The financial markets generate a lot of number on a per second basis. There are people who have made it a profession to convert this information into trends, buy-sell signals, charts and pivot tables. Over the last 18 years of financial journalism, I have realised that every number has a story to tell. And these numbers as a trend normally never lie. I am forever looking for these trends.
A series of investor-friendly rules framed by the Insurance Regulatory and Development Authority (IRDA), coupled with lacklustre equity markets over the past one year, is choking the life insurance industry. During April-May 2011, first premium income for private insurers fell 23 percent while that for Life Insurance Corporation, the biggest and only state-owned life insurer, went down by 8 percent.
Much of the crash can be blamed on the industry’s over-reliance on a single product, unit-linked insurance plans (ULIPs). ULIPs accounted for more than 90 percent of revenues, but tighter regulations caught the industry napping. Beginning September 2010, the IRDA cut commissions and made ULIPs — which offer life cover with a chance to profit from the stock market — more transparent and customer friendly. Private companies that rely on independent distributors have been hit hardest as the distributors do not want to settle for the lower commissions. Commissions on first-year premiums — sometimes close to 40 percent but generally about 20 percent — have fallen to about 12 percent.
(This article is excerpted from the latest Forbes India 29 July, 2011 issue which is now available at news stands and book stores. You can buy our tablet version from Magzter.com)