'LIC: Straitjacket product won't do, flexibility needed'

After a difficult year in terms of premium collection, Life Insurance Corporation of India has set its sights on 20-25 per cent growth in 2012-13.

D K Mehrotra, chairman, tells Business Standard the proposed new product guidelines need to be tailored with some caution.

Edited excerpts:

How do you see the life insurance sector faring this year?

The industry witnessed a slowdown last (financial) year and LIC was no exception.

This year, things should be better.

We have set ourselves a target of 20-25 per cent growth in the new business premium collection. Last year, a majority of savings went into two assets, land and gold.

Now, investors have realised there is not so much of fluctuation or volatility in the performance of insurance products.

So, insurance is being preferred this year.

. . .

Last year, there was a clear shift in product preference for traditional plans. What is the product mix for LIC?

Our product profile has seen a shift in the past few years. As of March 31, the mix was 80 per cent conventional and 20 per cent Ulips (unit linked insurance plans), as compared to 80 per cent of new products being Ulips just four years before.

Is 80:20 the ideal mix of traditional and Ulips?

No, I think the ideal should be 65:35 for LIC. A Ulip has its own advantages, it gives you fast returns.

So, if there is a space for Ulips, we will be present there.

That is why even this year, of the three-four products we're planning to launch, one or two will be Ulips.

. . .

With the new guidelines on traditional products on the anvil, all insurers might have to re-file most products for regulatory clearances. Would these impact sales?

As detailed in the draft, most of the companies would have to withdraw several products, including us. There will be an impact.

We have tried to tell (the regulator) through the Life Insurance Council that this should be done in a phased manner.

Also, it needs to be seen whether traditional products which have been time-tested in the market needs to be withdrawn.

The new product guidelines have a lot of restrictions for insurers and intermediaries.

It will impact sales.

. . .

What restrictions do you see in terms of guidelines?

I think the compensation package will get impacted.

Then the returns of customer intermediaries.

We need to study these carefully. In a competitive market like today, we have to have some flexibility.

We cannot have a straitjacket product; some flexibility has to be built into it. The industry is not yet ready for this, is my view.

Let the industry mature and settle down; it is still at a very nascent stage.

. . .

You had said earlier that pension (plans) are going to be the next big thing. Right now, there are no pension products. What needs to be done to revive the market?

I still believe the future of insurance is pensions and health.

Today, except what LIC is offering, there is no other pension product in the market. 

We need to first understand pensions and annuity.

Pension products should actually be utilised at the post-retirement stage.

An annuity is a product that can start at any point of one's life.

Many people try to mix the two.

We need clear guidelines on both these products and they should be segregated. There should be some system to support the sale of pension products.

. . .

Have you taken up the issue of how to incentivise the product with the government?

This was only a suggestion, that we have separate tax relief for pension.

This will provide incentives to people who would invest.

Since a pension (policy) is a long-term contract, it gives insurers a long-term flow of income, which can be utilised for various activities, especially infrastructural ones.

. . .

What is the investment target this year? Will the slowdown in Ulip sale impact the investment this year?

It has a bearing but not a serious one on the investment pattern of LIC.

Last year, we had put in Rs 40,000-45,000 crore (Rs 400-450 billion) in the equity market.

We put 10-15 per cent of our investible fund into the capital market.

If Ulips are better, it may go up.

This year, we will be able to meet the same amount as last year.

Taking into account the debt side last year, our total investment was about Rs 1.95 lakh crore (Rs 1.95 trillion).

This year, we plan to invest Rs 2.1-2.2 lakh crore (Rs 2.1-2.2 trillion).