MUMBAI: The turmoil in the equity markets appears to be taking a toll on the life insurance industry as well. Growth rates for the industry have slowed down and initial estimates from companies show that companies are unlikely to fare better in the month of September. Upto end August '08 the life insurance industry recorded a premium income of Rs 26,451 crore marginally lower than Rs 27,491 crore in the corresponding period last year recording a growth of 56%. The decline was largely on account of 29% decline in business of Life Insurance Corporation of India to Rs 14,360 crore compared to Rs 20,206 crore last year. The year-to-date figures show that the private life insurance industry is growing at a healthy pace and that it is the LIC which is dragging down growth. However, an analysis of monthly figures shows that there are signs of an incipient slowdown. Typically, the life insurance industry witnesses seasonal growth. The usual trend is for the industry to write 10% business in the first quarter, 20% in the second, 30% in the third and 40% in the fourth quarter. Also there is a progressive increase in premium income as the fiscal moves on. This year, however, some companies have actually shown a decline in August.
Most industry officials feel that there is a slowdown on account of the turmoil in the global markets. Insurers feel that policyholders may delay their decisions on channelling funds into the equity market through unit-linked insurance schemes until the crisis in the US market comes to an end. The flattening of the growth is also a sign that companies are seeing the law of diminishing returns come into play while expanding their agency force.
According to Shikha Sharma, managing director, ICICI Prudential Life Insurance: "The month on month growth has come off a bit. People still want to save money for retirement but they are waiting for the volatility in the stock markets to come to an end." She added that the growth potential for the industry continues to be there the industry may have to wait for a couple of months of stability in the equity markets. Vikram Mehmi, president and CEO of the fastest growing life company says that there is definitely a slowdown in overall industry growth. He points out that there is a liquidity issue among big buyers of insurance as well as they are now postponing their decisions. However, retail sales continue to remain powerful.
US Roy, managing director, SBI Life Insurance which has moved to the number two slot feels that it is not correct to term the lower growth rate as a slowdown. He points out that despite the crash in the stock market life companies has managed to post a growth over last year where premiums were driven by record growth in the stock markets.
According to Kamesh Goyal, CEO, Bajaj Allianz Life Insurance, the life industry would need to change its business model for the current environment. He points out that Bajaj Allianz has managed to record good month on month sequential growth in the last quarter. However, the company has managed to record a very small growth over the corresponding period last year.
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