Money & Banking

Life insurers see up to 10% drop in premium payments

G Naga Sridhar NS Vageesh Hyderabad/ Mumbai | Updated on January 15, 2018


Could worsen if cash crunch continues, especially in rural areas, say industry players

Life insurers are witnessing up to 10 per cent drop in premium collections post-demonetisation.

While a chunk of premiums they collect in urban areas are generally through cheques or the electronic channel, cash has been a key mode of premium collection in semi-urban and rural areas, according to industry experts.

When asked about the situation following the withdrawal of ₹500 and ₹1,000 notes since November 9, as part of the demonetisation exercise, a senior executive of Life Insurance Corporation (LIC) of India said there could be some impact on the premium collections through the agency channel in rural areas.

For private insurers, the nature of impact has been varied depending on the nature and extent of their penetration into the rural hinterland and business mix from different channels.

According to Arijit Basu, Managing Director, SBI Life, their renewal premiums are down by about 9 per cent from the previous three months’ average collections.

“Our new business premium collections do not seem to have been very significantly affected. In the individual agency channel, the collections this month are in line with the yearly trend so far. In the bancassurance channel there has been a slight decrease in new collections this month,” he told BusinessLine.

In new business premium, as a matter of policy, SBI Life does not accept cash. In case of renewal, collections in cash constitute only around 3 per cent of the total collection for it. “In cash collections of premium there has been a fall,” he added.

According to RM Vishakha, Managing Director & CEO, IndiaFirst Life Insurance Company, premium collection through cash was very limited and the impact was below 5 per cent, post-demonetisation.

An IRDAI official said the quantum of impact will depend on the continuity of cash crunch in rural areas. The regulator has extended the grace period for life insurance premium collections till December 31 in view of demonetisation.

It clarified on Monday that demonetised notes of higher denominations could not be used for premium payments any longer even though the grace period has been extended. If the adverse impact continues, it will be a serious concern for the industry which witnessed modest growth last month.

The growth in new business premium of life insurance companies has been a sluggish 4 per cent year-on-year, at ₹11,107 crore, in October . Industry leader, LIC, reported a 5 per cent decline in new premium at ₹7,572 crore as against ₹7,947 crore in October 2015.

However, in the first half of 2016-17, the growth was 35 per cent, at ₹76,236 crore. Whether that trend will be maintained in the second-half remains to be seen.

Published on November 30, 2016

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