Life Insurance Breakeven: IRDA

When the life insurance industry started in 2001-2 you could see their executives all over the place. All the insurance companies had an office in every state. Training was never the same. This took me to Bhubaneshwar, Jamshedpur, Kanpur, Jaipur, and many other smaller, much smaller towns.

They all behaved like they will grow …and suddenly one day in 2007 the good angel will come down and hand over a trophy saying ‘You have broken even’.

Then the boom happened..2003, 4…the markets boomed so the 70% upfront charges could be well hidden. Every bank was busy telling its customers (i.e. customers who bothered to ask) how great this new product (ULIP) was.

So break even was supposed to now happen in 2005, not 2007.

However it did not happen in 2005, or 2006 also.

Which means every quarter the MD went to the board and said ‘We will break even in 3 years from now‘. Of course most of the board members did not care – the Chairman was milking his cash cow – and pumping in here. For most private equity guys and analysts life insurance is a ‘must’ if you are in the financial services business. So Edelweiss, Indiainfoline, Networth,….all have asset management, life insurance, venture capital,….all lines of businesses.

Then suddenly..IRDA changed the ULIP rules and break even got a little postponed from 2007 to 2010. Of course they did not help their cause by opening first at all locations. Then they opened branches – whever they could, whenever they could. When they opened so many branches, some people like us were wondering….One Board Member told me this was strategy (hmmm?).

Then the ULIP drama started. So IRDA (accused of doing the Life Council’s job) made some more changes. So the breakeven just got postponed to 2014. Of course they make some assumptions – and they call it productivity and persistence (both words exist only in Board Minutes). They call it the funnel concept.

They gather 100,00,000 (able bodied HSC pass) people, hoping that 75,00,000 complete the training. So that 50,00,000 can write the exam, and that 30,00,000 can pass the exam. Then out of this about 10,00,000 join the force to sell life insurance / pension plans. In the first quarter about 7,00,000 drop out. At the end of year one 100,000 are in the system – and they have all put one proposal (on an average).

Out of these 100,000 proposals about 35,000 have actually become policies.The reason some of the plans did not get converted is because some people were missing, some cheques bounced, some people did not go for medical exam, some did not have any residence proof,….the list was endless.

Next year about 15,000 policies lapse in a good company, and about 30,000 policies lapse in a bad company. Very soon IRDA will have norms on who can be appointed as an agent, who has to be kept, who has to be removed, …and hope to reduce ‘lapsation’. Like all of IRDA’s regulations it will fall have a lot of good intentions for the industry ..let us hope I am wrong..and it works!

Now since the Board has experts who do not bother about all this, the resolution to pump another xxx crores is carried. Carried every quarter. Quarter on Quarter.

Victory to all.

Except the admin person who is now going around shutting branches (20% of the branches are to be shut says the board), the HR guy who has a ‘removal’ target (one life insurance company is in the process of removing 20% of its sales staff), the landlords who will have to look for new tenants, the airlines, the hotels, … man’s poison is another mans meat?


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2 Responses to “Life Insurance Breakeven: IRDA”

  1. My heart goes out to the shareholders of Hdfc, Tata, Birla, …so much money has been invested in this business, it is not funny. At least for Hdfc some of the commissions have remained at home (Hdfc bank – though a different set of shareholders).

    Kotak, SBI seem to be making some profits, but not sure about their accounting – some costs could be hidden in the bank p&L. Though I doubt whether Kotak would have done that – the life insurance company is a JV.

    Icici anyway does not matter….the balance sheet is too big. Now if they take over banks at 3 times their book value, shareholder is anyway in a bad shape. Just the life insurance biz losing money will not be a killer..anyway Icici bank is still overpriced. Not sure about the eps, not sure it deserves the price-earning ratio 🙂

  2. I thought about your ULIP ordinance blog post (the Malik dialogue) when I read this news item:



    Srikanth Meenakshi
    For FundsIndia Team

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