"On the distribution front, guidelines have not brought in a positive response"
Life Insurance industry is going to undergo dramatic changes both in the products and the way they are sold following the introduction of new regulations on Unit Linked Insurance Plans (ULIP’s) with effect from September 1, 2010. Insurance watchdog IRDA has tightened the norms for ULIP’s after winning the battle with the markets regulator SEBI over control over ULIP’s. The new guidelines issued by the Insurance Regulator, IRDA for ULIP’s will cause an impact on the profitability of the insurers and bring down the ULIP sales.

However, these changes are actually for the betterment of the public but come as a mixed bag as the changes made with the intention and statement that they are for the betterment of the policyholders may cost them dear too.

These ULIPs are being positioned as Long Term solutions but some people were misusing the present 3-year norm and hence ULIPs were being sold as Short Term 3 year products. Now with the changes, they are clearly defined in the 5-year plus product category.

Some of the welcome moves are the allowance of a higher sum assured, which means higher protection for policyholders. Stricter guidelines for pension products would ensure lower mis-selling as these products were being mis-sold by some unscrupulous agents. Return guarantees will benefit pension investors who are approaching retirement. But for long term investors, a guaranteed fund, primarily debt, may not make sense and they will get much higher returns if they invest in ULIP with higher equity exposure and can buy an annuity later to get regular income.

Another welcome move is the cap on surrender charges. This puts the onus on the life insurance companies to ensure that their products are pitched as long term solutions, so that the clients who intend to pay the premium for a long term are encouraged to do so. The companies which were earlier allowing a bit of mis-selling in order to rake in lapsation profits may not be able to recover their initial expenses in respect of the lapsed policy now. But will this mean a stop to mis-selling for lapsation profits. Maybe not, as most of these policies are sold by multi level marketing companies and this loophole still exists in traditional policies and they may simply shift to traditional business.

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Source : IIPM Editorial, 2011.

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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On July 08, 2010, Planman Media hosted a special meet, as a part of its Thought Leadership Summit series, this time covering an industry in flux in contemporary times – insurance. The meet was titled ‘Insurance: The road ahead’ and was held at India Habitat Centre, New Delhi. The tone was set by Rahul Aggarwal, CEO, Optima Insurance Brokers Pvt Ltd, who talked about the growth areas within various categories of general insurance wherein he emphasised upon the fact that health and motor insurance would be the key growth drivers. Mario Perez, Director-Marketing and Sales, Canara HSBC OBC Life Insurance traced the evolution of conventional distribution channels and discussed how banks as a channel for distribution of insurance have begun to play a critical role in building the interest and trust factor related to insurance products in India and how the role of bancassurance will become crucial in coming times. A S Narayanan, Head-Bancassurance, Corporate Buisness and Direct marketing, Bajaj Allianz Life Insurance threw light on the trends in both the global as well as the Indian insurance industry. He talked at length about the challenges facing the Indian insurance industry; however his main focus was on the regulatory changes which are in the pipeline. According to Narayanan, while the intention of the regulators behind bringing changes is good, it will be beneficial to only a select segment of the consumers and the insurers will not be in a position to serve a greater population base. He said that such regulatory changes will impact the insurance industry in such a way that the basic fundamentals would have to be altered in order to sustain. The final speaker was the VP and Country Head of Royal Sundaram, Prashant Singh, who gave a ray hope by saying that all is not over in the insurance industry. He analysed the insurance sector in the country using various parameters and illustrated the critical factors that will play a big role in the years to come in this industry.