Post-liberalisation the basic structure of Indian life insurance industry has undergone substantial change. It is contributing quite a lot to the Indian economy. SB Mathur, secretary-general, Life Insurance Council, speaks to Sitanshu Swain & Kumud Das articulating for support from the government. Excerpts:

What proposals is LIC deliberating at the moment?

We have been interacting with Insurance Regulatory and Development Authority (Irda) on various issues like corporate governance and electronic issuance of policy. On corporate governance, we have been sent an exposure draft. We are responding to some of the suggestions made in the draft. Now, the final guidelines have come on that. Now that only mortality charges have been removed, another important issue that is being discussed whether few more such positive steps from Irda on Ulip charges can be taken. I feel that capping charges on Ulip policies to differ after 10 years and above is not reasonable.

We are trying to build up consensus on electronic issuance of policy. See, there are 30 crore policies in the book of life insurance companies as of now. Moreover, five crore new policyholders were adding up to the book every year, which makes the task of life insurers huge one. Hence we are favouring the introduction of demat account. At least two crore policyholders can easily pay their premium through the demat account facility.

Earlier, the council had said the claims in the industry have gone up. Why is it so? Can you give some idea on lapsation of life insurance policies?

True, companies are growing, but policyholders are also aging with the rise in their population. It is an index of satisfaction. The company that has started two years back have a younger staff comparatively. In a recent roundtable conference, which was held in New Delhi, I had made a remark that of total benefit paid by various life insurance companies worth Rs 57,500 crore, life insurance companies alone paid death claims worth Rs 6629 crore, which comprises Rs 976 crore from private life insurance companies in the segment during the year 2008-09.

To be precise, death claims rise faster than maturity claims as intermediate deaths are on a rise. Increase in business and increase in premium in case payments are also increasing. But, policyholders? benefit is not increasing.

Though lapsation figures are yet to come from Irda, but it differs in terms of policy and premium. Keeping in view the renewable premium which has remained so high in the industry, lapsation is all set to come down. In case of LIC, surrenders have come down significantly.

But, renewal of premium was also growing at a faster rate. Take the example of the year 2008-09. While new business premium dipped by Rs 6,000 crore to Rs 86,900 crore in 2008-09 from Rs 93,700 crore a year ago, renewable premium increased by Rs 26,000 crore to Rs 1,33,318 crore in 2008-09 from Rs 1,07,550 crore a year ago. Thus, total premium income grew by Rs 20,000 crore or 10% on year-on-year basis.

It means that persistency is growing. Coming to Ulip, the renewable premium income has seen a massive increase within past couple of years. What with, the income from renewable premium grew to Rs 46,239 crore in 2008-09 as against the sum of Rs 22,380 crore in 2007-08, which in simple term means that the growth was doubled in the sector.

Also, Ulip products have seen a 79% growth in renewable premium alone during the first quarter of the current fiscal on year-on-year basis. I think there are two reasons behind it. First, companies are increasing their focus on their bottomlines. Secondly, Irda has increased the minimum lock-in period to three years now. Companies are now focusing on renewal premium too.

Do you think there should be more disclosure on agency commissions for the agents of the life insurers? Now that Sebi has changed the system the way mutual fund agents are being paid commission, will this put insurance agents in a favourable situation? Also, how do you see the recommendations of the D Swarup Committee on financial products?

See, commission drives sales growth. Last year, about 1,25,000 crore have been collected by life insurance companies in the form of new business premium, where commission percentage ranges from 1.75 to 2%. But, there lies a question. If commission was only for driving business, then this business should have gone to other saving avenues. Now, here lies the reason. The life insurance companies enjoy the tremendous distribution strength. Out of 11,700 branches, 70% fall under C-grade class and even below C-grade class or semi and semi-urban areas.

Out of a total of 29 lakh agents working in the sector, quite a lot are placed in semi-urban and rural areas. Now compare this with a recent McKinsey report. The report says that 75% collections of MF products come from 16 major towns of the country and 80% of profits in MF are from those cities only. Again, during last year, MF sacrificed retail consumers to corporate consumers which go in contrast of life insurance companies. All MF companies put together, they are having capital of Rs 4,000 crore, which was quite less when compared to the same figure in case of life insurance companies.

Life Insurance Corporation?s capital is restricted to Rs 5 crore. But private sector companies jointly enjoy the assets worth Rs 1,18,000 crore and capital of Rs 24,800 crore. That was why the life insurance companies could promote their schemes unlike their MF counterparts. Section 40 (C) of Insurance Act has prescribed total expenses of life insurance companies. Now capping has come for Ulip policies.

Let me add here that companies? developmental, growth and awareness plans will be affected due to Irda?s recent move on capping Ulip charges. Yet again, a sum of Rs 4,000 crore was paid by life insurance companies to the government in form of various service taxes. So, there should be a fresh look on the issue of capping. There are so many charges that have been imposed on insurance products unlike MF products. Some of the segments on which charges are levied by the government on insurance products include policy stamp, risk premium, R & T and even agents? commission. On Swarup committee recommendations, Life Insurance Council (LIC) has convened a meeting of the insurers on September, 2008, to discuss the issue.

We are not against transparency and qualification process. But, we realise that financial instruments like insurance products in the country are not yet attractive propositions. Let me put it in this way-You can lead a horse to water but can?t make it drink.