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ShareThe life insurance industry is bracing up for challenges over the next one year amidst talks of a possible hike in the foreign direct investment cap, a slowly reviving economy and a fall in life insurance growth. S B Mathur, secretary general of Life Insurance Council and ex-chairman of Life Insurance Corporation, shares interesting facts and figures of the industry and throws light on crucial issues in the life insurance business in an interview with DNA. Excerpts
The growth in life insurance business has slowed down. Is that a big concern for the industry?
It is true that the new business premium for the industry as a whole in 2008-09 fell by 7%. But renewal premiums have grown by 24% to Rs 1,33,318 crore. Unit-linked plans have grown by 106% to over Rs 46,000 crore in the year. There is a distinct decrease in surrender value payments over the year, which means that policy holders have been continuing with the policies even during difficult times. The surrender value payment of policies is estimated to have fallen by 40-50% during the year including that of LIC. Moreover, death claim payments have gone up to Rs 6,629 crore in 2008-09 from Rs 5,762 crore in the previous year. This year, a premium growth of 15-20% can be expected.
Do you see more players entering if the FDI cap is increased? Would there be more acquisitions?
With 22 players at present, the capital deployed for life insurance in 2008-09 is almost 25,000 crore, which has increased by over 50% over the previous year. If market conditions improve, some life insurers could come up with a public offer within two years. On acquisitions, I don't think there would be too many, as most of the companies with foreign partners are
large companies in their own right.
There were talks on changes in the commission structure to life insurance agents. Do you think it's (commissions) high?
The commission is a dynamic concept that should be decided by the regulator. Looking at the numbers, the commission structure is not high. The total commission paid to intermediaries is Rs 15,337 crore and the percentage of commission to the total premium is 6.97% which has in fact declined from an earlier 7.29%. Out of a total new business premium of Rs 68,000 crore, single-premium accounted for Rs 39,000 crore in 2008-09. The maximum commission payable for single-premium plans is around 2% as per law. Most companies pay about 1.75%. One must remember that insurance is a long term contract with an average tenure of 15 years and initial start-up costs are high.
What are the biggest challenges before the life insurance industry at present?
Issues on the taxation front need to be addressed urgently. The Life Insurance Council has sent its views to the government. Ulips and mutual fund products compete with each other. But there is a disparity in service tax on similar products. While mutual fund companies only pay service tax on asset management charges, life companies have to pay a service tax on Ulip products on all charges including entry and exit load, policy administration charges, asset management charges and others. Entry load charge includes recovery of stamp duty of insurance policy, which is also subject to service tax. We feel that the service tax implications on Ulips and mutual funds should be the same to ensure that unit-linked plans do not become uncompetitive because of imposition of the service tax on similar products.
What about showcasing insurance as a long term investment?
Yes, we have asked for an extension of period for carry forward of losses of life insurance companies. There is a case for standalone deduction in income tax for long-term investments and exemption of annuities from taxation.
