ULIP - The Product Innovation

ULIP – The Product Innovation
Team 9
Abhimanyu
Arushi
Karthik R
Niranjan
Vamsi
The Reason for Choosing Insurance
Together with with Banking, Insurance accounts for

8% of India’s GDP
Insurance penetration in the country has grown and is

around 4%, Meaning for every Rs 100 that India earns,
Rs 4 goes towards paying Life Insurance Premium
Insurance - Introduction
In law and economics, insurance is a form of risk
management primarily used to hedge against the risk of a
contingent, uncertain loss.
 Insurance is defined as the equitable transfer of the risk of a loss,

from one entity to another, in exchange for payment.
An insurer is a company selling the insurance; an insured, or

policyholder, is the person or entity buying the insurance policy.
The insurance rate is a factor used to determine the amount to be

charged for a certain amount of insurance coverage, called the
premium
The Industry Background
 The process of opening up the insurance sector was initiated against
the background of Economic Reform process which commenced from
1991.
 For this purpose Malhotra Committee was formed during this year
who submitted their report in 1994 and Insurance Regulatory
Development Act (IRDA) was passed in 1999.
 Resultantly Indian Insurance was opened for private companies and

Private Insurance Company effectively started operations from 2001
 However private participation started effective from2003, till then LIC

was Monopoly
The Industry Background
For years now, the private players are active in the liberalized environment. The
insurance market have witnessed dynamic changes which includes presence of a
fairly large number of insurers both life and non-life segment.
Most of the private insurance companies have formed joint venture partnering
well recognized foreign players across the globe.
There are now 23(july 2010) insurance companies operating in the Indian
market .With many more joint ventures in the offing, the insurance industry
in India today stands at a crossroads as competition intensifies and companies
prepare survival strategies in this scenario.
There is pressure from both within the country and outside on the Government
to increase the foreign direct investment (FDI) limit from the current 26% to
49%, which would help JV partners to bring in funds for expansion.
DISTRIBUTION CHANNELS
The insurance agents still remain the main source through which
insurance products are sold.
The concept is very well established in the country like India but still

the increasing use of other sources is imperative.
 At present the distribution channels that are available in the market

are listed below.
Direct selling
Corporate agents
Group selling
Brokers and cooperative societies
Bancassurance
The Insurance Products –Till 2003
2 Types of life insurance
 Term Insurance
 Permanent Life Insurance( or Traditional Plans)
Whole life coverage
Limited-pay
Endowments
Accidental Death
The PRODUCT INNOVATION
Unit Linked Insurance Plan
ULIP
Introduction
 A ULIP is a market-linked insurance plan. The difference between a
ULIP and other insurance plans is the way in which the premium
money is invested.
 Premium from, say, an endowment plan, is invested primarily in risk-

free instruments like government securities (gsecs) and AAA rated
corporate paper, while ULIP premiums can be invested in stock
markets in addition to corporate bonds and gsecs.
 So what else apart from this reason makes ULIPs so attractive to the
individual? Here, are some reasons, which have made ULIPs so
irresistible.
Transparency
ULIPs offer a transparent option for customers to plan

their various life stage needs through market-led
investments as compared to traditional investment
plans.
Insurance cover plus savings
ULIPs serve the purpose of providing life insurance

combined with savings at market-linked returns. To
that extent, ULIPs can be termed as a two-in-one plan
in terms of giving an individual the twin benefits
of life insurance plus savings. This is unlike
comparable instruments like a mutual fund for
instance, which does not offer a life cover.
Multiple investment options
ULIPs offer variety than traditional life insurance plans. So there are
multiple options at the individual's disposal. ULIPs generally come in
three broad variants:
• Aggressive ULIPs (80%-100% in equities, balance in debt)

• Balanced ULIPs (40%-60% in equities)
• Conservative ULIPs (upto 20% in equities)
Although this is how the ULIP options are generally designed, the exact
debt/equity allocations may vary across insurance companies. A ULIP
policyholder has the option to invest in a variety of funds, depending on
his risk profile. If one does not have the appetite to invest in equity, they
can choose a debt or balanced fund.
Flexibility
Individuals can switch between the ULIP variants outlined above to
capitalise on investment opportunities across the equity and debt markets.
Some insurance companies allow a certain number of free' switches.
This is an important feature that allows the informed individual/investor to

benefit from the vagaries of stock/debt markets. For instance, when stock
markets were on the brink of 7,000 points (Sensex), the informed investor
could have shifted his assets from an Aggressive ULIP to a low-risk
Conservative ULIP.
Switching also helps individuals on another front. They can shift from an
Aggressive to a Balanced or a Conservative ULIP as they approach
retirement. This is a reflection of the change in their risk appetite, as they
grow older.
Works like a SIP

