Insurance Regulatory and Development Authority (Irda) has proposed to set a maximum limit for sum assured on life insurance policies. The move is to ensure that insurers take on the maximum risk on themselves rather than the current practice of heavily relying on reinsurance companies to honour insurance claims.
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In a letter to insurance companies, the regulator said most products filed for clearance assign “no limit” to the maximum sum assured, which leads to fronting, which means more reliance on the reinsurer. Insurers that have reinsured very little risk may find it difficult to honour claims, which will damage the trust built on the industry, said the regulator.
Separately, the regulator also said in its letter that insurers must make a clear distinction between group and individual policies. Irda observed that currently most group policies work as individual products, as insurers directly approach individual bank customers. Also, premium rates are similar for individual and groups members.
“Irda wants to make sure that only licensed intermediaries sell group policies and not bancassurance channels. Banks, acting as corporate agents, mostly offer policies to bank customers. It results in many complaints of premiums being deducted without the specific consent of the policyholder,” a senior executive of a large insurance company said.
The regulator also favoured multiple premium paying products to single premium and limited premium paying terms, where premiums are received well ahead of the policy term, thus accelerating commission payments to intermediaries and possible lapses due to high premium size.
Most products currently have single premium and limited premium paying terms, rather than premium paying term that is spread over the entire policy tenure. The regulator also raised concerns over the highest net asset value guaranteed products, which offer highest NAV during a period, as they invest in fixed income instruments.
Irda said such products should have a minimum equity component for a specified period.
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