Single premium product, which has caught the fancy of the life insurance industry after the change in regulations around unit-linked insurance products, may be in for some reform.

"We need to think about the need of insurance as long-term business. Focus had shifted to three-pay or four-pay products and, even worse, to single-pay products. Industry based on single premium is not good," said Irda chairman J Hari Narayan.

"We need to re-emphasize insurance as a long-term business. The marketing and selling of products (like single premium) have de-emphasized the long-term nature of the business."

Single-pay products are insurance policies where policyholders need to pay premium only once while he or she is covered for the term of the policy. In 2011-12 so far, the total single premium, including group and individual, has gone up by 46% compared to 49% in 2010-11.

Pointing to the decline in business, Hari Narayan said that this is not a function of regulatory changes but because insurance companies have not build the kind of trust required. Internationally, however, he said that de-growth has been even sharper.

He said that 2012 is going to be worse than 2011. "Therefore, 2013 is going to be better. The best way to go forward is to start from absolute bottom. Future is going to be better than what the immediate past has been," he said.

The life insurance industry has seen a 17% fall in new business premium income in April-December 2011 compared with the same period last year.

He noted that there are difficulties in pension products. Such as lack of certain long-term instruments to hedge. Though insurance companies are allowed to invest in interest rate derivatives, it is only for a short period. Hari Narayan said that there are indications that we would like to develop derivatives market on debt front like RBI has come out with swap in corporate debt.

A high-level committee of regulators has suggested that all long-term products should be given tax incentives in order to underpin and strengthen the industry, he said.