Pension products might take a little longer to be counted among big contributors to the portfolio of life insurers. These used to be 25 per cent of the total offerings and are now down to single digit. While life insurers have started introducing new products in this segment, insurers admit they are at a disadvantageous position, compared to the National Pension System (NPS) by the Pension Fund Regulatory and Development Authority (PFRDA).
In January 2012, the Insurance Regulatory and Development Authority (Irda) had said pension products would have to guarantee an assured benefit in the form of a non-zero rate of return, which would need to be disclosed upfront. Further, it said annuity had to be bought from the same company. These regulations had led to slower approvals of pension products. Initially, there was a dearth of pension products in the market. However, the gap was filled after some private life insurers launched pension products.
Most life insurers feel the guarantee element has made pension products different from NPS, while their fundamental structures are the same. Unlike NPS, service tax is applicable to pension products.
According to Sandeep Ghosh, managing director, Bharti AXA Life Insurance, there are reasons which are inhibiting life insurance companies from competing effectively in the pension space. The insistence on annuity being brought from the same insurer, no partial withdrawals allowed; issues like these will continue to inhibit us from coming up with a compelling proposition in the pension space," said Ghosh.
With the current regulations in place, insurers are not comfortable offering non-zero guarantee for pension. G V Nageswara Rao, MD of IDBI
Federal Life Insurance, said insurers had shied away from introducing pension products due to the guarantee return requirement. NPS is not mandated to offer these returns.
Insurers also have to maintain a conservative strategy in terms of investment, to give these 'non-zero' returns. G Murlidhar, MD of Kotak Old Mutual Life Insurance, said as pension products have to carry a guarantee, insurers follow a conservative investment strategy.
"But, NPS does not have any such requirement, and, that skews the pension playing field. So, selling pension on the insurance platform is that much more difficult and requires the building of significant 'pull'," he said. He added that until these challenges were addressed, pension growth was likely to remain muted.
Life insurers are also planning to take up this issue with the Irda. G N Agarwal, MD & CEO of Future Generali India Life Insurance, said that while they have also filed for a pension product, the industry will request the Irda to make pensions at par with NPS.
However, insurers are hopeful that these issues will get resolved as they move ahead. "With the right nudge, insurance companies can make a significant contribution in pensions since they have the distribution backbone to reach these products to a large audience," said Murlidhar.