LIFE Insurance Corporation is likely to gain marketshare if the dispute between Sebi and Irda over Ulip regulation is not resolved.
Given the uncertainty, buyers may be more comfortable with conventional products where LIC is on a strong footing. The state-owned corporation has the largest array of traditional products which are outside the realm of the dispute between Sebi and Irda.
Another advantage for LIC is that it has a large section of its million strong agency force focused solely on traditional plans.
Another factor that supports LIC’s traditional business is that the corporation has a mature life fund, which has been consistently generating a large surplus for distribution in the form of bonus. In case of many new private insurance companies, the policyholder’s funds are yet to generate surplus as most of the expenses are charged to the life fund. Some private companies have been declaring bonuses under their traditional plans by transferring shareholders’ funds to policyholders’ account to make sure that there is a bonus every year.
Last year, in the aftermath of the sub-prime crisis when investors had turned wary of equity-linked products, LIC had introduced Jeevan Aastha, which helped the corporation round up close to Rs 10,000 crore within a matter of few weeks. Such guaranteed return products have a tax advantage as far as LIC is concerned since the entire sum assured (which includes the guaranteed return) is treated as a policyholder liability and not taxed as part of surplus funds.