The Hindu Business Line : Unit-linked policies are growth drivers

Only a few insurers are encouraging traditional covers, especially group plans. The bulk of the growth in traditional covers, including group plans, was from ICICI-Prudential Life Insurance.

Bangalore , Feb. 14

PREMIUM accretions to life insurance companies are surging, almost entirely driven by unit-linked policies.

During the first nine months of the current financial year, private sector insurers sold 22.22 lakh policies - a 65 per cent growth over the corresponding period of the previous year when it was 13.52 policies.

Gross premium accretion during the period was Rs 5,425 crore, up 91 per cent from the previous year. Most of the growth came from sales of unit-linked policies.

Bajaj Allianz Life Insurance Company's Chief Executive Officer, Mr Sam Ghosh, said, "About 85 per cent of our policies are unit-linked." Similarly, Aviva Life Insurance Company's expatriate Managing Director, Mr Stuart Purdy, said, "Most of our policy holders have preferred unit linked covers." The same holds true for most of the other life insurance companies as well.

Policyholders' preference was more for equity or balanced funds. The reason was both these unit-linked covers have shown very high net asset values growth after the Sensex rocketed past 10,000 points. But none of the life insurers are complaining about the high growth. The reason: Unit-linked policies are seen as capital efficient, unlike traditional guaranteed return covers. In unit-linked covers, investment risks are entirely borne by the policyholders. This in turn implies that the liability of the insurance companies are restricted to the risk cover or the sum assured, which would be the effective liability of the insurers in the event of the covers being invoked. As a result, life insurers are faced with minimum solvency pressures, despite the high growth rates, sources said.

Under the current guidelines of the insurance regulator, life insurers are expected to maintain a solvency margin of 150 per cent. This implies that the value of the assets and capital have to be at least 1.5 times more than the insured liability. For life insurers, industry sources said, the preference for unit-linked policies has resulted in comparatively low capital infusions during the last oneyear.

In fact, only a few insurers are actually encouraging traditional covers, especially group plans. The bulk of the growth in traditional covers including group plans was from ICICI-Prudential Life Insurance. Group covers during the first nine months grew only by 40 per cent. ICICI's group cover grew 440 per cent growth over the last year. Its high growth in group covers was also due to the large capital size. In sheer capital size, ICICI - Prudential is the largest private sector life insurer with a paid-up capital of Rs 1,185 crore. This has allowed ICICI-Prudential to leverage for greater group and retirement covers. Besides, the sources said this would allow ICICI-Prudential to sustain its growth momentum even in the event of an equity market downturn.