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Private life insurers have seen a rise in surrender of unit-linked insurance plans (ULIPs) as volatile equity markets have prompted policyholders to exit these schemes.
According to the annual report of the Insurance Regulatory and Development Authority of India (IRDAI), private life insurers saw a 12 per cent increase in insurance policy surrenders at ₹53,163 crore in 2014-15 compared with ₹47,294 crore a year earlier. Further, for these insurers ULIPs accounted for 91 per cent of the policies surrendered.
According to Sujoy Manna, AVP-Products, HDFC Life, “As insurance companies wrote more new business premium over the years and as the mandatory lock-in periods of previous polices underwritten expire, the amount of surrenders in total value goes up. Private insurers have a higher share in surrenders as they have been underwriting more ULIPs.”
Industry sources said that private insurers were selling higher number of ULIPs prior to 2010 and for most of these policies the lock-in period of three years has expired. Hence, many policyholders are surrendering their ULIPs as there is no penalty after expiry of the lock-in period.
LIC bucks trendHowever, Life Insurance Corporation of India (LIC), the country’s largest insurer, saw a 21 per cent decline in surrenders at ₹46,538 crore in 2014-15 against ₹59,627 crore in the previous year. Overall, the life insurance industry, which has seen a rise in surrenders since 2012, saw surrenders fall 6 per cent to ₹99,701 crore in 2014-15 from ₹1,06,921 crore in the previous year, primarily due to the significant decline in surrenders at LIC.
A senior official of the LIC said that the decline in surrenders can be attributed to the company selling ULIPs cautiously over the last three years following its decision to focus on traditional products which have been the mainstay of the company.
LIC did not sell ULIPs in 2014 after the IRDAI brought in regulatory changes. It launched its ULIP product again only in August 2015 after a gap of 19 months.
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