Irda to measure life insurers on AUM scale

MUMBAI: The Fiercely competitive world of life insurance will now see a new kind of battle. It will turn out to be a dog-eat-dog fight for `assets under management’. Just like mutual funds, life insurance companies will now have to play their AUM game to hit the monthly league tables.

The insurance regulator has come out with new management information system (MIS) format for life companies that requires insurers to submit details of their assets under management.

Until now companies made available only data pertaining to new business. This resulted in companies that got the highest first-year premium topping the list.

However, this has been vociferously opposed by some companies on the ground that such a ranking system encouraged insurers to churn existing customers selling them additional short-term policies every year.

Using assets under management as a measure also reduces the impact of lapsed policies pushing up business figures.

This is because most policies lapse after the first year when the acquisition cost is the highest. Since a large part of the first year premium goes towards acquisition costs, the premium contributions are reflected in the assets under management to the full extent only from the second year.

Insurers say that assets under management are an important measure for a life insurance company because revenue from providing pure protection is very limited.

In the last five years, the Indian insurance industry has been mobilising most of its premium through sales of unit-linked policies rather than traditional endowment policies. Traditionally, the assets of an insurance company was represented by its `life fund’ a common pool into which all premiums went.

Now, with unit-linked products dominating sales the assets are largely in separate fund such as a growth fund or a income fund.

The mutual fund industry has for long adopted a system of reporting assets under management. Insurers say that AUM would reflect the business performance of an insurer more accurately than a mutual fund.
A mutual fund can inflate its AUM by accepting bulk invesments from institutional investors or through short-term investors. In life insurance, the Irda has asked companies to include a minimum lock-in period of three years for every individual policy.