Private Insurers Gain From Protection Plans As Ulips Stagnate
A customer fills up an insurance policy form. (Photographer: Akio Kon/Bloomberg)

Private Insurers Gain From Protection Plans As Ulips Stagnate

India’s three listed private life insurers reported a faster growth in protection policies over the past two years after the sector regulator tweaked norms to boost penetration and sales of unit-linked plans slowed.

The share of protection products in annual premium equivalent has risen for the three insurers—ICICI Prudential Life Insurance Company Ltd., HDFC Life Insurance Company Ltd. and SBI Life Insurance Company Ltd.—in the last two years.

The protection business—mostly term insurance plans that ensure income to a policyholder’s family in the event of death or illness—grew over the last year, boosting first-quarter earnings of listed insurers.

For SBI Life, individual protection policies sold through agency and bancassurance channels grew by 70 percent and 316 percent year-on-year in the quarter ended June. The annualised premium equivalent—a measure of an insurer’s profitability—of protection policies of ICICI Prudential and HDFC Life rose by 88 percent and 63 percent, respectively.

To be sure, the growth is coming on a low base because protection is still a small part of portfolios in a market dominated by state-run companies. But the shift in business of private insurers is driven by change in norms such as similar minimum death benefit across ages, extending the revival period to five years from two years and short-term protection plans helped to boost penetration of life insurance.

The potential for insurers to expand in India is immense with low penetration of insurance. Moreover, at 92 percent, India has the highest protection margin—the margin insurers earn over the policy’s term—among 13 countries surveyed by Swiss Re and Economic Research and Consulting Group. That indicates inadequacy of pure-protection coverage for a large part of the population.

Satyan Jambunathan, chief financial officer of ICICI Prudential, estimates the insurance protection gap—or the difference between what is paid by insurers and the cost of incident—in India at Rs 550 lakh crore.

“To address this, the company has been focusing on creating protection awareness while offering innovative protection products via our robust distribution network consisting of bancassurance, agents and online partners,” Jambunathan told BloombergQuint.

SBI Life said in its annual report for 2018-19 that it’s focused on improving margins by strategically calibrating portfolio mix in favour of protection products. “Although protection products have grown at a rapid pace, these products account for just 16 percent of our individual policies. We are looking to ramp up their share in the future.”

The contribution by protection business to new business premium has increased significantly over two years.

Goldman Sachs, in a research paper, said the protection insurance market has expanded over three times in the last four years on the back of lower pricing, development of direct and online channels and increased ad spending and product innovations. The share of such products will likely double in the future, it said.

“A younger population, shifting into urbanised areas and increasing income formalisation will likely sustain structural growth in protection for longer period,” Goldman Sachs said. “Linked product sales growth has slowed to below 10 percent against 40 percent after demonetisation as equity market sentiment turned negative on concerns around non-banking financiers and slower macros.” Since linked products are sensitive to equity market movements, it said, risks on growth remain high for these products.

ICICI Prudential and HDFC Life, according to Goldman Sachs, are well positioned in the protection segment on almost all fronts.

Jambunathan of ICICI Prudential expects growth in the protection business in the medium term. “Given the under-penetration in the protection segment and our focus on customer-centric products, we expect the protection business to grow faster than the savings business over the medium term,” he told BloombergQuint in an emailed response.

Affordability and the convenience of buying insurance policies will push the share of protection products in the Indian market, according to Rakesh Wadhwa, chief marketing and customer officer of Future Generali. Sales of protection products contributes to around 9 percent of Future Generali’s total sales, said Rakesh Wadhwa, chief marketing and customer officer of Future Generali, adding it intends to double to in the next two years.

“India enjoys a demographic advantage and as a large, young population enters the workforce, it’s expected that the protection business will continue to remain a key driver for growth,” Wadhwa said in an emailed response to BloombergQuint. “The new product regulations would allow shorter-term protection plans and will help improve the penetration as customers will be able to experience the services provided by insurance companies before committing to longer-term plans.”

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