Surrender payouts haunt life insurance companies

Tags: Insurance

Top six players witness 46% YoY rise in payouts during Apr-Sept

The life insurance business, going through a difficult phase in the past few years, is also losing money owing to high incidence of surrender of policies. Data for the six largest private life insurers show that surrender payout to policyholders have increased 46.2 per cent in the first six months of this financial year, over April-September 2011.

While these six insurers paid Rs 15,061.66 crore during April–September 2012, they had paid Rs 10,299.34 crore in the same period a year ago.

ICICI Prudential Life Insurance, HDFC Standard Life Insurance, SBI Life Insurance, Max Life Insurance, Bajaj Allianz Life Insurance and Reliance Life Insurance payout on surrenders reflect this trend.

A policy is considered surrendered when a policyholder decides to discontinue the insurance plan and asks the insurance company to process the refund of accumulated corpus. Insurance companies then refund the fund value after deducting its charges and the life insurance policy is terminated.

Unit-linked insurance plans (Ulips) that were sold before September 2010 had a minimum lock-in period of three years and contributed heavily towards surrenders.

“Before September 2010, the industry was heavily dependent on Ulips and the redemption pressure will be high on insurers for next one - two years. However, we continue to advise our policyholders to carry on their existing policy as life insurance is a long-term product and should not be looked at as a short-term investment tool,” said Malay Ghosh, president and executive director, Reliance Life Insurance.

While all six insurers have seen growth in surrenders, Reliance Life Insurance has registered highest rise of 93.5 per cent. Surrender payouts stood at Rs 1,948 crore in the April–September period, compared with Rs 1,007 crore in the corresponding period of last year.

SBI Life Insurance witnessed 58.8 per cent hike in surrender payout, with total payout in the half-yearly period till September at Rs 2,134 crore, compared with Rs 1,344 crore in the same period last year.

Similarly, Max Life Insurance, Bajaj Allianz Life Insurance, ICICI Prudential Life Insurance and HDFC Standard Life Insurance witnessed 45.0 per cent, 41.3 per cent, 40.3 per cent and 20.6 per cent, rise in surrender payouts, respectively.


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