Large lapses lead to policy trading

KOLKATA: Believe it or not, a whopping one crore life insurance policies with a total sum assured value of Rs 74,076 crore lapsed in 2005-06.

This assumes importance in the light of last week’s Bombay High Court ruling, which stipulated that life insurance policies can be traded and assigned freely. This means that specialist companies can now buy these lapsed policies, revive them from individuals and trade them to earn profit.

The court order pertains to a case filed by Insurance Policy Plus Services — an organisation that made business of buying policies and arbitraging between the low surrender value and high-maturity benefits. LIC had stymied operations of IPPS by refusing to assign policies for purpose of trading. LIC is considering options for appeal since the corporation’s position is that trading in policies go against principles of insurable interest and increases the moral hazards.

Officials said that options include going for appeal and representing to the government to amend the Insurance Act, 1938 to incorporate safety features.Interestingly, the total sum assured value of these policies was about 2.84% of GDP (at 1999-2000 prices) for 2005-06, while it was nearly 70% of the total premium underwritten by the entire life insurance industry in a single year (2005-06). The premium income for the same year was Rs 1,05,875.76 crore, which included new premium, including those from Ulips as well as renewal premium.

Since released for the first time, comparable figures for the previous years were not available. Which is why, a comparative analysis could not be done.

Nevertheless, one crore policies that lapsed is about 5% of the total numbers of policies in force in 2005-06. Numbers of polices in force, at about 18.31 crore, are the ones for which their policyholders are still paying premiums and these policies are yet to mature.

According to Irda data, as many as 1.4 crore policies were discontinued, of which 1.01 crore were cases of lapsed policies. Discontinued policies include policies terminated by death, maturity, lapses, surrenders or cancellations.

The break-up among different companies shows that 93% of the number of policies that lapsed were those of LIC’s at 95.69 lakh with a total sum assured value of Rs 61,640 crore.

In the private sector, ICICI Prudential witnessed the largest number of lapses at 1.36 lakh policies with a total value of Rs 1,377.46 crore. That was followed by Max New York Life Insurance’s (MNYL) 1.04 lakh policies with a value of Rs 2,657.78 crore. Tata AIG at 92,490 policies, Bajaj Allianz 66,470 policies, HDFC Standard Life 40,550 and ING Vysya Life Insurance 40,730, followed by MYNL in terms of number of policies that lapsed.