Life insurance Industry to Increase Focus on Non-Participating Products Amid Revised Surrender Value Norms

The Life insurance industry is gearing up for a strategic shift in its product mix as it plans to increase the share of non-participating (non-par) products after a decline in FY24. This move comes in response to the impact of revised surrender value norms, which are expected to dampen the growth of non-par products and drive product designing and innovation in the industry.

Non-par products offer guaranteed benefits to customers based on predetermined choices, making them a popular choice among policyholders. However, the recent changes in surrender value norms have prompted insurers to rethink their product offerings and focus on enhancing profitability margins.

In FY24, the product mix of Life insurance companies shifted towards unit linked insurance plans (Ulips) due to buoyant equity markets. This shift affected the value of new business (VNB) margin of insurers due to lower product margins in the segment.

During post-earnings analyst calls, industry players, including Life insurance Corporation of India (LIC), expressed their intention to focus on non-par products and increase their share in the overall product mix to improve profitability margins.

The Insurance Regulatory and Development Authority of India (Irdai) issued a master circular on Life insurance products on June 12, prescribing enhanced special surrender value (SSV) norms effective from September 30, 2024. Insurers are required to ensure that the SSV is at least equal to the expected present value of paid-up sum assured, future benefits, and accrued or vested benefits.

While the growth of non-par products may weaken due to the revised norms and buoyant equity markets, analysts do not anticipate a shift towards participating products (par) given the better profitability margins of non-par products. Instead, insurers may focus on redesigning their products or selling higher duration products to maintain profitability.

Analysts also expect a push from distributors for non-par products before October 2024, which could lead to an improvement in their sales. Despite the changes in taxation and market dynamics, there is optimism that the flexibility offered by non-par products will continue to attract customers and drive growth in the segment.

In conclusion, the Life insurance industry is poised for a change in strategy to mitigate the impact of revised surrender value norms and enhance profitability margins. By focusing on non-par products and driving product innovation, insurers aim to adapt to the evolving regulatory landscape and meet the changing needs of policyholders.