Thaindian News

By V. Jagannathan
Chennai, Feb 15 (IANS) India’s life insurance industry is expected to grow by around 10 percent in 2010 over the previous year, mainly by improving efficiency but also by expanding in small towns and villages, industry experts say.

They also expect life insurers to rebalance their sales mix - unit linked insurance policies (ULIP) and non-ULIP.

“We expect the industry to grow at an average of around 10 percent. We do expect a slight balancing of portfolios with a shift towards traditional policies with ULIP contribution coming down to 85 percent from the high 90s,” Malay Ghosh, president, Reliance Life Insurance, told IANS.

“After years of mis-selling ULIPs as a short-term investment instrument on the back of a stock market boom, risk-averse customers will make life insurers look at alternatives,” an industry official said.

“ULIPs offering guarantees will find favour with policy buyers,” G.L.N. Sarma, appointed actuary, Bharti Axa Life Insurance told IANS.

According to industry officials, much of the growth will happen by increasing agents’ productivity and not by expanding the distribution network. If companies do expand their branches this will be in small towns and villages.

“In the coming years, innovative low cost structures will be used for expansion especially in interior locations, a potentially lucrative market,” said Ghosh.

“We can expect the branch expansion to continue at semi-urban and the larger of rural centres by private players,” R. Krishnamurthy, managing director of global consultancy firm Towers Watson’s insurance and financial services division, told IANS.

Even new players like Future Generali India Life Insurance Company Ltd are cautious in opening new branches.

“We will not expand our branch network this year. I don’t expect most other companies doing it as some had rationalised their branch network last year,” G.N. Agarwal, appointed actuary, Future Generali, said.

A senior industry official said: “The focus will be on getting the fundamentals right - arresting expense overrun, reducing policy lapse rates and increasing productivity - though some players seem to be playing the top line game all over again.”

“Reducing policy lapse rate or increasing the policy persistency ratio is the big challenge for the industry - and this is not an isolated experience of India. There are daunting experiences in other large emerging markets such as China,” remarked Krishnamurthy.

Mis-selling of life insurance policies as short-term investment is cited as the major reason for the high surrender or lapse rate.

According to IndiaFirst Life Insurance’s Managing Director P. Nandagopal, mis-selling of policies is resorted to by companies that use distribution channels like multi-level marketing companies.

“These companies operate pyramid schemes where many times there are no real customers and consequently there is no real persistence,” Nandagopal told IANS.

According to Reliance Life’s Ghosh, as the life insurance sector steps into a new decade, the regulator will lay emphasis on expense and persistency management as these are key drivers of profitability.