Development of secondary market in life insurance products international survey and potential in India

Abstract

Structured Financial instruments have been the most interesting phenomenon of the contemporary markets, which has recently turned into the most intriguing phenomenon after the latest developments. The structured financial instruments like reverse mortgage, derivative securities, swaps and asset-backed securities are in a nascent form in India. Since 1980s, newer instruments, products and concepts are being introduced in the secondary equity and debt markets worldwide. Some of these products are developing in the equity markets in India in the form of derivatives, options, futures trading, and over- the- counter market. Secondary market in debt instruments is also not fully developed. At the same time it has been frequently observed that the risk shy Indian investor looks for the protected investments. On this backdrop, this study tries to examine whether the secondary market trading in life insurance products can provide an investment option that suits the preferences of the Indian investors. The secondary market comes into existence when the policy owner sells his ownership rights to a third party investor in exchange of a cash value and the third party investor receives further benefits of the policy. The rights to the life insurance policy are assignable. The participants in the elementary level secondary market is the provider i.e. the firms other than the insurer and the investors who invest in these policies.