Premia for small Ulips may rise 30%

While the next wave of modified unit-linked plans (Ulips), without multiple fund management charges, promises to be beneficial for customers, the gains for those seeking smaller-ticket policies may be limited.

In fact, premiums for such policies could rise by 25-30% as companies seek to keep agency commissions intact, industry observes said. Insurance Regulatory and Development Authority (Irda) had in July capped the difference between gross and net yield to customers at 300 basis points for 10-year policies and at 225 basis points for policies of more than 10 years.

It also capped fund management charges at 150 basis points for policies with a period of less than 10 years and 125 basis points for above 10 years.

Life Insurance Corporation of India (LIC), the biggest in the segment, has asked its actuaries to restructure some Ulips.  T S Vijayan, chairman, said, “We may have to raise the minimum premium from Rs 25,000 to Rs 40,000 and also increase the lock-in period from five years to 10 years to keep agency commissions intact.”

Private sector rival Max New York Life also expects a revision in the base price of smaller policies. “Yes, I believe there will be a correction in the base price of low ticket size plans,” Debashis Sarkar, senior director and chief marketing officer, Max New York Life, told DNA.

“There is an element of fixed cost for every policy. Hence very small ticket sizes - Rs 10,000 and lower - may be impacted more than the others,” said Manik Nangia, corporate vice-president and head of product management with the company.

Gaurang Shah, managing director, Kotak Life, said customers will benefit from the changes in Ulips. “The modifications in charges will make some products cheaper. The cap in charges will put pressure on low ticket policies… however the challenge will be to control costs at all levels in order to pass on the benefit to the consumer”.

M N Rao, managing director and CEO, SBI Life, said the company will continue to focus on the low-ticket sizes. “There would be some pressure in this category, but we would like to carry the SBI brand here. The contours of Ulips in this segment are being looked into,” he said. Maha Anand is one of SBI Life’s low ticket size policies, with an entry premium of Rs 6,000 per year.

Bajaj Allianz Life, however, feels that the new guidelines would not impact the low ticket-size plans as they cater to different needs. Akshay Mehrotra, head of marketing, Bajaj Allianz, said, “Most of our Ulip plans comply with the new guidelines on charges.
Companies that do not have such products would see some cost implications.”

Paresh Parasnis, principal officer and executive director, HDFC Standard Life, said, “Premiums on certain policies may not go up if companies can build up economies of scale.” Relatively new players do not see any significant impact on Ulip sales from the new guidelines.

“We have started modifying our Ulip plans to make them compliant to the new Irda guidelines and we would straddle all ticket sizes. There is good selling in the Rs 10,000-12,000 premium range. There may be some minor tweaks and one or two products may get more defined perhaps, Rishi Mathur, head of product development, Bharti Axa Life said.

“We started off with innovative products through our low-charge structure. Since we were ahead of the curve and believe in a strategy of lower costs and hence lower customer charges, we will face relatively lesser pressure on costs,” said Amish Tripathi, national head, marketing and product management, IDBI Fortis Life  Insurance.