Plans

Implementation of Irda's Ulip norms to dampen insurers' growth "WE may start seeing growth in the second half of the year" GV Nageswara Rao MD and CEO, IDBI Federal Life Insurance

THE year 2011-12 could well turn out to be a make or break year for life insurers, most of whom are preparing themselves for a turbulent financial year ahead. The first half of 2010-11 was smooth sailing for most players with a 52 per cent growth in new business premium, largely arising out of Ulip sales.
With Irda coming out with new guidelines on Ulip sales to plug the problems arising out of improper sales of the policies, new business premium of the life insurance industry fell by 21 per cent in the second half of 2010-11.

With 2011-12 being the first full year of implementation of the Ulip guidelines that makes them less attractive for agents to sell, insurance companies are preparing themselves to minimise the dent, in a year that will see a flat or even negative growth.

"We may see the first half of 2011-12 to be flat or slightly negative. The industry should see a low to moderate rate of growth this year," asserts Suresh Agarwal, executive vicepresident, Kotak Mahindra Old Mutual Life Insurance.

The feeling is echoed by many people in the industry who believe that the first half of this financial year would be more challenging than the second half.

"Last year the regulatory changes brought about were unprecedented and the industry took time to cope up with the changes.
The industry in still in a transition mode, trying to adapt to the new changes," said Rajesh Sud, managing director and CEO, Max New York Life Insurance to Financial Chronicle.

The key elements, according to him, that would make or mar the prospects of insurers this year would be the balance in the product mix, consumer centric product selling and bringing down the productivity costs that will help achieve profitability.

The new regulations and the fall in overall business have forced many new life insurers to push their break-even targets by a year or two. With valuations taking a hit due to the regulations and stock market volatility, financial stability is expected to be the immediate target for life insurance firms.

"The key is in finding economic viability first.
Growth targets will follow. We have seen the product mix changing for the private sector last year. This year emphasis will be on aligning products and customers with cost structures. One expects this to evolve fully during the year," Agarwal says.

Though the changes may hit growth plans in the short term, in the long run they bode well for the industry, according to members.

"We may start seeing growth in the second half of the year. Growth has been impeded because of the regulatory changes. But these changes will only help the industry grow," asserts GV Nageswara Rao, MD and CEO, IDBI Federal Life Insurance.