LIC could tweak single-premium policies, plans to cut variable costs

Life Insurance Corporation of India (LIC) is mulling the possibility of increasing the minimum premium for single-premium unit-linked policies to around Rs 40,000. It is also planning to increase the tenure for such policies to 10 years from five at present.

Moreover, the insurer will also look into reducing variable costs through steps like cutting fund management costs. "We may have to increase minimum premium from Rs 25,000 to Rs 40,000 and increase the lock-in period from five to 10 years, so that commissions are not affected," said TS Vijayan, chairman of LIC.

"We saw that two-three products we have needed to be restructured. We will redesign the products by cutting expenses like fund management. But we will not touch agents' commission," he said.

Vijayan's statement comes at a time when the Insurance Regulatory & Development Authority (Irda) has capped the difference between gross and net yield to customers at 3% for 10-year policies and at 2.25% for policies of more than 10 years.

This will benefit retail investors as returns will go up after the new Irda rule became effective from October 1 this year. But commission of the agents will come down as charges varied between 1.8% and 4% before that depending on the tenure of investment.

Present at the 38th convention of Chairman's Club, Vijayan said agents need not worry about commission. Agents' commission became a concern for the industry after the D Swarup-committee suggested that premium paid to agents be immediately cut to not more than 15%. The commission should further be reduced to 7% in 2010 and become nil by April 2011.

"We have informed the authority that let it be implemented elsewhere first and if it proves to be successful, we can follow," Vijayan said. "From January 2010, the cap on expenses for Ulips will be applicable and we have asked our actuaries to restructure some of our products," he added.