Life insurers’ IPO norms: Right step at wrong time

To describe 2011 as a forgettable year for the life insurance segment of the insurance industry would be an understatement.

The run-up to 2010 saw the life insurance segment piggyback successfully on unit-linked insurance plans (ULIPs) so as to achieve a robust growth of 40-50%. In 2010, the Insurance Regulatory and Development Authority (IRDA) tightened the regulatory noose around ULIPs by capping commissions of agents and distributors, enhancing risk cover and extending the lock-in period to five years to give ULIPs the features of a long-term savings product.

These changes reduced the short-term revenues of distributors, whose bottom line in the segment is commissions. When stubborn inflation conspired with a choppy equity market in 2011, ULIPs lost much of their steam and sheen. Insurance companies had little room to obtain further investment, and were dogged by poor underwriting and a lack of technical expertise.

Siddharth Hariani is a partner at the Mumbai office of Phoenix Legal where Hemant Krishna V is an associate. They can be reached at siddharth.hariani@phoenixlegal.in and hemant.krishna@phoenixlegal.in.