Bancassurance norms and products to give insurance industry a new direction

By Shilpy Sinha

After two sluggish years, the insurance industry is hoping that 2014 holds out better prospects amid expectations of stronger economic growth in the second half of the current fiscal. New product guidelines and bancassurance norms will also shape how the life insurance industry fares in 2014.

Life insurers will begin the year by launching 500 products aligned to comprehensive new norms aimed at making policies more customer-friendly. For instance, there will be a guaranteed surrender value after five years. There are new rules on the minimum death benefit as well.

This means companies are investing heavily in retraining agents to sell policies under the new framework in a market that's reorienting itself away from savings. The changes are also taking place in a year that will see a national election. "Macroeconomic factors will shape the growth of life insurance industry if there is a new government and new initiatives are taken which will have a rub-off effect on the financial services sector," said P Nandagopal, MD and CEO of IndiaFirst Life Insurance.


Term insurance plans with a purely protective function that are sold online will be a trend in 2014, he said.

The open architecture concept, in which a bank is allowed to sell products from many insurance companies, is expected to be a game changer for the industry. But while the finance ministry has directed banks to move into that direction, the state-run ones may not be ready to take to broking right away. Still, this will eventually widen access to likely customers, opening up more than one lakh bank branches that can be used to sell insurance products, especially in the rural areas.

Less than half of all bank branches are currently involved in selling any kind of insurance policy. A significant number of Indians are uninsured, with premiums as a percentage of GDP amounting to just 3.8%.

Sections of the industry have expressed concerns over the transition to the new norms with agents and other intermediaries worried that their incomes will be hit.

"The industry may see some business disruption in the short term while they are engaged in retraining their distribution force," said Anup Rau, CEO of Reliance Life.

"The changes will result in short-term pains due to lower commissions. But, in the long term, better quality of business and focus on persistency will help the industry in achieving sustainable growth."

Capital will remain a constraint for the industry, which manages assets worth Rs 20 lakh crore, with some of the shine having dulled after regulatory changes in 2010 to curb unit-linked insurance plans, or Ulips.

The limits imposed on charges and commissions have seen Ulip sales drop.

Companies will have to rationalise expenditure, Nandagopal said."There is pressure on the extent of capital being made available... both due to attractiveness of the industry and availability of capital," he said. The life insurance industry reported 6.58% growth in new business income in the first half of the current fiscal year. State-owned Life Insurance Corporation accounted for a bigger proportion of this, 7.25%, while private sector companies saw growth of 4.5%.

Source: Times of India