The opening up of the Indian insurance sector in 2001 has
paved the way for the emergence of many smart private players with
tie-ups with foreign entities. And since then, the industry as a whole has been
performing well. The robust economic growth in the country, coupled with
high savings and investment rates, had been supporting the good show of the life
insurers. The private players embarked on an expansion spree and introduced
unconventional products such as Unit-Linked Insurance Plans (ULIPs)
that provide market-linked returns to the policyholders. Till early 2008, the
private life-insurers, buoyed by huge expectations, injected funds to expand the
distribution network.
But in more recent months, the performances of the life insurers,
particularly the private life insurers, have flagged. Global economic slump and
the fall in the equity markets have taken a toll on the life insurance sales with
new premium incomes registering a decline. There has been a distinct shift from
long-term financial commitment to single premium policies among investors.
Furthermore, the deteriorating economic situation has led to a reduced ticket
size with the growing number of policies. Over the last few months, the
industry has witnessed a surge in demand for guaranteed products, and only such
innovative products are now attracting investors who are wary of locking in
their money in ULIPs. Again, unfortunately for many insurers, the persistency
ratio (a measure of the percentage of policyholders who continue paying
premiums) has also declined. Some experts opine that this lull in the industry could be
an early indication of a wave of consolidation in the industry, as insurers are
now mulling Mergers and Acquisitions (M&As) to gain in size and reach. |
