Eight years on, pvt life insurers yet to break even

Private life insurers have entered into their eighth year of operations in the country but they are yet to generate profits.

Usually, insurers globally take six-seven years to break even, or turn profitable. But life insurers in India are taking longer to be profitable due to increasing management costs, a high attrition rate and a shrinking ticket size.

Industry players have already started focusing on premium renewals. As a result, this segment had grown at over 35 per cent in 2008-09. Further, this does not involve any high commissions for agents, unlike in new premium business.

Additionally, new premiums require large spends on the training of an agency force for creating a niche market for the products, and to provide for policy liabilities and maintaining solvency margins.

The private life insurance industry had grown at 7 per cent in the April-February period this financial year from April-February 2007-08.

Insurers attribute the delay in achieving break-even to the capital intensive nature of the life industry. They have to inject capital at frequent intervals to achieve growth in the premium income.

"A majority of the expenses goes towards distribution. Real estate prices, growth in salaries and expenses on technology have gone higher than what was provided for in the original business plan, pushing companies away from break-even," said Aviva Life MD and CEO T R Ramachandran.

"If a life insurer fails to break even in seven-eight years, the company can never be profitable," said the managing director of a large insurance company on condition of anonymity.

HDFC Standard Life and ICICI Prudential were the first private players to start the life insurance business in 2001 when the industry was opened up. Four private insurers had reported net profits in 2007-08. Then Bajaj Allianz life posted a profit in 2008-09.

SBI Life, due to the large network of its parent company State Bank of India, achieved an early break-even. Others insurers who have posted profits include Met Life, Shriram Life and Sahara Life. SBI Life posted a net profit of Rs 34.38 crore (Rs 343.8 million) in 2007-08. It was the first private company to report a net profit of Rs 2.02 crore in 2005-06, followed by Rs 3.83 crore (Rs 38.3 million) in 2006-07. Another private insurer Shriram Life, which started operations in February 2006, reported a net profit for its third successive year of operations.

However, it reported a lower net profit of Rs 5.58 crore (Rs 55.8 million) in 2007-08 as against Rs 9.50 crore (Rs 95 million) in 2006-07. The total premium underwritten stood at Rs 184.16 crore (Rs 1.841 billion).

Metlife and Sahara life have reported net profits of Rs 21.25 crore (Rs 212.5 million) and Rs 3.34 crore (Rs 33.4 million), respectively in 2007-08.

The former posted a net loss of Rs 11.96 crore (Rs 119.6 million) in 2006-07, while the latter posted a net loss of Rs 51.44 lakh (Rs 5.144 million) in 2006-07.

ICICI Prudential Life Insurance plans to go in for an IPO before breaking even, depending on changes in FDI limits. It is aiming for an expense break-even in another 12-18 months.