In the current market scenario, when millions of rupees/dollars are drowning every day, Life insurance companies are trying to play a safe bet. We have seen the fate of global insurance companies like AIG. Indian insurance companies are also losing huge money in stock market. Nav’s of their ulip policies are falling life never before. They realize the fact that they need to respond to these crisis. Insurance companies are largely dependent upon sale of their unit link policies. All the insurers collect 85 % of their total new business premium, is from the sale of unit link policies. Most of the products offered by companies are unit link & depend upon share market to perform. There is a proportionate rise or fall in nav’s of these unit link policies with respective move of the stock market. It’s been a year since markets has started falling and has nearly lost more than 50 %. This has an adverse effect on the capital of life insurance companies. They have started rebalancing their portfolios and restructuring their strategies. Though, Their has not been significant change in investor’s interest in unit link policies, but companies have already started shuffling their investments. They are trying desperately to go through this phase of typical bear market.
To antagonize this, insurance companies are now coming with different sets of products. They are trying to find some strategy to tackle these tough times. These products have got different investment portfolio, due to which it has a different exposure to market than regular unit link product. Bharti AXA has recently announced one new product. In which, your first year premium will not be invested in stock market. Your premiums, starting from second year will go to stock market. This innovation has been done for the protection of the policy holder & to reduce the risk. This is example from one of the life insurance companies, but most of the companies are busy building new plans, strategy or tactic to tackle this market mayhem.
Aviva India is also going to launch one new product to diversify its existing product portfolio, which currently include most of the unit link products. Other insurance companies are also engaged in rebalancing their product portfolios. They are constantly looking at various alternatives for investment as they have lost huge sum money in last six months or so. They know it is very important to maintain the faith of investor. It’s a tough time for industry as nav has already lost most of its value. If it continues to happen, investors may switch to other investment options. And as Unit link policies contain more than 85 % of total new business, It poses a great element of risk to life insurance companies.
But as insurance are long term products, it’s still a safer bet. Their long term nature neutralizes the lethal effect of short term fall but as market has fallen significantly, it is going to take at least, couples of years before various plans will achieve their old highs.
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