Living a new life for life insurance

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Things have changed; wind is blowing in an entire new direction. After a huge disagreement between SEBI and IRDA over the regulation of ULIPs, IRDA came up with new guidelines for ULIPs and these new guidelines have completely change the way  business of ULIPs is conducted in the country.  Insurance regulatory and development authority of India has redesigned Unit Linked Insurance Product as long term protection plans instead of it earlier position of investment products. It has reduced its cost and changed the commission structure.

Initially life insurance companies, which have got used to sell it as investment product, were opposing this move. But with no respite from the IRDA, they had to follow these new guidelines. IRDA has been very cautious in approving new product because it is very particular about protecting consumer’s interest. New guidelines will force life insurance companies to adopt new methodologies and reduce the cost to maintain margins. ULIPs forms around 80 per cent of total new business premium of the industry. IRDA has also bought in new policies to encourage agents to get policies renewed.

Indian insurance companies haven’t focussed enough on encouraging customers to renew polices. High lapsation and surrender ratio is great threat to Indian insurance companies, they haven’t paid it enough attention, but IRDA has picked it well and addressed in an appropriate manner. In India, insurers have never focussed on creating market for term and annuity products and been mainly selling ULIPs as life insurance products and therefore they just don’t have any clue on how to survive and flourish in this new market scenario?

Most of ULIPs are mis-sold in India and senior management of these companies have never shown enough interest in checking that. Finally, IRDA decided to play its role and bought structural changes in the system. ULIPs are market linked insurance product which are very opaque and making out its real cost structure is very difficult for a layman investor. Investors have been putting their hard earned money in ULIPs because they consider them as investment product and assume that they will yield high returns. Agents often misled them and project these products as high return yielding short term products.

IRDA has banned a lot of ULIPs in the past also, and bought many changes in the regulations. But despite huge criticism of the mis-selling practices by IRDA, experts and customers, Life Insurance companies have never bothered to do any change in their strategies. Though expecting these changes to bring any magical modification in life insurance market would be a bit too much, but in the long run, they can yield good returns for the industry as well as customers. The real problem with the life insurance industry is not regulations; it is lack of interest from companies.

Life insurance is a long term business and most of the companies in India have been only focusing on new business premium and they are not keen on customer retention. It shows in their practises of selling wrong products to customers based upon their interest rather than customer’s needs. Hopefully they will learn to adapt to new policies and start working in direction of coming up with new innovative and customer friendly products and policies.

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