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Single premium products are expected to see a continuing slide in new business premium collection, with insurance customers moving to bank-related investments and low incentives for distributors to sell the product.
"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 that with attractive rates, bank FDs were felt to be more attractive by customer, and hence they were switching to those products.
Single premiums products are those, where the premium is paid as a lump-sum amount. Non-single premium product are those, where premium is paid at regular intervals. Life insurers, are of the view that, the single premium segment is down, due to the added fact that in the linked-premium segment, the slowdown in market performance has led to the slump in sales.
Lack of tax incentives has also decreased appetite for these products. The senior executive of a life insurance firm said that 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 ten times of the annualised premium has also led to decrease in sales," the executive said.
The 2012-13 Union Budget had proposed that a life insurance policy will be eligible for tax benefits under the Income Tax Act only if the sum assured is 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 Union Budget for 2013-14.
To push long-term premium products, Insurance Regulatory and Development Authority (Irda) had advised insurers last year to go slow on single premium products. The former Irda chairman had opined that these products were not suitable if a healthy growth of the insurance industry was needed.
For period ended April 2013, Life Insurance Corporation of India (LIC) collected single premium (individual and group) of Rs 2287.35 crore, while private insurers collected Rs 553.85 crore as new premium for single premium products.
The commission for distributors for single premium policies, has been retained at 2%. This, according to industry players, will also be a deterrent from increase in sales. Since the Insurance Act was incorporated, there is only 2% commission for selling single premium products. At a time when customers are moving away from this segment, it would be prudent to increase commission rates to ensure distributors are incentivised for selling the product," said the chief actuary of a private life insurance firm.
