The life insurance industry underwent big changes in 2014. New traditional plans-with lower surrender charges, increased risk cover and reduced commissions-hit the market. Life Insurance Corporation of India, the oldest insurer, was forced to withdraw and relaunch some products it had been selling for decades in view of the new regulations.
The regulations, though, were not more than a cosmetic surgery on traditional plans. Low returns are still a problem, as even now traditional plans do not offer more than 6-7% a year return over a period of 15-20 years. Moreover, surrender charges have not come down the way they have in case of unit-linked insurance plans or Ulips. For instance, the guaranteed surrender value in traditional plans is just 50% if the policy is surrendered between fourth year and seventh year, which means you get back half the money even after staying invested for seven years. Significant cut in surrender charges is one thing policyholders look forward to in 2015.
But there was good news for Ulip investors on the back of a significant rise in stock markets. Riding the wave, HDFC Life's Blue Chip Wealth Builder and Bajaj Allianz Life's Blue Chip Equity gave 48% and 36% returns, respectively. Mid-cap unit-linked funds such as HDFC Life's Opportunities Wealth Builder and Bajaj Allianz Life's Accelerator Mid Cap 2 gave annualised returns of 70%.
2014 THROWBACK:How the personal finance sector fared in 2014
Sunil Sharma, chief actuary, Kotak Mahindra Old Mutual Life Insurance, says, "There has been a significant surge in the stock market, which has led to superb returns from unit-linked funds which invest in equities. However, the return to policyholders should be looked at over the entire term of the contract without worrying too much about unrealised gains or losses."
Policy servicing is another area on which life insurers are focusing. Kshitij Jain, managing director and chief executive officer, Exide Life Insurance, says, "Emphasis on policyholder protection and grievance redressal has led to a fall in the number of complaints, having a favourable impact on customer satisfaction. Regulations for direct fund transfer to customer bank accounts for survival and maturity benefits are also welcome moves."
Insurers have also started focusing on digitising policies. Following the weak response to its related pilot project, the Insurance Regulatory and Development Authority, or Irda, plans to come out with final guidelines on digitisation in the next few months. Under the pilot, Irda had asked insurers to tie up with repositories so that policyholders can keep their policies in digital form. The project was implemented for two months from July 1. During the pilot, each life insurer had to convert a minimum of 1,000 or 5% of existing and new individual policies, whichever was less, into electronic form. No company could meet the target.
OUTLOOK FOR 2015
Experts say insurers will invest in digitisation, making the claim process easier, lowering the processing cost. The thrust will be to reduce expenses by reducing the policy issuance cost. Most important, some companies may get listed on stock exchanges as the government has issued an ordinance increasing the foreign direct investment cap in the sector from 26% to 49%.
It was a good year for health insurance with adoption of standard definitions, features and formats. For example, the entry age for all health insurance policies is now at least 65 years, renewability is for life and critical illnesses have standard definitions. V Jagannathan, chairman cum managing director, Star Health Insurance, says, "The new health insurance regulations implemented last year by Irda have ensured transparency. There has been a rise in online sales as well."
Naveen Kukreja, group CMO, policybazaar.com, says, "From the consumer perspective, the launch of low-cost Ulips and break-in policies in the two-wheeler segment has been a major highlight."
Some insurers also launched innovative plans covering treatments abroad. Most health plans are for treatments in India. Also, with steep rise in medical inflation, several insurers have started offering covers of up to Rs 1 crore.
In 2015, more innovative products are likely to be launched. Sanjay Datta, chief, underwriting and claims, ICICI Lombard General Insurance, says, "We believe that the year ahead will be good for the general insurance sector, including for the larger pieces of health and motor insurance. With changes expected on the policy front and strengthening of the macro-economic scenario, the industry is poised to enhance its value proposition across the product and service spectrum. It should be an exciting year for health and motor insurance customers."
FULL COVERAGE:2014 Year In Review