3 Facts why upcoming financial year will be the year of ULIP

Out of the box thinking does have its own benefits and drawbacks. However, in the case of a recent example of such thinking politically was the demonetization drive carried out by the Prime Minister of India, a couple of years ago. As a result of the drive, a lot of cash was pumped into the economy through various sectors. More policies were renewed in that short time period than all of the past twenty years and more.  However, some pundits forecasted that the growth for the insurance industry would be muted or at best sluggish. However, the above action on the part of the general public proved the pundits wrong.

In continuance of the trend and also because of the rule that you may not be issued another policy if it is found that you have policies that have been left unpaid, then there will not be any fresh policy issued to you. In such cases, many people would opt for single premium ULIP insurance or conventional policies which do not have the continuation factor since the policy holder has to pay the single premium and can then not worry about forthcoming premiums to pay.

Insurance companies in the private sector continue to grow their business at a brisk pace. They have been successful in posting a rate of 24% growth.  In fact, other aspects of the insurance sector have also shown robust growth in the trailing 12 months or more. In the hunt for the best ULIP plan, potential investors are flocking to the market after they gained a correct perspective on the market. That in turn was a result of the influx of more information that became available to them and which then prompted them to look at ULIPs in a whole new perspective. It seems that the general population may have educated themselves about the unconventional or new age plans that the insurance companies are offering them. It may not be far off when people lap up the newer ULIP policies faster than before.

Without doubt then, people have shown a solid support which makes the market for insurance products look strong in the present as well as long into the future. It is forecasted that there will be stronger growth in the next five to seven years – another factor that seems to work in favor of a strong growth in this sector. However, experts are of the opinion that there are certain factors that will determine the way the trends will move in the near future. One of them would be how well the insurance companies execute their plans of selling ULIP insurance products to the masses in the Indian market. The Indian market even today is hugely under insured and therein lays the opportunity for the future.

Since even the best ULIP plan is tethered to the securities market to begin with, there are doubts in the minds of people that with the slowdown in the market, will the ULIP market go south too. And since that is the potential risk that people see there, they would be skeptical to go the ULIP way for investing their hard earned money. It has been observed that the insurance products fetch around four times more in revenues as compared to the ULIP market. 

Even in insurance, if you look at the ULIP share, it is a negligible percent of the whole pie. Most of the investors base their decisions on the ULIP return calculator. In the near future, if the markets were to take a U-turn, it is not the life insurance industry that will feel the heat, but the ULIP industry. Secondly, even within the life insurance industry, there exist some players who boast to have a higher proportion of ULIP plan sales but then there are other players who approach business with a mix of products that are balanced and hence, as a logical result of that event, if the ULIP sales were to get impacted in the future, they won’t be affected much as a result.

There are companies in the market that have a wide variety of products that they can pitch and drive sales to, thus balancing out their low volumes on the ULIP front. There exists a certain balance in the market which makes even a downturn in the market an opportune time to enter or consolidate rather than to exit the market.

Since the past few years, the Indian investor has become more savvy than before because of a better exposure to knowledge bases as also more exposure to what is happening in the world and stricter due diligence back home that protect the investor, especially the small investors. In the past, many small investors were left in the lurch after they bit the bait and got ensnared in the best ULIP plan hunt trap.

It would amount to speculation if we were to guess whether the ULIP market or the insurance market will outshine the other. This is because, historically speaking, we have all seen that the market has quite a few surprises and thus, it would be foolish to try and out think the market.

Author: Chakraborty

Dr Chakrabarty is the Chief Innovation Officer of IntuiComp TeraScience. Earlier she was Assistant Professor of Delhi University, a QS ranked university in India. Before that she has held research positions in IITs and IISc. She holds 2 patents and over 20 publications in her name. Her area of research is in smart technologies, integrated devices and communications. She also has a penchant for blogging and is an editor of Business Fundas.