M SaraswathyMoneycontrol
Insurance companies have chosen to invest heavily in government securities, even as the Insurance Regulatory and Development Authority of India (IRDAI) recently permitted investments in new instruments.
According to latest data from IRDAI in its annual report for 2015-16, investments in government securities constituted almost 63 percent for the life insurance companies for the traditional products. Data from the Insurance Regulatory and Development Authority of India (IRDAI) said that as on March 31, 2016, the accumulated total amount of investments made by the insurance sector was Rs 26.9 lakh crore.
Life insurers continued to contribute a major share of total investments made by the industry with a share of 93.01 percent of total investments. Similarly, public sector companies continued to contribute a major share of 79.24 percent in total investments though investments by private sector insurers are growing at a fast pace in recent years.
Regulatory requirements necessitate that the insurer invest a certain portion in G-Secs due to these instruments having a guarantee and safer than other instruments like corporate bonds.
The various sources of funds available for investment by life insurers can be classified as funds from traditional products and funds from unit-linked insurance (ULIP) products. The total amount of funds invested by life insurers as on March 31, 2016 was Rs 25.02 lakh crore. In that, Rs 3.40 lakh crore (13.61 percent of total funds) came ULIP funds and the remaining Rs 21.6 crore (86.39 percent) was contributed by traditional products.
Data showed that the share of Ulip during last five years is facing a downward trend and its share last year went down by 2.53 percent when compared to its previous year. In FY16, the ULIP Fund has decreased in absolute number by Rs 22,328 crore.
Investment officials said that this was primarily because of the product portfolio seeing a shift to the traditional segment. The head of distribution at a mid-size life insurer said that agents have been reluctant to sell Ulips primarily on the back of lower commissions and lower policy tenure which leads to a lower income from the products.
Another factor is that the appetite for market-linked products like ULIP is weak, considering the past issues related to the product.
With the bad press over misselling of ULIPs still etched in public minds, several insurers have consciously moved away from Ulips to traditional products. The country’s largest insurer, Life Insurance Corporation of India (LIC), has more than 90 percent business coming in from traditional products.
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