Private life insurers need to focus on profitability and internal source mobilisation rather than expanding business as it may take time for the regulator to permit these companies to tap the capital market, according to global consultancy firm.
“Industry should take more measures to reduce cost as most of the (private life insurance) companies have not yet reached the break even points and tapping the capital market may take some time,” Ernst & Young Financial Services partner Rohan Sachdev said.
Most of the private companies in the life insurance sector, opened a decade ago, have been focusing of expanding business and are yet to book profits.
Although the insurance sector regulator IRDA has come out with draft disclosure norms, it would take some time for the Insurance Regulatory and Development Authority (IRDA) and Securities and Exchange Board of India (SEBI) to permit companies to tap the capital market.
Sachdev added that life insurers should make distribution cost more effective, match their channels and products, create special product for special channels and reduce training cost.
The life insurance industry consists of 23 players, including State-run Life Insurance Corporation (LIC), which has a market share of over 65 per cent.
Sachdev further said that the overall life insurance industry is expected to grow by about 5-6 per cent in the current fiscal.
The growth estimate is on the basis of adjusted first year premium, which means taking the individual business of all recurring new business and adjusting the single premium by 10 per cent.
“Typically, the fourth quarter contributes about 35 per cent to 40 per cent to the full year numbers, however this per cent is expected to be only about 30 per cent this year as in fourth quarter this year and particularly in January insurers are expected to invest time in launching new products (including training),” he added.
As of December, the industry’s adjusted new business premium stood at Rs. 37,912 crore with a growth rate of 13 per cent over the last year. This is driven largely by LIC (29 per cent growth), whereas the private sector has shown a flat growth of 3 per cent, Sachdev added.
“The private sector as of YTD December has seen a flat growth of 3 per cent, and the growth expectations for the full year would be in a similar range from 1-3 per cent given the impact of new products,” he said.
He added that December 2009 was an exceptional month as most insurers strived to increase the December numbers in anticipation for the drop in January.