There is a shift from Ulips to traditional products

SBI Life, the life insurance subsidiary of State Bank of India, has expanded its operations despite Insurance Regulatory and Development Authority's sweeping changes in the norms of unit-linked insurance plans from September last year.

MN Rao, managing director and chief executive officer of SBI Life speaks to FE about his strategies to cope up with regulatory challenges. Excerpts:

How SBI Life is faring in the days when the life insurance industry's numbers are falling?

Business so far has remained satisfactory at SBI Life though falling in line with industry. We have done R2,050 crore of business in the new business premium until August 31 in this financial year, as against R2,390 crore in the corresponding period of the last financial year, thus witnessing a fall by 14% during the period. Now the product mix has changed. We have shifted to low-ticket size product. Still, the total product portfolio remains unchanged from July last year to July this year. Till July during this financial year, our premium has gone up by 3% year-on-year. However, from August 2010 to August 2011, our performance is down by 14%. It has happened as August 2010 (the sales were very good during that particular month) was the last month for all of our old products and we had launched new products in September 2010 in line with the new regulations of regulator Irda. In total business premium, we are growing over last financial year on yield-to-date (YTD) basis in August 2011 when we achieved a sum of R3,983 crore, as compared to R3,706 crore in the corresponding period of the last financial year, thus recording a growth of 7.5%. Going forward, we do expect to show a growth on new business front and total business premium which are expected to go up by 10% and 15-16% respectively by the fiscal-end, as compared to our performance during the last financial year.

While the current volatile capital markets which may nots be conducive for Ulips, how are you trying to push traditional products?

As of now, our product mix-Ulip and traditional and corporate solutions plan (or group plans) is in the ratio 55:45. Total numbers of Ulips have fallen by 10% during August this financial year, when compared to the level of August 2010. Again, our traditional products have gone up by 125% during the period. Our group fund alone has increased by 15% during the same period.

Do you think the highest NAV products launched by insurance companies are misleading and Irda should take some action?

We do have highest NAV product, named as Smart Performer and it is doing well. The regulator is worried about administrative issue related to the product and how to make the disclosures to the customers about such products so that they get a fair deal. Life Insurance Council is working on it.

Has your investment portfolio fallen? Do you think that investment income will fall this year?

Nearly 55% corpus of our total assets under management (AUM) has been invested in equities. In majority of funds, our fund performance has been well so far. In most of the funds, we are in the top performer. In case the same market condition continues, we would invest R6,000-7,000 crore additionally in equities during the remaining part of this financial year. The balance amount would be invested in either G-sec or corporate bonds. There is a shift from Ulips to traditional products happening now. I think, it will stabilise after a year from now.

Do you have any capital infusion plans?

We had our last capital infusion to the tune of R500 crore in SBI Life in 2007-08. It was jointly done by the promoters like SBI and BNP. After that, there has been no requirement of capital infusion because of profitability. We first broke even in 2005-06. Except for a marginal loss, which was incurred by us in 2008-09 thanks to the market crash, we have continued to make profits constantly since then.

With SBI as the parent body, it was expected that SBI Life would emerge as a leader in the life insurance industry soon?

We started our operation some 10 years ago. We are the life insurer with the lowest operating ratio. Also, we are the largest player in the private sector in terms of total business premium as on July-end. The strength of SBI Life is primarily due to the support provided by the SBI. Most of the SBI branches are selling our products through bancassurance channel. On the selling of products of more than one insurers (which is permitted now) by the banks, a report has been submitted before Irda. We are in favour of selling two products each from life insurance and non-life insurance companies. We believe that sale of insurance product is a long term relationship with any bank. There should be close coordination between bank and insurance companies, not only for the sale of their products, but also for servicing of product and grievance redressal so that customers of the bank should have a choice.

Now you have 2 years to revive a lapsed Ulip

A lapsed policy is the last thing a responsible person would want in his/her balance sheet. Imagine the scenario. A policyholder forgets to pay the premium on the due date. He/she fails to pay the premium even after reminders from the company asking him/her to renew the policy within the grace period. The reasons for not paying the premium may be a temporary financial crunch or something serious and unanticipated.

