September 2010 was almost like a new era for life insurance business in India. The lucrative commissions which were being paid to life insurance middle men got reduced slightly. Ulips were made much more customer friendly and aligned more towards a life insurance product with increase coverage levels. The lock-in period was ULIP was also increased.
While all this was great for the customer, not all participants have benefited from it. Life insurance companies had to pause and take a hard look at how business was being sourced. The internal cost structures needed to have a close and hard look. Expenses had to be controlled and payouts needed to be reduced. While most life insurance companies would be impacted in the short run, the fact that Ulips have become more customer friendly will result in more sales in the longer run.
It may not be the same for the distributors though. Companies which were relying largely on sale of only Unit Linked Insurance Plans have taken a hit. The drop in commissions means that the distributors would have to almost double their productivity if not more. Now that does not come easy. HTMT has confirmed that they had to shut their insurance sourcing business as it was no more lucrative enough to do the same. Some 300 employees had to be re-settled to other processes because this line of business was no more attractive enough from a business point of view.
There are some pains which the industry would go through. But in the long run, life insurance companies will evolve and move to sustainable sourcing channels.
A customer friendly move is always a good move!