Changes and challenges in ULIPs

Suresh Parthasarathy, BL Research Bureau

Effective September 1, unit-linked insurance plans (ULIPs) will undergo eight major changes that are likely to have far-reaching implications about the way they are currently sold. Some of the major reforms are – a cap on charges, increase in lock-in period, and a guarantee of 4.5 per cent on pension products.

With these changes, ULIPs would turn more attractive for the investors, but it will be testing time for the insurers.

In an interaction with Business Line, Mr T. K. Uthappa, Director-Sales, Tied Agency, ING Life India, explains the challenges and the way forward.

3-4 products initially

He said, “We are planning to launch three-four new products, and not a slew of products to ensure that we do not confuse the customer and the agency force. We are not planning to launch any new pension products currently. With the increase in lock–in period, we anticipate a decrease in average premium. And it's going to impact the average earnings of agents and total revenues for the company. The only way to offset this is by looking out for more number of customers and increase in revenue.”

Agency commission

Mr Uthappa said, “there will be a pronounced dip in the agency commission in the new ULIPs, but I believe that the impact is going to be 20-25 per cent from the current level in terms of reduction. In the new products, the customer will be forced to pay for long duration, and will get serviced for longer duration. For the customer, the new ULIPs would be far more transparent than the existing products and the agent would find it easy to sell”.

He said, “The short term will be challenging, but I expect the industry to stabilise in 18-20 months. The reason for this is that, there is going to be a complete overhaul in the industry and in the agency force.”

Until recently, the bancassurance model had higher average premium when compared to individual agents. Would banks suffer more than an individual agent?

He said the good thing with the new regulation is that the average premium is going to come down, but investors are going to look at long duration. One school of thought says that the higher average ticket size in bancassurance is primarily due to relationship and more investment-based selling. So the impact there is going to be pronounced. On the other hand, since they already have strong relationships, banks can weather the challenges better than an agent.