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India seeks better insurance, as ULIPs lose shine

business Updated: May 15, 2008 21:07 IST
Suman Layak
Suman Layak
Hindustan Times
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During the busy month of March 2008 when a lot of insurance policies are bought – Indian consumers bought bigger policies.

The average policy size compared to March 2007 was 64 per cent bigger in March this year according to a study on Indian life insurance by a global bank.

The trends are clear – while the stock market doldrums has made the common man sceptical about ULIP based policies that were driving the growth -- richer people are buying bigger insurance policies and mostly from private sector players.

"Highly-paid executives and businessmen are going for a lot of pure-protection term policies of high value," said Rahul Aggarwal who heads a Delhi based insurance brokerage.

The UBS study says that the insurance industry is facing a slowdown. The trend may continue in the financial year 2008-09.

The study also said that the market share of government owned Life Insurance Corporation fell during the year 2007-08 to 48.1 per cent and for March 2008 LIC’s share has fallen to even lower 42 per cent. For the first time the private sector insurance players have more than half the market.

Aggarwal adds: "The traditional buyer insurance who would use it to park some funds in the markets and also do some tax savings seem to have postponed their investment."

S Krishnamurthy, the former managing director of SBI Life Insurance and currently heading insurance sector consultants Watson Wyatt in India adds: "This should be an opportunity for the industry to focus more on traditional and protection products and less on the ULIPs." He added: "It seems the agents of LIC did not target high –networth individuals whom the private sector players did. The aam janata seems to have moved away from the ULIP-based policies."

The UBS report said that while in March 2007 the life insurance sector saw a 90 per cent plus growth, March 2008 shows a 53 per cent growth only. It added that in March 2008 LIC grew only at 16.4 per cent while the private players grew at 83.7 per cent. In 2007 March the private players had grown at 103.8 per cent.

It says: "We have currently forecast new business to grow at 40-60 per cent. With weak March 2008 trends we expect the private sector to grow at 30-35 per cent against our earlier assumption of 45-50 per cent." The message for the insurance industry is loud and clear and Krishnamurthy of Watson Wyatt sums it up: "It is time for a course correction for the industry and time to launch a variety of products focussed on protection."