Annuities Deserve A Favoured Treatment

Way back in October 1995, this author had a rather painful experience, meeting a retired senior officer from the automobile industry, who had to beg for some money to feed his old wife and himself. Companies did not provide for pension then.

I asked him why he had not, while in service, purchased an annuity policy from an insurer. He replied that life insurance products were sold only through insurance agents and no agent had ever suggested purchasing an annuity policy.

Agents, alas, still, rarely sell annuities. Most life insurers do not promote annuity products. One has only to go through the annual reports of the IRDA to find that many have not sold even a single annuity policy.

The total numbers of general annuity/pension policies in force are to be understood considering the exits by way of death, surrender, etc, viz., 249,080 (2005-06), 202,000 (2006-07), 323,000 (2007-08), 276,000 (2008-09) and 296,410 (2009-10). In 2005-06 there were 15 life insurers in India with over seven lakh agents who sold 3.21 lakh annuity policies. In 2009-10, there were 23 companies with 29.78 lakh agents – their output was 3.19 lakh policies. Approximately, it works out to one annuity policy per 10 agents.

Just as life insurance is the last choice of society, for the life insurers, annuity business is their last priority. In 2005-06, it was only 1.64 per cent of their total business. In 2009-10, it had fallen below 1 per cent.

The productivity of an agent of private sector life insurer came down, from 0.11 in 2005-06 to 0.04 in 2009-10 whereas the productivity of a public sector agent came down from 0.62 in 2005-06 to 0.18 in 2009-10. The question is: what ails our annuity sales?

The cause of poor sales cannot be faulty products (insurer takes care of his interests) or lower commission to the salesmen (unit-linked life insurance products (ULIP) too provided the same commission rates).

Lack of social commitment on the part of insurers, no thrust on annuity sales, poor insurance education and consequent poor awareness levels of agents, etc, appear key factors for falling annuity sales. Most of the agents are not aware of the facilities of commuted value on vesting of annuities and ‘options’ under annuities. People’s poor awareness of annuities is another factor.

The truth, with regard to the life insurance industry, is that only those products are sold which the companies want to sell. That the annuity business is only 0.998 per cent of the total life insurance business shows insurers’ functioning in poor light. In a country where the mortality rate is falling and older people are going to live longer, insurers approach these aspects without humaneness or vision.

The Regulator may consider making it mandatory for agents to sell at least one annuity policy a year or include annuities as a definite percentage of their sales. This would be similar to an insurer’s prescribed commitment to the rural and social sectors.

Citizens may be permitted to purchase annuity products directly, that is, without the aid of intermediaries. That would ensure that a prospect desirous of purchasing an annuity plan would not be misguided into purchasing a life insurance plan (on which periodic survival benefits with more frequency are projected as pension products) by unscrupulous salesmen.

Contributions to annuities and pensions could be encouraged through tax rebates exclusively for these contributions, not as part of savings. Annuities deserve favoured treatment.