ago, plunged drastically and accounted less than 2% in FY’12. In 2011-12 premiums collected from individual pension plan stood at Rs 1,139 crore as against Rs 19,257 crore in FY’11 and Rs 26,389 crore in FY’10.

Lower sales of ULIPs have also impacted the equity investment by the insurance companies, as sales mix have shifted in favour of traditional plans. Unlike ULIPs, where up to 95% of funds can be deployed in equities, traditional plans cap equity exposure at 25%.

During FY’12 net investments by life insurers in equities stood at Rs 26,990 crore as against Rs 30,565 crore in FY’11 and Rs 65,411 crore in FY’10.

During the 2008-09 financial crisis, insurers helped in arresting the volatility of stock markets. In FY’09 when Foreign Institutional Investors (FIIs) withdrew Rs 46,000 crore from Indian equities, Indian life insurers invested Rs 55,000 crore.

Though new business premium was down 9% in 2011-12 to Rs 1,13,699 crore as against Rs 1,25,617 crore in FY’11, total premium collection for the industry was down only 3% in 2011-12 to Rs 2,83,315 crore as against Rs 2,91,605 crore in FY’11, this is because of increase in renewal premium collection which was up 2.19% in FY’12 to Rs 1,69,616 crore  from Rs 1,65,988 in FY’11. This is the first time, since the opening of the life insurance sector that premiums have shrunk.