Single-premium life insurance policies under regulator's lens

Irda says it wants to discourage any product with premium tenure less than five years

After highest net asset value (NAV) guaranteed products, the single premium, two-year premium and three-year premium policies are the latest life insurance products to come under the Insurance Regulatory and Development Authority’s (Irda) scanner.

According to sources with direct knowledge, the regulator is working on norms whereby life insurance policies must come with a minimum five years of regular premiums.

“Irda is not approving any two-pay or three-pay policies at the moment. Though there is no official communication, the regulator is not encouraging any products where the premium tenure is less than five years,” said a senior official at a life insurance company.

LIFE INSURANCE Premium collection April-December (Rs crore)
LIC	2010-11	2011-12	Change (%)
Individual-single premium	22,061.04	8,032.26	-63.59
Group-single premium	14,780.53	19,094.15	29.18
Total-single premium	36,841.57	27,126.41	-26.37
Total premium	61,718.52	52,053.44	-15.66
Private insurers
Individual-single premium	4,414.72	3,206.23	-27.37
Group-single premium	1,988.03	2,906.70	46.21
Total-single premium	6,402.75	6,112.93	-4.53
Total premium	24,980.32	19,900.10	-20.34
Industry
Individual-single premium	26,475.76	11,238.49	-57.55
Group-single premium	16,768.56	22,000.85	31.2
Total-single premium	43,244.32	33,239.34	-23.14
Total premium	86,698.84	71,953.54	-17.01

In a single premium policy, a policyholder needs to pay premium only once, while he or she is covered for its term. Similarly, for two-pay and three-pay policies, irrespective of the tenure, a policyholder pays premium only twice or thrice, respectively.

“We are not thinking about any regulatory interventions immediately, but the product clearances speak for themselves,” said Irda Chairman J Hari Narayan.

“Having said that, single premium policies or two-pay or three-pay policies, for that matter, are not a good idea. The life insurance industry cannot sustain on single premium policies and insurance, by nature, has to be long-term. Ideally, premiums’ tenure should be a minimum of five years.”

The moves assume importance, as single premium policies are currently 46 per cent of industry sales. During the April-December period, 24 life insurance players collected premiums worth Rs 52,053 crore by writing new policies.

Of these, single premium polices were Rs 33,239 crore (including group and individual policies). However, the sales were down 23 per cent compared to the corresponding period a year before.

If insurance companies have to do away with single premium policies, Life Insurance Corporation of India (LIC) would be the worst hit. These products are 52 per cent of its new policies.

For private life insurance companies, single premium products are 30 per cent of sales.

“We are aware of the concerns of the regulator and are not pushing individual single premium products. This is the reason why our dependence on single premium polices has come down in the current fiscal to 51 per cent from nearly 60 per cent a year ago,” said a senior official at LIC.

Consequently, in the current financial year, LIC collected Rs 27,126 crore through single premium policies, 26 per cent down from the corresponding period a year before. Individual single premium policy sales were down 65 per cent at Rs 8,032 crore from Rs 22,061 crore a year before. For private insurance players, too, the individual single premium collection was down 27 per cent in the same period.

According to an expert, growth in life insurance premium collections, already witnessing a downward slide, might slip further, as the group single premium business was the only segment where sales were positive. In the group business, industry collection from single premium products were up 31 per cent to Rs 22,000 crore, compared to the same period last year.

Private life insurance companies reported a 46 per cent jump in group single premium products to Rs 2,906 crore, whereas LIC recorded a 29 per cent rise in sales of such polices, to Rs 19,094 crore.