Though the regulator has reduced solvency margins that enable insurers to cut costs, life insurance companies have no plans to reduce premium rates on unit linked insurance policies (Ulips). They plan to use the gains to expand business instead.
The Insurance Regulatory Development Authority earlier this month reduced the solvency margins, which represent the excess of assets over liabilities, akin to capital adequacy provisions for banks that cushion them against risks. It should not be less than 150 per cent and is arrived at on the basis of a formula. The industry as a whole is expected to save Rs. 1,000 crore this year due to the regulatory relief.
The solvency margin is a small component in a Ulip as these covers have a small life cover. The premium of a Ulip is invested in a fund chosen by the policy-holder and thus he bears the investment risk.
However, TS Vijayan, chairman, Life Insurance Corporation of India (LIC), ruled out the possibility of reducing the premium rates for Ulips and said their actuarial team needs to study the impact of the margin reduction.
Shikha Sharma, CEO of ICICI Prudential Life Insurance said, “A reduction in solvency margin will not make a big difference to pricing of Ulips as their cost structure is different. The benefit of the solvency reduction is that it will allow insurers to grow in this era of capital scarcity.”
US Roy, CEO of SBI Life Insurance told Hindustan Times that his firm had no immediate plan to reduce premium rates.
“If at all there is a reduction in rates, it will be from players who already have high rates,” Roy said.