In this past year, the insurance industry has witnessed its fair share of downfalls due to the tremendous pressure to the financial services in general. The life insurance industry today is reeling under the effect of negative growth due to the regulatory changes, low margins and lack of a policy road map.
The recessionary trends, inflation, fall in industrial production have their impact on the economy which has led to the economy growth rate at just about 7%. The performance of ULIPs was dented because of the violent swings in the stock markets. This was coupled with a reduction in margins on account of new guidelines. In the first half of the financial year, policy sales registered a sharp 40% dip. Private players had a total sale of 35,88,869 policies (Apr to Sep 2011) as against 55,88,804 policies the year ago.
The pension category didn't revive after the IRDA guidelines on pensions last year. Wealth building requires careful planning of expenditure vis-ā-vis savings or investment. Though we all want to accumulate wealth, we need to do something solid in the direction of savings as well. When traditional pension benefits like provident fund and gratuity are on the wane in the emerging employment-by-contract regime, carefully designed pension plans offer a good option to build for the future.
The industry, decided on a strategy shift and started offering traditional products that imply long term need-based savings required at various junctures of life be it endowment plans, money back plans, guaranteed return plans and need-based plans like child plans.
The industry was concerned with the growing trend of online comparison of insurance products which offered an additional service to the buyer who could see the various products available in a particular category. But this could lead to biased information which could mislead the consumer. IRDA has thus banned online comparison of insurance products.
The latest draft threatens to remove tax incentives from the life insurance products. Implementation of Direct Tax Code (DTC) in its current form bodes ill for the industry's long-term growth outlook.
As the competition increases, private insurance companies will be forced to look at newer marketing and distribution strategies. Bancassurance model could turn out to be beneficial as the banking sector serves as the power house of distribution. Product innovation will have a better value for the customer and the stakeholders. New product structures could play a key role in reviving need-based products like pensions and ULIPs.