Mumbai: In a bid to ensure that more insurance funds flow into infrastructure projects rather than into the equity market, the Insurance Regulatory and Development Authority (Irda) may ask life insurance firms to shift focus from unit-linked insurance plans (Ulips) to traditional products such as endowment plans, money-back policies, pension plans and term policies.
According to provisional data by the Life Insurance Council, a representative body of life insurers in India, for the quarter ended June 2009, the total premium generated by private life insurers was Rs13,243 crore, and 85.5% of this came from Ulips.
New guidelines: The LIC headquarters in New Delhi. There are 22 life insurance firms in India, including LIC, the largest and oldest insurer. Ramesh Pathania / Mint
Ulips offer a policyholder an element of insurance cover and freedom to invest a part or the entire sum of her premium in equity markets. The value of one’s investment in Ulips depends on the net asset value of the units of investments.
“We are examining various ways to get long-term capital for the country’s infrastructure growth from the insurance industry. Companies should generate a minimum amount of capital selling traditional insurance products, instead of focusing mainly on unit-linked products,” said R. Kannan, member-actuary, Irda.
However, he declined to comment on what Irda would do to ensure this. “We are examining it but have not yet decided on whether there should be any stipulation on the minimum percentage of total premium that an insurance firm would need to generate from traditional products,” Kannan said.
Another senior Irda official said that as a major part of Ulip premiums flows into equity markets, the regulator is concerned that enough long-term money is not being generated for supporting the country’s infrastructure growth. “We are closely watching how the firms are selling insurance products and whether they are raising long-term money,” he said. He declined to be identified as he is not directly involved in this exercise.
“Private life insurers should have a fair mix of traditional and unit-linked products in their portfolio. In traditional policies, the companies should increase their share in participatory life insurance plans to provide better support to the infrastructure growth of the country,” Kannan said.
A participatory plan provides life cover for a fixed number of years and if no claim is made, gives the insured a cut of the firm’s profits, in addition to the sum assured. In insurance parlance, the profits are termed bonuses.
In sharp contrast to Ulips, the investment norms for traditional insurance products are stipulated by Irda. Under its norms, a life insurer is required to invest at least 50% of premiums in government securities, 15% in infrastructure-related projects and companies, and the remaining 35% in equities, mutual funds, non-convertible debentures, and other money-market instruments.