IRDA to revamp packaging of life ins. products
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In a letter to all life insurance chiefs, IRDA has said “Lately, more complex products are being designed and filed for file- and-use clearance with IRDA. In the process of clearing these products, IRDA has noticed that features of several products were not in alignment with best practices and frequently lack clarity. The efficiency of product clearances has been constraint by such features.” 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. 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.

IRDA is also of the view 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. IRDA also favours 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. Many products currently have single premium and limited premium paying terms, rather than premium paying term spread over the entire policy tenure. IRDA has 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.

Sales illustration For ULIPs, IRDA allows agents to show illustration of on an assumed rate of growth of 6% and 10%. IRDA feels that the rates used for illustrative purposes are pitched too high and fears that these projected returns when seen on a piece of paper may cause some sort of an illusion in the minds of customers. IRDA has suggested that benefit illustration for ULIPs must be calculated at a percentage which is less than the median return of the fund value calculated for all funds in force in the last two years. For traditional products this median should be calculated on the basis of the returns of the traditional plans which have matured and for companies who do not have any plans that have matured, the median return of the paid up value of the last two years can be calculated.