Rupee cost-averaging is another important benefit associated with ULIPs.
Individuals have probably already heard of the Systematic Investment Plan
(SIP), which is increasingly being advocated by the mutual fund industry.
With an SIP, individuals invest their monies regularly over time intervals
of a month/quarter and don't have to worry about `timing' the stock
markets. These are not benefits peculiar to mutual funds. Not many realise
that ULIPs also tend to do the same, albeit on a quarterly/half-yearly basis.
An added benefit with ULIPs is that individuals can also invest a one-
time amount in the ULIP either to benefit from opportunities in the stock
markets or if they have an investible surplus in a particular year that they
wish to put aside for the future.
Charges
All the charges levied on the product over its tenure,
not just the initial charges are clearly explained
 A complete charge structure would include the initial

charges, the fixed administrative charges, the fund
management charges, mortality charges and spreads
Other Features

Most ULIPs are rich in features such as allowing one to
top-up or switch between funds, increase or decrease
the protection level, or premium holidays. Carefully
understand the conditions and charges associated
with each of these.
In a NutShell
ULIP is a bundled product of their investments and
their insurance proceeds.
It’s a product slightly more complex than generally

perceived, The offer document you get on sign up is
actually the size of a small booklet
Some Facts!!
The rural consumer is now exhibiting an increasing propensity for insurance products.
 A research conducted exhibited that the rural consumers are willing to dole out
anything between Rs 4,500 and Rs 7,900 as premium each year.
 In the insurance the awareness level for life insurance is the highest in rural India, but
the consumers are also aware about motor, accidents and cattle insurance.
 In a study conducted by MART the results showed that nearly one third said that they
had purchased some kind of insurance with the maximum penetration skewed in favor
of life insurance.
 The study also pointed out the private companies have huge task to play in creating
awareness and credibility among the rural populace.
The perceived benefits of buying a life policy range from security of income bulk
return in future, daughter's marriage, children's education and good return on savings,
in that order, the study adds.
Market Share - 2002
LIC - 100%
Market Share 2008.
LIC 48.1%
ICICI Prudential 13.7%
Allianz Bajaj 10.3%
SBI Life 6.2%
HDFC Standard 4.1%
Birla Sunlife 3.4%
Reliance Life 3.4%
Max New York 2.4%
OM Kotak 1.9%
AVIVA 1.8%
Tata AIG 1.5%
MetLife 1.4%
ING Vysya 1.2%
Shriram Life 0.3%
Bharti Axa Life 0.2%
Market Share -2010
If you are willing to take this Analogy
BSNL in 2003 – 98.5% Market share
Today BSNL is relegated to 6th or 7th largest telecom

Operator….
LIC in 2020???
Case in Point - Bajaj Allianz
By 2007 Bajaj Allianz saw 54% growth and had a 7.34% market share, was the
largest Private Insurer in India.
It was the Company that Pioneered and Utilized ULIP for its Growth. Over and
Above the product, It was the first Company to use Direct marketing as a
distribution Channel, and the only one to do so till 2007.
However in, 2007 it traded Profit for Growth, It still is among the largest, and is
the Only Profitable pvt Insurer Till date
Warren Buffet, Chose Bajaj Allianz v others for its Retail Foray in India. Within
two days of deal the Share price of Bajaj Finserv(the Holding company of Bajaj’s
share in Bajaj Allianz) Went from Rs 440 to Rs 610
Can it redo its magic??

Conclusion
Since opening up of Sector in 2001 and the introduction of ULIPs as a life
insurance product category, the overall insurance penetration in the
country has grown from around 2% to 4%.
Currently size of Indian life insurance industry is US$ 41 billion and is

considered the fifth largest life insurance market, and is growing at a rapid
pace of 32-34 per cent annually, according to the Life Insurance Council.
Today, more than 70 per cent of the new business premium for life insurers
comes from Ulips.
The Industry has Grown 6 times in the last 8 years. Almost the entire
growth is contributed by just ONE PRODUCT INNOVATION

ULIP - The Product Innovation

Uploaded by

Copyright:

Available Formats

ULIP - The Product Innovation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

ULIP - The Product Innovation

Uploaded by

Copyright:

Available Formats

ULIP – The Product Innovation

Together with with Banking, Insurance accounts for

Insurance penetration in the country has grown and is

 Insurance is defined as the equitable transfer of the risk of a loss,

An insurer is a company selling the insurance; an insured, or

The insurance rate is a factor used to determine the amount to be

 Resultantly Indian Insurance was opened for private companies and

 However private participation started effective from2003, till then LIC

The concept is very well established in the country like India but still

 At present the distribution channels that are available in the market

Unit Linked Insurance Plan

 Premium from, say, an endowment plan, is invested primarily in risk-

ULIPs offer a transparent option for customers to plan

ULIPs serve the purpose of providing life insurance

• Aggressive ULIPs (80%-100% in equities, balance in debt)

This is an important feature that allows the informed individual/investor to

 A complete charge structure would include the initial

It’s a product slightly more complex than generally

BSNL in 2003 – 98.5% Market share

Today BSNL is relegated to 6th or 7th largest telecom

Can it redo its magic??

Currently size of Indian life insurance industry is US$ 41 billion and is

You might also like