LIC TO TAKE REFUGE IN MORE CONVENTIONAL POLICIES

Mumbai: The country’s largest insurer — Life Insurance Corporation (LIC) — has decided to rebalance its product portfolio to have more of conventional policies. The corporation, which sees most of its revenues from unit-linked insurance plans, feels that more conventional policies have to be sold if it wants to have a steady premium income.

Speaking to ET, DK Mehrotra, managing director, LIC, said one reason for the slowdown in new business growth from 110% in 2006-07 to 6% in 2007-08 was the move to promote conventional policies. “We are looking at repositioning some of the old conventional plans which were very strong products. In the long run, conventional products have to be focused upon,” he said.

“An insurance company cannot depend only on unit-linked insurance plans. In the previous year (2006-07), because of the stock market wave everybody cashed in on it,” said Mr Mehrotra.

He added that although the corporation may not have succeeded in the shift, a message was sent that ‘we have to come to conventional’. In terms of number of policies in 2007-08, LIC sold almost as many conventional policies as ULIPs.

While LIC sold 1.74 crore conventional policies, the number of ULIPs sold was 1.9 crore. But since the average premium under ULIP was around Rs 20,000 as against Rs 3,400 in conventional, the impact of the shift was not much on premium, said Mr Mehrotra.

Unit-linked plans have been the flavour of the insurance market for the past few years. While funds mobilised under conventional products are invested in government securities, ULIPs leaves the choice of investment category to the policyholder.

In 2006-07, the surge in stock indices saw policyholders using insurance to channelise savings into the stock market. 2007-08, too, saw a surge of investments in ULIPs. However, the pace of collections slowed as a market crash in the last quarter turned investors cautious.According to Mr Mehrotra, it was necessary to move to conventional as these policies focused on protection. Also, it ensures stability for the corporation and policyholders.

“This year we tried to have 70:30 mix between unit-linked and conventional plans. Last year, the ratio was 82:18 in favour of ULIPs,” he said. Though the corporation wants to shift focus, it will not do so overnight nor will it stop coming out with new ULIPs.

The new products that it will launch will be a mix of ULIPs and conventional plans. “We cannot make the shift overnight. There is a customer demand for ULIPs and we cannot afford to leave a vacuum in the market,” said Mr Mehrotra.

Source: Economic Times