The insurance regulator’s guidelines will see a push for selling policies with a term of 12 years or more as it keeps the intermediary commission intact. Surrender value is improved, but it may not be enough considering the gap with ULIP surrender value. Nothing much to cheer for consumers
The Insurance Regulatory and Development Authority (IRDA) has issued guidelines, effective October 2013, for life insurance policies which will have an impact on the commission and surrender value of traditional products (endowment, money-back, whole-life and term plans). Short-term policies will have a lower commission than traditional products with a policy term of 12 years or more. There was no such differentiation till now with agents getting 35%-40% of the first year premium as commission. Life Insurance Corporation of India (LIC) agents will hold protest demonstrations in front of LIC branches across India on 20th March against the reduced commission in IRDA guidelines.
In case of regular premium insurance policies, a policy with a premium paying term (PPT) of five years will not pay more than 15% in the first year, 7.5% in the second and third year and 5% subsequently. Products with PPT of 12 years or more will have first year commissions up to 35% in case the company has completed 10 years of existence and 40% for the company in business for less than 10 years. Don’t be surprised if intermediaries are only interested in selling long-term life insurance products espousing benefits for disciplined savers.
Online policy sales and other direct sales of products will have no commissions and that benefit will be passed on to the policyholder. It is not clear how the benefit is passed to policyholder, if the same product is sold through agent versus direct sales. Will the policyholder buying the product through direct sales get higher bonus due to the saved commission? Otherwise, the customer will still go through agent route due to the prevalent custom of “commission sharing”.
The minimum guaranteed surrender value for traditional plans has been pathetic. The existing guaranteed surrender value is 30% of all the premiums paid minus the first-year premium and is paid only if premiums have been paid for three years. This has been improved to some extent by the guidelines. For traditional plans with PPT of less than 10 years, the guaranteed surrender value will accrue after the second year. For PPT of 10 years or more, there will be a guaranteed surrender value after three years. This guaranteed surrender value will be 30% of total premiums paid. The surrender value becomes 50% between the fourth and the seventh years. The surrender value after seven years will have to be cleared by the regulator.
While the improved guaranteed surrender value is a welcome move, its impact on the returns to the policyholders will have to be seen. This is because if there is higher number of surrenders, the insurance company’s performance will be impacted and hence returns in terms of bonus will be affected. But, if you are buying a traditional product with a thought of surrendering it during the policy term, then you should not be buying it at all. Moneylife does not recommend buying traditional products, as even after the guidelines, it will remain opaque and fetch low returns. While the industry trend has been to move from ULIP to traditional products, it is like jumping from the frying pan into the fire.
The minimum death benefit for single premium policies will be higher of 125% of the single premium, or minimum guaranteed sum assured on maturity, or any absolute amount to be paid on death. For those with age more than 45 years, it will be 110% of the single premium. For regular premium products purchased by policyholder of age less than 45 years, it will be higher of 10 times the annualised premium or 105% of all premiums paid on date on death or minimum guaranteed sum assured on maturity, or any absolute amount to be paid on death. For those with age more than 45 years it will be seven times the annualised premium.
Nifty may get resisted at 5,920-5,950, followed by a significant decline
Old demons of surging prices, ballooning inventory levels and subdued demand returned to haunt the sector during the third quarter, says the real estate rating and research agency
The third quarter of FY2012-13 saw the residential realty sector slipping into a lull once again. The market did not seem to be enamoured by the festive spirit and the astounding performance of the second quarter proved to be just a flash in the pan, says Liases Foras in a research note.
“Weakness in India’s macroeconomic scenario continued as the Index of Industrial Production (IIP) growth for November fell to a four-month low and current account deficit as a percentage of GDP stood at an unsustainable level of 5.4% for second quarter of FY13. The residential real estate market also mirrored the negative sentiment and witnessed a lacklustre performance in the December quarter of FY13. The old demons of surging prices, ballooning inventory levels and subdued demand returned to haunt the sector in the third quarter,” the report said.
Prices continue to edge higher in Q3
According to Liases Foras, the price of existing supply remains at an elevated level across most of the six major cities, the National Capital Region (NCR), Mumbai Metropolitan Region (MMR), Bengaluru, Chennai, Hyderabad and Pune on an annual as well as sequential basis. This had a cascading effect on the demand and inventory pile-up. Sales in terms of volume and value slipped in most of the cities due to which time required to clear the stock at the existing absorption pace showed a significant rise.
NCR witnessed an uptrend in prices with Faridabad and North Delhi showing 23% and 21% sequential gain. However, the pace of price increase slowed in Q3 2012-13 as against the previous quarter. Bengaluru saw a whopping 10% surge in prices on account of mushrooming IT companies and availability of superior range of products. Moreover, execution of projects at a faster pace has also impacted the upward movement of prices, the report said.
Apparently, MMR is inching towards normalcy as prices have moved southward after three long quarters. Even as the remaining suburbs recorded a 2%-3% quarterly price rise, it is likely that the long due correction could see the light of the day, as the 3% sequential price drop in the Island City could have a rippling effect on the prices across other locations in the city. However, effects of a sudden rise in Ready Reckoner rates in Mumbai, since 1 January 2013, cannot be completely ruled out.
Sales declined marginally except in Mumbai and Hyderabad
In terms of composition NCR, MMR and Bengaluru contribute more that 50% of the total sales in India's residential realty sector. Although, the trend rolled over this quarter, the sales contribution saw a marginal decline across most of the major six cities with an exception of MMR and Hyderabad. NCR, Bengaluru and Chennai lost their respective chunks in the pie both in terms of volume as well as value. On the flipside, MMR, in terms of volume, garnered a market share of 17% compared to 13% in the previous quarter, whereas in terms of business turnover, the region contributed 30% of the sales as against 24% recorded in the September quarter. Treading on the same lines, Hyderabad witnessed an increase in contribution in volume sales and business turnover.
The pace of offtake also slowed across the cities. Chennai witnessed a significant decline in the sales velocity to 1.38% in the Q3 from 2.08% in the previous quarter. In Q3 FY 2012-13, Bengaluru outdid Pune to show the fastest pace of sale across the nation. Sales movement was the slowest in MMR, while Hyderabad saw slight acceleration in its velocity, the report said.
Liases Foras said it is interesting to observe that the market is following a spiral movement, whereas the efficient markets like Pune and Bengaluru are slipping into the inefficient territory. Perceived inefficient markets like Hyderabad and MMR are moving into the efficient zone.
“While, price still remains at elevated levels, new properties being launched at lower price points are a welcome move and generate prospects of moving towards efficiency in the long run. Moreover, announcements made in the Union Budget 2013-14 are also likely to have repercussions on the market and the prevailing sentiment,” the Liases Foras report said.