Most of us were happy to see the back of 2011 for in many ways, certainly for the global economy and also for India, the year 2011 was 'annus horribilis'-a horrible year which saw the world confronted with the possibility of a deep recession, the European Union and several of its members in unprecedented financial crisis,, the American economy slowing down and India scaling its growth projections to below 7%. It was thought and hoped that 2011 bad as it was would be succeeded by a better year. Fortunately the year 2012 has commenced on a more optimistic note with FDI flows accelerating and the capital markets, despite occasional hiccups bouncing back, for the moment, quite vigorously. The RBI has also put a halt to the rate hiking spree on which it had embarked, with relentless doggedness, last year. Would all these positive developments herald the advent of the ‘Insurance Spring' in 2012.?
The IRDA has released its Annual Report for 2010-11 and also the First Year Premium Figures for insurance companies for the period April 11 to December11. The life insurance industry registered in f.y.10-11 a total premium income of 291605 cr, out of which 126381 cr. (43.33%) was towards first year premium income and the remaining 165224 cr (56.67%) was accounted for by renewal premium income (Annexure). Despite the year 2010-11 being a difficult one, especially post September 10, the industry was able to clock a healthy growth in first year premium (15%), renewal premium (6.22%) and total premium (9.85%). While the growth of LIC in first year premium (21.65%) was largely responsible for the overall impressive performance of the industry it is the private companies whose growth in renewal premium (18.94%) is much higher than that of LIC (1.66%) and of the industry (6.22%). In the area of total premium however the growth rates of LIC (9.35%), the private companies (11.04%) and the industry as a whole (9.85%) are quite close to each other. The reason for LIC showing a relatively higher growth in first year premium income which is not reflected in higher growth in renewal premium is ostensibly on account of the high component of single premium business (58.32%) in its new business performance for the year. The private companies, on the other hand, procured a much smaller percentage of their business through the single premium segment and, therefore the growth in their renewal premium is, at least for that year, more robust than that of LIC. Of course the fact that the private companies occupy a much smaller portion of the market space helps them to register higher growth rates vis-a vis LIC in percentage terms.
It is to LIC's credit that even after more than a decade of competition, from some of the best known names in life insurance business world wide it has been able to hold on to 69.78% of the market share in total premium, 70.49% in renewal premium and 68.85% in first year premium. It needs to be adequately appreciated that LIC continued to occupy nearly 70% of the market share in first year premium (and over 70% in renewal premium) despite nearly monopolizing single premium business in 2009-10 (92.19%) and 2010-11 (81.26%) respectively. It is, of course, a totally different picture in 2011-12 with LIC deserting its fondness for single premium business by collecting 8032.26 crs. upto 31st. December 2011 as against a whopping 22061.04 crs. upto 31st December 2010.The decline for private companies in single premium business has, on the other hand, been only marginal—from 4414.72 crs in 10-11 to 3206.23 crs in 11-12.
Irrespective of the positive growth in life insurance premium in f.y.10-11 fewer Indians purchased life insurance policies in the year 10-11 (4.82 crs.) compared with the number sold in the previous year 09-10 (5.32 crs.) (Annexure). While for LIC the extent of deficit was not very substantial (4.70%) in the case of the private companies the shortfall was much higher (22.61%). That LIC continues to be hugely popular with the majority of life insurance policyholders is evident from the fact it sold more than three out of every four new policies issued in 2010-11. In terms of new policies issued the performance of the industry in 09-10 (5.32 crs) is the best so far and considering the problems the life insurance industry is presently confronted with is unlikely to be bettered in the near future.
On account of the long term nature of the life insurance contract and that a life insurance product provides security and protection against unforeseen contingencies the aspect of servicing especially settlement of death claims is of crucial significance. As per the IRDA Annual Report for 2010-11 LIC settled 97.03% of its death claims as against the industry performance of 95.58% and the much lower record of the private insurers at 86.04% (Annexure). Even more revealing is the ratio of claims that were repudiated--only 1% for LIC compared with 8.90% for the private companies (the industry performance was 2.04%). As it is LIC's credibility with its customers and even with the general public is very high and with a performance in settlement of death claims that is so vastly and visibly superior to that of its competitors the almost complete domination of the life insurance scene by LIC is not surprising. It is undoubtedly a difficult situation for the private companies as they struggle to juggle between their anxiety to sell new policies and hope at the same time that they would not lapse after payment of first premium and even more worryingly result in early death claims that they are sometimes forced to repudiate. The evidently better performance of LIC could be on account of its more liberal policy in settling death claims or it could also be that its selection of lives insured (though unlikely) is better than that of its competitors whose relatively smaller size of operations perhaps persuades them to adopt a less magnanimous attitude than that of LIC while dealing with death claims especially those which arise within a year or two after policies are issued. It is possible that with passage of time and with growth in the volumes of business the private players would be able to come close to LIC's performance but until that happens its domination will never really be seriously contested.
