RUSH FOR ULIPS MAY SLOW DOWN

The Reserve Bank of India’s (RBI) monetary measures, which have pushed up interest rates and depressed the stock market, will hit sales of unit-linked insurance plans (ULIPs). With the benchmark BSE Sensex falling by a third after touching its peak of over 21000 points in January 2008, those who have invested in ULIPs in the third quarter of 2007-08 have seen an erosion of their savings.
Insurance companies have managed to record a decent growth because of an expanded distribution network, but sales appear to be easing. Until early 2008, ULIPs have been the main channel for retail investment in the stock market.
“The measures could see a marginal shift from ULIPs to traditional products. A small shift would be good for us because we have been wanting to reduce the share of premium from ULIPs to around 70% from 85% in 2007-08,” said Life Insurance Corporation of India managing director DK Mehrotra.
For private companies, the share of ULIPs is even higher, although most do sell traditional products as well. According to Mr Malhotra, LIC has products on the drawing board that will provide policyholders the opportunity to take advantage of the rise in yields.
According to Aviva India Life Insurance chief investment officer Anil Sahgal, the rise in yields has also given an earning opportunity on the fixed income side. He said that investors do turn cautious about equity investments, when the market turns volatile. But there are income funds under ULIPs as well. “But the long-term structural platform of unit-linked investment plans remains intact. And for those not concerned about the short-term volatility in stocks, it is the right time to buy,” he said. He also pointed out that there were balanced schemes with capital guarantee and minimum return guarantees.
Premium from new policies has fallen close to 7% for the life insurance industry. This has been largely on account of a decline in sales by LIC. Private companies have grown at over 50%, but their growth has seen a moderation from last year. Private companies are, however, confident that investments in ULIPs will continue to grow. ULIPs account for 90% of the portfolio of ICICI Prudential Life insurance and bulk of the investments are in equity-linked plans.

Source: The Economic Times