Life Insurers stretching to Break even

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Life Insurance Companies in India are trying very hard to maintain profit and consequently, Break even. Ten years ago, a survey has predicted that life insurance industry will grow at rate of (CAGR) of 18.9 per cent. The actual growth has been much faster than anticipated and sector has grown at rate of (CAGR) 25.16 per cent. From the annual premium collection of Rs 21,581 crore in 1998-99, the sector has grown to Rs 2,21,688 crore last year.

Life insurance sector, so far, have been seen a robust growth but most of the companies which have been in the market for last seven to eight years, are struggling to Break even. The problem was aggravated by last year’s recession and capitalization requirement. Companies have pushing hard for profit but challenges like expansion and market share pose different kind of challenges to tackle, And while companies have addressing the challenges of market share and business, they have been missing the Break even target.

Government is also proposing to make it mandatory for Life Insurance companies to list after ten years and at the same time, companies are also thinking to increase their foreign partners. Currently, the maximum cap for FDI in Insurance sector is 26 per cent; government is thinking to increase it to 49 per cent. This move will certainly help lot of Private Insurance companies to move away with the tension of capital. Promoters of these companies are eagerly waiting for this Bill to pass. Life insurance companies have to maintain a solvency margin of 1.5 times, which means, for a business of Rs 100, so they need to have Rs 150. Increasing foreign ceiling to 49 per cent will help insurers in maintaining solvency.

There are challenges with increasing the FDI in sector regarding the changes which it may bring in management of private life insurance companies and their performance. Lot of Life Insurance companies have been quite keen on going public. Reliance Life has recently spoke about it. In the meantime, companies have seen a lot of cost cutting measurements like closing non-performing branches, asking employees to switch off electricity and sometimes even, lay offs.

Private insurers have been focusing a lot upon customer acquisition and customer retention. So far, only few private life insurance companies have managed to Break even like SBI Life, Bajaj Allianz, Kotak Life and Sahara Life. Consistency in being profit is biggest challenge for these companies. SBI Life was the first life insurer to turn profitable for the year ended March 2006, but reported a loss last year. 

New insurance companies have gained over the experience earned by old companies and are moving with the caution. They are focusing upon innovative product, distribution channel, expanding selectively and using modern day technology more efficiently. The key to success in current market scenario would be to hit at right market patches and achieve optimum bounce to beat the market.

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