Life Insurance Shifts: A Look at Non-Par Products
Life insurance companies are changing the way they sell their products. They’re selling more “non-par” insurance plans, which are plans with guaranteed benefits. This change is happening because the stock market has been unpredictable, and interest rates on savings accounts have gone down. Because of this, more customers are choosing plans that offer a guaranteed return instead of plans that rely on stock market growth.
Key Points
- Stock market drops & low savings rates are driving the shift.
- “Non-par” plans have guaranteed benefits, appealing to customers.
- Insurers are buying longer-term government bonds.
- More people are choosing plans with set returns, not investments.
- This trend affects companies like SBI Life, ICICI Prudential, & Axis.
- Increased demand for non-par products is reshaping the insurance industry.
Several big insurance companies have increased the amount of money they’re spending on non-par plans. For example, SBI Life now sells non-par plans in 19.5% of their business, up from 15.1% last year. ICICI Prudential Life sells non-par plans in 50% of their business, and Axis Max Life sells non-par plans in 26% of their business. LIC has also increased its investment in non-par plans to 36.31% of individual sales.
However, not all companies are shifting to non-par plans. HDFC Life has actually seen a decrease in its non-par sales – down to 18% in the first half of the current year from 38% the previous year. This is because the rates for other insurance companies are too high, and because they already have many non-par policies sold before.
Why are insurers choosing this strategy? Analysts say that rising long-term government bonds offer a good investment opportunity. These bonds, called G-Secs, have higher interest rates, which are attractive to life insurers. Life insurers sell these plans, and because the plans have guaranteed returns, the insurers create long-term liabilities.
For example, BNP Paribas analysts say that over the past six months, the interest rates on longer-term government bonds have increased. This means life insurers can buy these bonds and invest them in non-par plans. The higher yields on these bonds create more investment options for the insurers.
“The shift toward non-par products reflects a change in customer preferences driven by market volatility and a desire for certainty.”
