Ulips: Life cos to move Irda this week

Life insurance companies are likely to feel a pressure on their margins with the Insurance Regulatory & Development Authority’s (Irda) directive scrapping multiple charges on unit-linked plans and prescribing one charge on these plans.

Already reeling under pressure from low growth, CEOs and top officials from life insurance companies are likely to take up the matter with the regulator this week.
Moreover, with hardly any time to bring in new plans by October 1, 2009, and modify existing plans by January 1, 2010, the tension in the life sector is palpable.

The Life Insurance Council, representing all life insurance companies, may formally ask Irda to take up some of the issues to reduce the pressure off companies in these difficult times.

However, S B Mathur, secretary general, Life Insurance Council, told DNA Money, “We have not decided anything as of yet. But mortality charges could have been excluded from this because it will mean allowing different charges for different age groups and may involve cross subsidies.”

Mortality charges are also included within this cap and this may result in lower policy sales. Rajesh Sud, CEO and managing director, Max New York Life, said, “Irda’s decision on capping Ulip charges will impact customer benefits positively. However, life insurance penetration in the country is low and distributors of life insurance need to be adequately trained and suitably compensated for providing quality of advice and service to policyholders. Hence, life insurance business should not be equated with other financial products and this capping of products may reduce margins of life insurance companies”.

Nitin Chopra, CEO, Bharti Axa Life Insurance, said, “The move encourages a long-term outlook towards life insurance amongst Indian customers and life insurers. However, it would help if the mortality charges were removed from the overall ambit of charges, as such charges are dependent on individual customer profiles and the amount of cover recovered.”

KS Gopalakrishnan, CFO and appointed actuary, Aegon Religare Life, does not feel his company’s margins would be affected.

“Our products are already priced with competitive customer value and sharp profit margins. But the inclusion of risk charges in the yield calculation would be detrimental to insurance nature of the product.”

Analysts feel that margins will be affected. Manish Shukla, analyst with IIFL, said: “Against a cap of 225-300 basis points, insurance companies currently charge an estimated 400 basis points or even higher. This will have to be brought down or it will eat away into the new business annualised premiums (NBAP) margins of insurance companies”.

“Pricing may come down, with the current high payouts to the distribution channel being the first casualty. However, it may be the case that companies may have to take a hit on their margins as well. The other key change in product structuring that can increase net asset yields is by not having upfront high policy allocation charges,” analyst Srikanth Vadlamani of Nomura pointed out.