But he/she would lose the insurance cover. In the process, the policyholder's worst nightmare could come true if something were to happen (euphemism for death) to him/her during the period. The whole purpose of buying a life cover - to support the family financially when one is not around - would be entirely defeated.

However, some Ulip (unit-linked insurance plan) holders would get more breathing space now thanks to the recent decision of the Insurance Regulatory and Development Authority (IRDA) to allow policyholders to revive their policies within two years from the premium due date.

The new guideline will be applicable only to Ulips issued after September 1, 2010, when the course-altering norms for Ulips were put in place by the regulator. However, Ulips that have crossed the lock-in threshold of five years will not get any benefit from these regulations.

Relaxed rules

The revised norms, which will become effective from November 1, are aimed at making it easier for policyholders to reinstate their policies that have lapsed. "Under the earlier guidelines, one could not revive their policy once it lapsed 60-75 days after the premium due date. The policy was treated as withdrawn and the balance amount moved to the discontinued policy fund. With the new guidelines, one has the option of reviving the policy for a period of two years (but within the lock-in period of five years)," says Gaurav Rajput, director, marketing, Aviva India.

Until now, if premiums were not paid within the grace/notice period, the accumulated funds were transferred to the discontinued policy fund and remained locked in till the end of the fifth year of the policy, after which it would become payable to the policyholder.

"After this circular, once monies are moved to the discontinued policy fund in the first five years, the policy can be reinstated for up to two years. In which case, the cover will be reinstated subject to underwriting, and the client will again get a choice of investment funds," explains Andrew Cartwright, chief actuary, Kotak Mahindra Old Mutual Life Insurance. For policies more than five years old, reinstatement is not possible, as the funds become payable immediately after discontinuance.

ICICI Prudential Life launched two new Ulips

ICICI Prudential Life Insurance has launched two unit-linked insurance plans (Ulips) – ICICI Pru Elite Life and Elite Wealth - aimed at the high net worth individuals. The features of both the plans are similar, save the premium. The minimum premium for Elite Life is Rs 2 lakh, while it goes up to Rs 5 lakh for ICICI Pru Elite Wealth. The premiums can be paid either in one go or over a period of five years.

Under the one-pay option, the life cover for those aged till seven years and over 60 years is limited to 1.25% of the premium. Those between eight and 60 years can opt for a minimum sum assured of 1.25 times the premium, with the upper limit being five times the premium amount.

If the premium is paid over five years, then policyholders aged between 8 and 45 can secure a sum assured that is either 10 times the annual premium or an amount equal to the policy term multiplied by half of the annual premium, whichever is higher. For those over 45, the sum assured will be seven times the annual premium or an amount equal to the policy term multiplied by one-fourth of the annual premium, whichever is higher.

If policyholders chooses a life cover of 1.25 times the premium, the deduction available under 80c of the I-T Act will be limited to only 20% of the total premium and not the entire premium amount. What's more, the returns generated by the product will be taxable, too.

FUND OPTIONS, MATURITY PROCEEDS
The products offer eight fund options, and also the option to invest systematically through the automatic transfer strategy. In case of the insured's death during the policy term, the amount payable will be the sum assured reduced by the partial withdrawal, if any, or the fund value, whichever is higher. Partial withdrawals are allowed after five years of the policy, subject to limits.

CHARGE STRUCTURE
Premium allocation charges amount to 3% of a single premium and 2% under the five-pay option. Policy administration charges are Rs 60 per month for one-pay and Rs 500 per month under the five-pay option. Any alterations in the policy, besides switching funds, will cost Rs 250 per transaction. "The initial charges are lower compared with other Ulips, but they still cannot beat mutual funds which don't have an entry load," says Pankaj Mathpal, CFP.

Upside: Long-term insurance cover with a limited premium payment term. Also, the policyholder can choose between eight funds options and switching between them is free.

Downside: Like all Ulips, financial planners feel the charges are higher vis-a-vis other comparable financial products like mutual funds.