After ten years of grit and determination, private insurers haven’t been able to really shake LIC from its perch, and continue to compete in a tough market. New rules further threaten their painful route towards profitability
Circa 2000: It was easily the next sunrise sector. After all, with just around 2% penetration, the life insurance market hadn’t even started spelling growth. Ten years, one global recession, a few regulatory changes and the picture has completely changed.
Squeeze on margins, higher capital needs, drop in new sales and a longer break-even are some of the several factors that are not only making life hard for established players, but are also threatening the survival of several small players. In fact, as of now, just four of the 22 new-generation insurance companies stand profitable (margins are likely to fall further by 25-30% for new businesses in the near future). Even LIC is planning some cost cutting measures to sustain profitability.
No doubt, from four and eight players in life and non-life insurance respectively in 2000, to 23 in life (with Rs.12 trillion in assets) and 24 in non-life insurance, the industry (which is estimated to reach $1 trillion by 2030) has come a long way. But LIC still holds the pole position with 73% market share. For the record, the total premium income of LIC alone stood at Rs.258.14 billion as of September 2010. Compare that to Rs.132.32 billion, the combined premium income garnered by the private players. Though names like DLF Pramerica, Future Generali, Star Union Dai-chi, et al are trying hard to get a significant share, it’s all been in vain.
“In the last 10 years, the life insurance sector has growth exponentially and now as it moves into a phase of maturity, selling life insurance for the right reasons i.e. long-term savings and protection, customer centricity and service excellence will ensure a healthy growth,” reasons Abhinav Rahul, VP - Corporate Communications, Max New York Life. But then, what about the recent slew of policyholder-friendly regulations from IRDA, which are set to have a negative impact on the profitability and distribution of several insurance policies and plans, particularly unit-linked investment plans, which account for 55% of new sales and over 80% of total business for many insurers?
As per latest data from IRDA, domestic life insurance saw a massive fall in new business in September 2010 in the wake of these new regulations that kicked off on September 1. The 23 life insurers earned a total new business premium of just Rs.96.12 billion as against Rs.185 billion earned in August 2010. Even LIC witnessed a deep plunge in its new business premium to Rs.66.06 billion in September from over Rs.146.53 billion in August. Experts believe that with these laws, the break-even period for players, which at present is around 9-10 years, will now get deferred to 12-13 years. “Few companies have achieved break-even in this industry, and many are sitting on huge accumulated losses,” accepts A.S. Narayanan, Head – Bancassurance, Group & NRI Business, Bajaj Allianz Life Insurance Co.'
Squeeze on margins, higher capital needs, drop in new sales and a longer break-even are some of the several factors that are not only making life hard for established players, but are also threatening the survival of several small players. In fact, as of now, just four of the 22 new-generation insurance companies stand profitable (margins are likely to fall further by 25-30% for new businesses in the near future). Even LIC is planning some cost cutting measures to sustain profitability.
No doubt, from four and eight players in life and non-life insurance respectively in 2000, to 23 in life (with Rs.12 trillion in assets) and 24 in non-life insurance, the industry (which is estimated to reach $1 trillion by 2030) has come a long way. But LIC still holds the pole position with 73% market share. For the record, the total premium income of LIC alone stood at Rs.258.14 billion as of September 2010. Compare that to Rs.132.32 billion, the combined premium income garnered by the private players. Though names like DLF Pramerica, Future Generali, Star Union Dai-chi, et al are trying hard to get a significant share, it’s all been in vain.
“In the last 10 years, the life insurance sector has growth exponentially and now as it moves into a phase of maturity, selling life insurance for the right reasons i.e. long-term savings and protection, customer centricity and service excellence will ensure a healthy growth,” reasons Abhinav Rahul, VP - Corporate Communications, Max New York Life. But then, what about the recent slew of policyholder-friendly regulations from IRDA, which are set to have a negative impact on the profitability and distribution of several insurance policies and plans, particularly unit-linked investment plans, which account for 55% of new sales and over 80% of total business for many insurers?
As per latest data from IRDA, domestic life insurance saw a massive fall in new business in September 2010 in the wake of these new regulations that kicked off on September 1. The 23 life insurers earned a total new business premium of just Rs.96.12 billion as against Rs.185 billion earned in August 2010. Even LIC witnessed a deep plunge in its new business premium to Rs.66.06 billion in September from over Rs.146.53 billion in August. Experts believe that with these laws, the break-even period for players, which at present is around 9-10 years, will now get deferred to 12-13 years. “Few companies have achieved break-even in this industry, and many are sitting on huge accumulated losses,” accepts A.S. Narayanan, Head – Bancassurance, Group & NRI Business, Bajaj Allianz Life Insurance Co.'
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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