Life Insurance Corporation (LIC) accounted for the lion's share of individual single-premium policies, which grew 85 per cent from Rs 12,688 crore to Rs 23,413 crore.
LIC's total first-year premiums rose 27 per cent to Rs 1,24,396 crore in 2016-17, and its market share increased from 70 per cent in 2015-16 to 71 per cent in 2016-17.
Its pension product Jeevan Akshay was the market leader in the single premium category. “We had positioned our pension product Jeevan Akshay to replace the Varishta Bima Yojana. With falling interest rates Jeevan Akshay worked well as it gave a psychological satisfaction to customers. We collected roughly Rs 15,000 crore under that,” said VK Sharma, chairman, LIC.
Between April 2016 and October 2016, single-premium policies had collected Rs 10,816 crore, and in November these zoomed by Rs 6,438 crore to Rs 17,254 crore. This was because rates on Jeevan Akshay, an annuity product, were to be reduced by about 50 basis points after November.
The annuity rates fell from 5.3-17.9 per cent in October to 4.9- 17.4 per cent in November, depending on the age of the policyholder and the annuity option chosen.
“We did not benefit from demonetisation because we could not accept old notes. Those life insurance companies
that have big bancassurance partners received money deposited in bank accounts,” Sharma said.
While the premium amount grew as LIC sold bigger policies, it sold 20.1 million policies in 2016-17 against 20.5 million policies in the previous year. There was a marginal drop in individual single-premium policies too, which fell from 1.19 million to 1.18 million.
A reason for the decline in policy sales was that the state-owned insurer did not launch many products last year. “This year, we plan to introduce four to five new policies. We have already launched two new policies, Aadhaar Shila for women and Aadhar Stambh for men. We have introduced differential underwriting for women customers. The premium is lower for women and the benefits are more,” Sharma added.
The corporation will also focus on the regular premium segment this year and will introduce new products. With falling interest rates, there will be continued demand for both immediate annuity and deferred annuity plans this year. Commissions for single-premium policies are lower than regular policies and these are easier to sell. “Customers do not have to worry about how to fund the policy for the next 20 years. For the agent there is no issue of persistency. From a bancassurance point of view, it is easy to talk about a single premium policy compared to deposits and other investments,” said Joydeep Roy, partner, leader-insurance and allied businesses, PwC.
But for the embedded value of life insurance companies, regular long-term policies are of essence. The industry is trying to increase regular-premium products as a way of building annuity income.
“Single premium is only good for lumpsum money that you may have. But you have to be careful because all the money is invested. Neither do you get benefit of rupee cost averaging nor can you phase out your premiums,” Roy added.