Pension charm fades for life insurers

The sheen is off the pension market. And its fall from grace has been really steep.

One look at the Life Insurance Council’s data tells you the whole story. The contribution of the individual pension segment to the new business premium (NBP) of life insurers now stands at 1.2%, a sharp fall from — hold your breath — 28.3% a year ago.
Scratch the surface a bit. Then, you realise that a set of regulations by the Insurance Regulatory Development Authority (Irda) is at play. The regulator has made it mandatory for life insurers to offer a non-zero or capital guarantee — which means anything over and above zero — on their pension offerings. To add to the woes, reduced commissions on sale of unit-linked insurance products (Ulips) mean the pension market is turning colder by the day.

The total number of policies sold in the pension segment has come down to 0.06 million from 3.35 million, on a year on year basis. “What was really been sold all these years as a pension is actually not one. It was some kind of a financial accumulation product which should have ideally met retirement goals,” J Hari Narayan, Chairman, Irda, had said at a recent insurance summit.

S B Mathur, Secretary General, Life Insurance Council, takes a similar line. He said, “It is evident from the data that the voluntary contribution from retail investors in the individual pension segment has dried up. Recent Irda guidelines mandating compulsory annutisation may hamper the industry’s growth.”

That explains why players from across the insurance spectrum are looking for some relief. They are all for some relaxation of pension guidelines “if the pension market needs to revive from what it is today”, underscoring the need for regulatory approval for non-guaranteed products so as to bring in more youngsters.

“We feel that there should be products offering non-guarantee in the market for young investors. We have to be very careful with the customer’s capital because we are expected to give a capital guarantee due to which often the returns are low. This is attributed to a higher exposure to debt in order to safeguard capital,” said an industry official.

Experts are worried about the trend. Under the new pension guidelines, the policy holder needs to take annuity from the same insurer where he or she had accumulated the fund. P Nandagopal, managing director & CEO, India First Life Insurance Company Ltd, said: “In order to revive the pension market, some amount of flexibility is required, particularly in the mandatory annuity part. There are some aspects of the new guidelines which are yet to be clarified.”

Added G N Agarwal, chief actuary at Future Generali Life Insurance: “The stringent guidelines on pension may not help the industry in its revival. Hence, we have not yet decided if we will introduce a pension product anytime soon.”

There seems to be a lot of grey zone, too. “We are still in the process of interpreting the new set of guidelines as we are not clear on some aspects of the regulation. Besides the guidelines, emphasising the need of reinstatement of Ulip policies may cause some changes in the system,” said Gaurav Rajput, director- marketing at Aviva Life Insurance.

Insurers have made a representation to the regulator, expressing their concern over the new set of guidelines, and expect it to revisit the same. The ball is now back in the Irda court.