‘Irda needs to rethink move to nix traditional products’

Implementation of product design guidelines poses a big challenge for life insurers, especially for a player like Life Insurance Corporation of India (LIC). The withdrawal of products that have been serving customers for more than five decades places reputation at risk, says D K Mehrotra, chairman, LIC, in an interview with Aswathy Varughese & Raj Nambisan. Edited
excerpts:

How do you see life insurance sector and its growth in coming quarters?
The life insurance sector has seen a slowdown over the past two years. We could not make good what we have seen earlier. Even in the first half of this fiscal, it was bad and now I do see a turnaround happening. That’s what we have been waiting for and it’s time to move forward. So, we see an upturn happening. There is a huge potential available for insurers. Going forward, this industry should go at a reasonable rate.

Do you think the trick lies in smaller ticket sizes?
I will not categorise into small ticket size in the market. If you segment the market, you find takers for a higher ticket size, you find people who will not go for a small ticket size. We have to have a proper mix of the product which we offer and we should be able to position our product as per the requirement of the segment I am entering.

As a nation, we are around 12–15% insured. What is the demographic of the rest 85%?
Earlier, in 2008-09, the focus was mainly on the unit linked plans (Ulip) platform and on this, the ticket size was pretty high. The product in the market carried a high ticket size and people accepted it. After 2008, the market started slowing with more constraints and regulations, and we found that the ticket size has started coming down because the Ulip products have been given a second choice.

Do you think there was mis-selling in Ulips?
I wont say mis-selling. But yes, people went a little aggressive without understanding the consequences and follow-ups. That time, when the market was very bullish, all were riding Ulips. But we as an insurer have come out with a series with awareness on the risks carried by Ulips. We tried to create some awareness among investors asking them to park their money carefully. Do not think that you can equate this product with any other. Maybe, some wrong information has led to mis-selling. But it was not intentional. At that point, insurers were in a race to capture the highest market share, specially for companies which have just entered the market.

Will you be looking into changing the product mix from 80:20?
If you look from a perspective of an insurance company, we should have more focus on traditional products. What we are selling is a risk cover, we are not selling investment. So, if we are offering him a risk cover, it means we are giving him a cover till his active service life or active working life and subsequently, I give a protection for a post-service life. So, that can only come through traditional plans. When the markets were bullish, people were riding on a wave of Ulips, we also rode. But then we realised that it was not the right thing to do and we consciously took a decision to bring down the Ulip component and focus more on traditional products, and we have succeeded in doing that. Today, I see 80:20 is a good mix. If a person wants to have an insurance, basically the first cover should be traditional and if he wants to go for a little of investment return, he has the right to go for a Ulip product as well. So, we will keep both products in our basket.

How will the refiling of traditional plans affect sales?
Again, it is a question which I am thinking over – why should the LIC refile the entire set of products? It has been offering a set of products that have been meeting the needs of customers for quite long. They have given good returns to investors. In terms of premiums, they have generated good funds for us which we have parked in different investment avenues. Then why should the insurer withdraw such products? The new guidelines can help in restructuring those new products. If the existing ones have to be withdrawn, we will be at loss. Customers will ask why did you sell these products. But if products which have been there since1956 are withdrawn, the insurer will have a lot of reputation risk.