ulip – the product innovation

8/7/2019 ULIP The Product Innovation

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Team 9

AbhimanyuArushiKarthik R Niranjan

Vamsi


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y Together with with Banking, Insurance accounts for8% of India s GDP

y Insurance penetration in the country has grown and isaround 4%, Meaning for every Rs 100 that India earns,Rs 4 goes towards paying Life Insurance Premium


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y In law and economics, insurance is a form of riskmanagement primarily used to hedge against the risk of acontingent, uncertain loss.

y Insurance is defined as the equitable transfer of the risk of a loss,from one entity to another, in exchange for payment.

y An insurer is a company selling the insurance; an insured, orpolicyholder, is the person or entity buying the insurance policy.

y The insurance rate is a factor used to determine the amount to becharged for a certain amount of insurance coverage, called thepremium


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y The process of opening up the insurance sector was initiatedagainst the background of Economic Reform process whichcommenced from 1991.

y For this purpose Malhotra Committee was formed during thisyear who submitted their report in 1994 and InsuranceRegulatory Development Act (IRDA) was passed in 1999.

y Resultantly Indian Insurance was opened for private companiesand Private Insurance Company effectively started operations

from 2001y However private participation started effective from2003, till

then LIC was Monopoly


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y For years now, the private players are active in the liberalized environment. Theinsurance market have witnessed dynamic changes which includes presence of a fairly large number of insurers both life and non-life segment.

y Most of the private insurance companies have formed joint venture partneringwell recognized foreign players across the globe.

y There are now 23(july 2010) insurance companies operating in the Indianmarket .With many more joint ventures in the offing, the insurance industry in India today stands at a crossroads as competition intensifies and companiesprepare survival strategies in this scenario.

y There is pressure from both within the country and outside on the Governmentto increase the foreign direct investment (FDI) limit from the current 26% to49%, which would help JV partners to bring in funds for expansion.


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y The insurance agents still remain the main source through whichinsurance products are sold.

y

The concept is very well established in the country like India butstill the increasing use of other sources is imperative.

y At present the distribution channels that are available in themarket are listed below.

y Direct sellingy Corporate agentsy Group sellingy Brokers and cooperative societiesy Bancassurance


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y 2 Types of life insurancey Term Insurancey Permanent Life Insurance( or Traditional Plans)

y

Whole life coveragey Limited-pay y Endowmentsy Accidental Death


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y A ULIP is a market-linked insurance plan. The difference between aULIP and other insurance plans is the way in which the premiummoney is invested.

y Premium from, say, an endowment plan, is invested primarily in risk-free instruments like government securities (gsecs) and AAA ratedcorporate paper, while ULIP premiums can be invested in stockmarkets in addition to corporate bonds and gsecs.

y So what else apart from this reason makes ULIPs so attractive to theindividual? Here, are some reasons, which have made ULIPs soirresistible.


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ULIPs offer a transparent option for customers to plantheir various life stage needs through market-led

investments as compared to traditional investmentplans.


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ULIPs serve the purpose of providing life insurancecombined with savings at market-linked returns. To

that extent, ULIPs can be termed as a two-in-one planin terms of giving an individual the twin benefitsof life insurance plus savings. This is unlikecomparable instruments like a mutual fund forinstance, which does not offer a life cover.


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ULIPs offer variety than traditional life insurance plans. So thereare multiple options at the individual's disposal. ULIPs generally come in three broad variants:

Aggressive ULIPs (80%-100% in equities, balance in debt) Balanced ULIPs (40%-60% in equities) Conservative ULIPs (upto 20% in equities)

Although this is how the ULIP options are generally designed,the exact debt/equity allocations may vary across insurancecompanies. A ULIP policyholder has the option to invest in avariety of funds, depending on his risk profile. If one does nothave the appetite to invest in equity, they can choose a debt orbalanced fund.


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Rupee cost-averaging is another important benefit associated withULIPs. Individuals have probably already heard of the SystematicInvestment Plan (SIP), which is increasingly being advocated by themutual fund industry.

With an SIP, individuals invest their monies regularly over timeintervals of a month/quarter and don't have to worry about timing' thestock markets. These are not benefits peculiar to mutual funds. Notmany realise that ULIPs also tend to do the same, albeit on aquarterly/half-yearly basis.

An added benefit with ULIPs is that individuals can also invest a one-time amount in the ULIP either to benefit from opportunities in thestock markets or if they have an investible surplus in a particular yearthat they wish to put aside for the future.


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y All the charges levied on the product over its tenure,not just the initial charges are clearly explained

y A complete charge structure would include the initialcharges, the fixed administrative charges, the fundmanagement charges, mortality charges and spreads


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y Most ULIPs are rich in features such as allowing one totop-up or switch between funds, increase or decrease

the protection level, or premium holidays. Carefully understand the conditions and charges associated witheach of these.


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y ULIP is a bundled product of their investments andtheir insurance proceeds.

y It s a product slightly more complex than generally perceived, The offer document you get on sign up isactually the size of a small booklet


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y The rural consumer is now exhibiting an increasing propensity for insuranceproducts.

y A research conducted exhibited that the rural consumers are willing to dole outanything between Rs 4,500 and Rs 7,900 as premium each year.

y In the insurance the awareness level for life insurance is the highest inrural India, but the consumers are also aware about motor, accidents and cattleinsurance.

y In a study conducted by MART the results showed that nearly one third saidthat they had purchased some kind of insurance with the maximum penetrationskewed in favor of life insurance.

y The study also pointed out the private companies have huge task to play increating awareness and credibility among the rural populace.

y The perceived benefits of buying a life policy range from security of income bulkreturn in future, daughter's marriage, children's education and good return on

savings, in that order, the study adds.


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LIC - 100%


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y LIC 48.1%ICICI Prudential 13.7%Allianz Bajaj 10.3%SBI Life 6.2%HDFC Standard 4.1%

Birla Sunlife 3.4%Reliance Life 3.4%Max New York 2.4%OM Kotak 1.9%AVIVA 1.8%Tata AIG 1.5%MetLife 1.4%ING Vysya 1.2%Shriram Life 0.3%Bharti Axa Life 0.2%


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y BSNL in 2003 98.5% Market share

y Today BSNL is relegated to 6 th or 7th largest telecomOperator .

y LIC in 2020???


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y By 2007 Bajaj Allianz saw 54% growth and had a 7.34% market share, was thelargest Private Insurer in India.

y It was the Company that Pioneered and Utilized ULIP for its Growth. Over andAbove the product, It was the first Company to use Direct marketing as adistribution Channel, and the only one to do so till 2007.

y However in, 2007 it traded Profit for Growth, It still is among the largest, andis the Only Profitable pvt Insurer Till date

y Warren Buffet, Chose Bajaj Allianz v others for its Retail Foray in India. Withintwo days of deal the Share price of Bajaj Finserv(the Holding company of Bajaj s

share in Bajaj Allianz) Went from Rs 440 to Rs 610y Can it redo its magic??


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y Since opening up of Sector in 2001 and the introduction of ULIPs as alife insurance product category, the overall insurance penetration in thecountry has grown from around 2% to 4%.

y Currently size of Indian life insurance industry is US$ 41 billion and is

considered the fifth largest life insurance market, and is growing at arapid pace of 32-34 per cent annually, according to the Life InsuranceCouncil.

y Today, more than 70 per cent of the new business premium for lifeinsurers comes from Ulips.

y The Industry has Grown 6 times in the last 8 years. Almost the entiregrowth is contributed by just ONE PRODUCT INNOVATION

ulip – the product innovation

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