The Insurance Regulatory & Development Authority’s (Irda) call to life insurance companies, asking them to promote term insurance products.
Many insurance players are likely to launch a slew of such policies
KOLKATA: The Insurance Regulatory & Development Authority’s (Irda) call to life insurance companies, asking them to promote term insurance products instead of only unit-linked plans, is likely to lead to the launch of several pure protection products in the new fiscal. The regulator had last week also reduced the solvency margin requirements for term policies with effect from March 31, 2008.
Irda chairman C S Rao had recently said that popularising term insurance was one of his biggest challenges, where with a “small premium a person can get a life cover”.
“Customers should feel the need to buy term insurance - a basic cover at a moderate price for say 20 years and insurance companies should do something to incentivise this segment,” Rao said.
The quantum of term policies sold in India is very small. Term policies are pure insurance policies - they do not have an investment component.
With unit-linked products or investment cum insurance products holding centre stage for almost every life company, term or pure protection products have not been too popular.
But now, thanks to the lower capital requirements, insurers are looking for ways to popularise term products. Some are even thinking of specialised advisors for selling such products.
P Nandagopal, CEO, Reliance Life, said, “The market for term products is not very big but these products should be correctly pitched and some innovation can be brought about. We are also mulling specialised selling for this product. In terms of volume, this category could constitute 20% of the total in the next few years for our company. We would also work on increasing our group business premium further through term policies”.
Other insurers expect a drop in policy premiums following the Irda move. “Lower solvency margin requirements for term insurance means that capital requirements for insurers will reduce. Hence we will be able to reduce the price of these products and customers will definitely benefit out of this move. This would help improve the penetration of protection business”, said GLN Sarma, chief actuary, Bharti AXA Life.
Vikram Mehmi, CEO, Birla SunLife agrees. “The previous solvency margin on pure term products was disproportionately high, given the insurance risk taken by the company. As a result premiums were higher than what was required for younger lives. The new solvency margins will most likely result in a reduction in premium for pure term products especially for individuals in their 40s or younger,” he said.
A recent study of Max New York Life and NCAER on financial protection survey revealed that 96% of the households could not meet their routine expenses beyond one year in case of loss of major source of income. “This clearly indicates that term policies have an important role to play. Individuals should meet financial protection and wealth creation through a prudent balance of term, traditional, whole life and unit linked plans”, said Debashis Sarkar, director, marketing, product management and corporate affairs, Max New York Life.
g_nandini@dnaindia.net
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