Calcutta, March 10: A third of policy-holders of private life insurers in the country do not renew their policies.
Data available with the insurance regulator revealed that private life insurers could retain only 71.39 per cent of their customers in the last five years.
Private life insurers’ conservation ratio — an indicator of how much of business underwritten in the previous years is getting renewed each year — between 2001-02 (the first full year of operations of private life insurers) and 2006-07 shows a sharp decline to 71.39 per cent from 86.80 per cent.
“This is certainly not a good sign,” said Sunil Kakkar, chief financial officer of Max New York Life Insurance.
“The trend shows that policy-holders are not renewing their policies and are dropping out,” he said.
Kakkar said the main reason for the slide in conservation ratio for private insurers was the tardy selling of unit-linked policies. Ulips were sold by many as short-term investment plans rather than long-term insurance products.
Forty-year-old Manoj Roy bought a policy from a private life insurance company four years ago for an annual premium of Rs 30,000. “I surrendered the policy in December last year. In the past three years, I paid a total premium of Rs 90,000, but the accumulated fund value of my policy declined to less than Rs 40,000,” Manoj said.
“When the agent sold me the policy, he said it was a very good tax-saving investment plan which I could redeem after three years. And if I would hold the investment for five years, I would get nearly double in return,” he said.
“After buying the policy I came to know that it was a Ulip and the insurer invested only Rs 8,000 in my investment fund and deducted Rs 22,000 from the premium that I had paid in the first year. Hefty deductions were also made from my successive premium payments. How could my investment fund grow even to the same level as the total premium that I would pay in five years?” he said.
“Insurers should sell their products in a transparent manner so that a policy-holder is not misled,” Kakkar said.
A few insurers such as ING Vysya Life, Kotak Life and SBI Life have a conservation ratio of around 60 per cent. The business loss for them due to non-renewal is 40 per cent or more. “Policy-holders often do not renew their premiums as they take the benefit of premium holiday,” said P. Nandagopal, CEO of Reliance Life.
But even if we consider the first premium income (that is premium income from fresh policies sold) of life insurers for five years and compare it with their renewal premium income in the following year, the picture is dismal. The cumulative first premium income of private life insurers between 2001-02 and 2005-06 was Rs 14,616.78 crore, while their renewal premium income in 2006-07 was only Rs 8,825.06 crore.
The premium loss for private insurers on a five-year cumulative basis is 40 per cent.
“There has been a significant increase in benefits paid (by insurers) in 2006-07 on account of surrenders/withdrawal which stood at Rs 17,532.60 crore as against Rs 4,622.19 crore in 2005-06,” the insurance regulator noted. It also stated that the benefits paid by the private insurers showed an increase of 89.05 per cent to Rs 2,470.27 crore in 2006-07 against Rs 1,306.65 crore in 2005-06.
However, realising the ill effects of high initial charges in unit-linked policies, the biggest innovation after the privatisation of life insurance, insurers have started to slash those charges in their new offerings.
Source:www.telegraphindia.com
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