The Insurance Regulatory and Development Authority (Irda) is set to revamp product designing practices in the life insurance industry to protect consumer interest.
The insurance regulator has proposed wholesome changes in various aspects — participating and non-participating products, group long-term covers, products offering ‘low’ insurance covers, single premiums or products with limited premium payment terms, net asset value (NAV)-guaranteed products and benefit illustration procedures.
Irda chairman J Hari Narayan, in a letter to all life insurance chiefs, including that of Life Insurance Council, said these measures were in line with the interest of policyholders. He added to ensure “orderly†growth of the industry, the regulator was planning to introduce comprehensive guidelines on the subject.
“Lately, more complex products are being designed and filed for F&U (file and use) clearance with Irda. In the process of clearing these products, Irda has noticed features of several products were not in alignment with the best practices and frequently lack clarity. The efficiency of product clearances has been constraint by such features,†he wrote in the letter.
WHAT THE REGULATOR PROPOSES
* Group policies will not be allowed under the bancassurance route
* Ulips should disclose the maximum possible loss
* Any product for which interest rate is declared at the end of the year should be treated as a ‘par products’
* All polices should have regular payment options
* Policies with single or limited payment period should be issued only under special categories
* Sales of highest NAV-guaranteed products should be restricted
* NAV-guaranteed products should maintain a minimum equity component for a specified period of time
* Minimum death cover as a multiple of premiums paid throughout the term of the policy
Selling practices and products offered under the bancassurance channel to bank customers under the group platform have come under the regulator’s scanner. Generally, group policies are meant to provide insurance at lower costs. However, the regulator has noticed banks are keeping the interests of intermediaries in mind while promoting such products.
Irda has reported many complaints of premiums being deducted without the consent of policyholders. Similarly, intermediaries gain from higher commission (up to 35 per cent), compared with yearly renewal products which offer two per cent commission. “These products virtually work as an individual product, as insurers appear to be approaching individual bank customers directly. These offer no value to the policyholder. In addition, these pose concerns like suiting products to meet the needs of corporate agents, and this may not be in the best interest of the policyholder. Hence, allowing such products under the group platform may be examined,†Irda said.
In what can be seen as another instance of mis-selling, insurers are not adhering to the principles of participating and non-participating products. Participating, or par, policies are plans under which policyholders are entitled to a share in the profits or surplus of the company during the tenure of the policy. Conversely, in non-participating, or non-par, policies, policyholders are not entitled to any share in profits or surplus.
“Certain products are being filed as ‘non-par’ (non-participating) products, where the insurance company, at its discretion, declares a certain interest at the end of the year. Products for which interest rates are declared at the end of the year are typical of par-products. In such products, 90 per cent of the profits are to be credited to the policyholders’ account,†the letter said.
Irda has proposed that the highest guaranteed NAV products maintain a minimum equity component for a minimum period. It also advised that the sale of these products should be restricted to a multi-pay platform. The regulator said as a part of the benefit illustration under unit-liked polices, a disclosure should be made on the maximum losses which could be incurred during the term of the policy.
It also proposed a minimum death cover as a multiple of premiums paid in line with the provisions of Income Tax Act, for the entire policy term.
The regulator also discouraged the use of single premium, or limited premium, payment term polices, as these could hit the cash flow management of companies. Accordingly, it proposed that all polices should have a regular payment option, equivalent to the term of the policy. Single-premium polices might be issued only under special categories.
Niladri Bhattacharya / Mumbai
