Single-premium insurance products to see tougher times ahead

To push long-term premium products, the Insurance Regulatory and Development Authority had last year advised insurers to go slow on single-premium products

Single premium products are expected to see a continuing slide in new business premium collection, with insurance customers moving to bank-related investments.

"We have seen a drop in premium collection for these products, owing to low customer appetite, and we expect it to continue," said the chief executive of a private life insurance firm. The executive added with attractive rates, bank fixed deposits were felt to be more attractive by customers and, hence, they were switching to those products.

Single premiums products are those where the premium is paid as a lumpsum amount. Non-single premium products are those where premium is paid at regular intervals. Life insurers are of the view the single premium segment is down, due to the added fact that in the linked-premium segment, the slowdown in market performance led to the slump in sales.

Lack of tax incentives has also decreased the appetite for these products. The senior executive of a life insurance firm said insurers had also introduced guaranteed single premium products and they were popular among customers for a certain period. "But the changes in tax benefits for insurance products where sum assured has to be 10 times of the annualised premium has also led to a decrease in sales," the executive said.

The 2012-13 Union Budget had proposed a life insurance policy would be eligible for benefits under the Income-Tax Act only if the sum assured was at least 10 times the annual premium. This impacted single premium products, as the sum assured on death is less than 10 times the single premium in these products. No changes were made to these proposal in the Union Budget for 2013-14.

To push long-term premium products, the Insurance Regulatory and Development Authority (Irda) had advised insurers last year to go slow on single premium products. The former Irda chairman had opined these products were not suitable for healthy growth of the insurance industry.

For the period ended April 2013, Life Insurance Corporation of India (LIC) collected single premium (individual and group) of Rs 2,287 crore, while private insurers collected Rs 554 crore as new premium for single premium products.

The commission for distributors for single premium policies has been retained at two per cent. This, according to industry players, will also be a deterrent to increase in sales. Since the Insurance Act was incorporated, there is only a two per cent commission for selling single premium products. At a time when customers are moving away from this segment, it would be prudent to increase the commission rates to ensure distributors are incentivised for selling the product," said the chief actuary of a private life insurance firm.