The role and importance of the life insurance agent in expanding and popularising the life insurance market, certainly in a developing market like India, has generally been appreciated. It is believed that a life insurance product which can be complex and long term requires an intermediary to push it and persuade the hesitant prospect to become the actual purchaser of the life insurance policy. It is no coincidence that the decline in the number of policies sold in 2010-11 over the previous year has occurred at a time when the number of agents has also come down very substantially-26.39 lakhs as on 31st. March, 2011 against 29.78 lakhs at the beginning of the financial year. ( a decrease of 3.39 lakhs in twelve months) with the number of individual agents evenly split between LIC (13.37 lakhs) and the private companies (13.02 lakhs) (Annexure). However, with about the same number of agents LIC accounts for 70% of the market leaving the remaining 30% with the private companies. How difficult it is for the private companies to recruit individual agents, retain them and make them productive is evident from the fact that the private companies lost 6,68 lakhs (and added only 3.95 lakhs) last year and further that nearly half the new business (46.89%) of these companies came from, not individual agents, but Corporate Agents especially Banks. The contours of the life insurance market seem to be changing with fewer policies getting sold and individual agents, in the case of private companies, yielding quite a lot of their space to big banks acting as Corporate Agents. Direct selling in individual life insurance (most of group insurance business, though, has always win marketed by salaried employees of insurance companies, especially LIC and categorized direct selling) also getting its presence felt, as a distribution channel, and it appears certain that in the years ahead it will account for a greater share than it does today. (6.43% for private companies and a neglivivle 0.11% for LIC) Understandably it is the private companies, rather than LIC, which are resorting to direct selling, presently at least, as an alternative channel with promise of growth in selective segments of the insurable population.
With figures for the first nine months upto December 11 now available the indicators for the current year are, if anything, more worrisome. In first year premium income (individual business only) the deficit is a massive 33.1% while the number of policies sold is less by 11.2%. It is highly probable that the figures in the final and fourth quarter, which is traditionally also the most productive, will be even more disappointing and the first year premium income as also the number of new policies sold in the year would be drastically lower than the performance of the last few years. A closer look at the performance of all the companies shows that out of the 24 companies (including LIC) operating all 24, except two with relatively small volumes of business namely Star Union Daichi and DLF Pramerica, were trailing their performance of the previous year. The one aspect of the current year's performance which deserves to be mentioned is the very marked and no doubt deliberate shift on the part of LIC to move away from single premium business towards business through regular premium business. This should have a salutary effect on the renewal premium income of LIC and also contribute to increasing the income of the LIC agent .and thus ensure the continuity of his agency. It is not yet certain if this shift towards regular premium business is prompted by change in customer preferences or induced by change in emphasis in LIC’s marketing strategy. Although LIC’s first year premium as on 31st. December11 is behind that of the previous year by one-third (33.55%) its premium income from individual non-single premium business was ahead of last year by 8.5%. The main reason for the huge deficit of LIC, and therefore to quite an extent of the industry, is the virtual decimation of its single premium business where the deficit is a very high 63.6% (in premium income) and 65.5% (in policies) repectively. Single premium business which earlier comprised 58.2% of LIC's portfolio now accounts for only 31.9%. On the other hand the private players continue to bring, more or less, the same amount of business through single premium business (about 20-22%) as they were doing earlier. Of course, the private companies have done much less business in both segments-individual single and individual non-single-as compared with last year.
A trend which has been very visible in the life insurance industry in the last couple of years is the emergence of Group Insurance business, this is more applicable to LIC than the private companies, in making the overall performance look less dismal, sometimes even respectable than it would have appeared otherwise. In the nine months of f.y 2011-12 Group Insurance premium (32,822.21 crs.) accounted for 45.61% of the total first year premium (71,953.53crs.) and came very close to the individual first year premium (39,131.32 crs.) of the industry during the period. In the case of LIC Group Insurance Premium was higher than the individual first year premium-accounting for 51.63% of the total. Even more significantly the number of individuals (lives) provided protection through Group Insurance Schemes was a very impressive 4.38 crs.--higher than the number of individual policies sold (2.72 crs.). At a time when life insurance is being increasingly seen as an instrument to provide protection rather than a mode of savings or investment the increasing preference for the low cost and high coverage Group Insurance schemes can be understood and appreciated. It would be interesting but highly likely to see if this trend continues unabated and will be a persistent feature of the life insurance scene in the years ahead.
The story of life insurance has been a story of success and optimism till last year. That story has changed now. With the whole industry, including LIC, not doing well a process of change, some of it inevitable but some of it prompted by the regulator not recognizing the reality of the Indian market, is now underway. The slowing down of the Indian economy and a choppy stock market have had their impact on the life insurance market also. The fact remains that India's GDP is still slated to grow by 6.9% and the bulk of the country's population is young, largely uninsured and without the benefit of protection or old age security. In a population of 1.2 billion the number of life insurance policies in force was 32.91 crs. (Annexure)) as at the end f.y 10-11. This would approximate to about 20 crore Indians having life insurance policies with about 86.6% insured with LIC. The work is cut out for the life insurance companies, but especially for the LIC which as the market leader must lead from the front and come out with products and marketing strategies that are innovative, and even out of the box, and that address the needs and concerns of a young, growing and fast urbanizing India. Much of the onus will also naturally have to fall on the shoulders of IRDA which in its zeal to regulate the market and to rid it of malpractices must also enable and encourage the life insurance companies to tap the huge potential for life insurance in the country. The spring for the life insurance industry that appears elusive so far might yet become a reality and the long winter of low performance and high deficits might yet yield way to a season of hope and cheer and abundant surpluses--if not this year then perhaps in the next. Hope, so it is said, springs eternal in the human heart. .
(The writer of Above Article is - Shri N.C. SHARMA, ex M.D.LIC 0f INDIA)
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