Unit-linked insurance plans (Ulips) are coming back into the industry in a different avatar. Changes made to Ulips with regard to charges, sale strategy and transparency have made Ulips much easier to understand and buy.
Among all the life insurance products, Ulips have the lowest charges both in terms of fund management fee as well as commission charges.
Rushabh Gandhi, Director Marketing and Sales at IndiaFirst Life Insurance said that from a customer standpoint, it is far more transparent than traditional products. "We have launched Wealth Maximizer plan to make it easy for customers to buy a Ulip. Since Ulips are long term products, his investment strategy may change over 15-20 years. We give them an option to switch funds as well choose from multiple funds including debt to equity and vice versa," he added.
Earlier, there was a set percentage of allocation between debt and equity which would remain constant. Now, as your age progresses, the debt-equity mix changes.
Gandhi explained that those who bought a plan before the age of 25 years would have 70 percent of fund in equity and 30 percent in debt. Similarly, after 70 years of age, only 10 percent is in equity and rest 90 percent is in debt.
Primarily, this is because of Insurance Regulatory and Development Authority of India (IRDAI) tightening rules around sale and distribution of Ulips apart from making the product structure simpler.
Ulip-related complaints more than halved to 2,808 in FY16 from 7,127 in FY14. The overall misselling complaints (unfair business practices) which included a large proportion of Ulips have come down to 1 lakh in the previous financial year compared to 2.1 lakh, data from IRDAI showed.
The common complaint was that unviable returns and doubling of sum assured was promised to customers who often invested for a shorter duration. Most of them fell for such false assurances losing the entire fund value in this process.
Now, customers are segmented as per their age, risk appetite and income to suggest a suitable product to them.
Anil Kumar Singh, Chief Actuarial Officer, Birla Sun Life Insurance said that they focus on customer segmentation basis the need of the customer — savings, protection or wealth creation — age, income, and understanding of financial products.
“Depending on the result, life insurance solutions are advised to the customer. Somebody who is focused on wealth creation over medium to longer time period and understands the risk and return better can be advised to opt for an Ulip,” added Singh.
Commission rates have also fallen which means that agents are no longer able to push it to improve their income. In fact, insurers said that some agents are in fact reluctant to sell these products due to the low incentives.
Gandhi said that now the commission rates are low and that they pay only 4 percent to the agents.
Further, apart from the welcome call made after the sale, pre-verification calls as well as mystery shopping is also done to ensure that the right product has been sold to the appropriate customer.
Singh of Birla Sun Life Insurance said that the framework for Ulip products have been provided by the regulator, while companies have to stick to the framework they can take steps to ease the complexity of such products.
Birla Sun Life Insurance is also investing in the knowledge building of its advisors to aid product understanding and enable them to offer most suitable solutions to the customers. Interventions like these help better understanding of Ulip products for customers.
From being only 20 percent of the total new premium collection in 2007-08, traditional plan today accounts for nearly 70 per cent of the sales. However, Ulips are catching up as individuals become more savvy.