The stock market volatility is not prompting people to stay away from unit-linked policies (Ulips), the largest selling products for any insurer.
KOLKATA: The stock market volatility is not prompting people to stay away from unit-linked policies (Ulips), the largest selling products for any insurer — at least for now. Life insurers feel that most of the insured have stuck on to their policies, although a clutch has moved from equity to debt-linked schemes.
Ulip is part insurance and part investment. A certain portion of the premium paid is invested in the investment option (equity and debt) chosen by the policy taker. The individual taking the policy also gets a life cover, for which the insurance company uses the remaining portion.
Currently, for every life insurance company, Ulips account for a minimum 50-60% of the share in the total premium. And, with a distinctly faster growth rate than traditional insurance products, life insurers do not seem to be too nervous even with the market jitters.
The stock markets have fallen significantly this month on concerns over the subprime worries in the US. The Sensex has fallen by 10% in the month.
DNA Money spoke to a host of insurers to gauge the rub-off effect of the market fall on Ulips. Most felt that the stock market volatility would have no immediate effect on linked products.
Sunil Kakar, chief financial officer, Max New York Life, said: “The Indian customer of Ulips is mature enough to differentiate between short- and long-term trends and hence would not move away from Ulips in hordes.
However, if the volatility continues for some time, there could be some impact on Ulip sales in the short term”.
Although it is early to determine a trend on switches between funds, there seemed to be a mixed response on the issue.
P Nandagopal, CEO, Reliance Life said, “There is no significant trend of switching between equity and debt schemes in recent times. We believe switching should be done when there is an underlying change in the client’s needs and risk profile, irrespective of market conditions”.
However, according to Sam Ghosh, CEO, Bajaj Allianz Life, the company has witnessed a considerable number of switches from equity to debt instruments in existing schemes. He added that new customers have preferred to get into equity schemes.
Almost all insurers felt that the long-term growth story in Ulips was here to stay. Prasun Gajri, senior V-P and chief investment officer, Tata-AIG Life, said: “The volatility has provided an opportunity to pick up specific stocks at better valuations. We will continue to buy on market dips as we do not believe the fundamentals of the Indian equity markets have changed in any way.”
According to a Merrill Lynch report, even in the event of a consolidation in equity markets, there may be a continuation of investments in Ulip products though investors may increasingly opt for balance/debt oriented schemes within the Ulip structure.
A Merrill Report states, “It does appear that Ulip will continue to be the preferred choice of customers owing to the high transparency it offers versus the traditional endowment product and greater investor awareness hence, while there could be a shift towards balanced or debt funds, Ulip as a product may continue to be the preferred one over the more traditional endowment products”.
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