In the wake of the tussle between regulators Sebi and Irda over the supervision of unit-linked insurance plans (Ulips), Life Insurance Corporation (LIC) plans to refocus on traditional insurance products. In an interaction with FE?s Kumud Das, LIC managing director (marketing) DK Mehrotra says the sales of Ulip may fall after the new disclosure norms are in place.
How well did LIC perform last year?
We maintained our market leadership by selling 3.88 crore policies last year. Our income from first year premium stood at Rs 42, 960 crore, up 21%, in the year, while premium, including renewals, was at Rs 1,50,000 crore, an increase by 5%. The ratio of Ulips and conventional products is currently at 64:36 as against 70:30 last year. However, we plan to bring down the Ulips share.
Why do you want to bring down the Ulips share?
We want to bring the share down because conventional products are more secure for life insurers. Agents earn a higher commission on traditional insurance products. With Ulips, there is a lock-in period of three years and the intermediaries’ commission stops after that if there is redemption. It’s possible that sales of policies may be affected due to the new disclosure norms by Irda and customers may shift to conventional products.
Do you believe that the sale of Ulips will fall?
Insurance is a long-term product but Ulips are seen as investment, rather than insurance products. There haven?t been withdrawals yet after Irda’s disclosure norms but there is a chance that sales of Ulips may slip. We are trying to launch new traditional products and relaunch the old ones and are re-orienting agents. Insurance is a ‘push’ product and so Irda’s move may encourage policyholders’ asking for more rebates, which could result in unhealthy practices.
Going forward, what will be LIC’s strategy?
We will come up with new Ulip products and more traditional products. As for reach, there is still scope for growth in the metros. Our rural business comprises 25% of our overall business at present but we can’t lose focus on metros since there is untapped potential. Repeat sales are happening in the metros. Competition is compelling us to become innovative but we need to create more awareness. We are trying to promote more conventional products. We are looking to use technology in terms of servicing, channel performance and productivity. We have appointed senior business associates (SBA) who are working for us at a very low cost of 3% since June 2009. This channel has given us Rs 2,600 crore worth of business so far. We have already appointed 576 people as development officers under SBA and in all 1500 agents are involved, contributing 6.07% of our total business. This year, we hope SBAs will give us Rs 10,000 crore.We are likely to increase the number of SBAs to 1,000.
What is your business target for 2010-11?
We are looking at earning Rs 54,000 crore as first premium income, selling around 4.66 crore policies. In our case, lapsation has come down. On the basis of annualised premium, we are growing at 33% and in March we collected Rs 11,580 crore, more than twice the amount collected last March, and one-fourth of the business done by us last year.