The much-awaited guidelines on designing traditional insurance products have left insurers in a tizzy. For, industry regulator Irda has kept stiff deadlines of March 31 (for traditional group plans like term plans and endowment plans) and June 30 (for traditional individual plans) for them to refile the whole spectrum of traditional plans.
J Harinarayan, Irda’s chairman, said the board gave its final approval for the product design guidelines on Wednesday. Life insurers need to withdraw the existing group traditional plans by March 31. Individual traditional plans should be withdrawn and refiled on or before June 30.
Irda wants to ring in changes like maintaining minimum premium payment term at five years, capping the maximum commission that can be charged for the first year and subsequent years and phasing out products guaranteeing highest net asset value.
Wednesday’s approval is the culmination of efforts to clean up traditional products that started last February and continued through the year in the form of talks with life insurers.
But, the latter are not happy. The proposed deadlines, they say, are too stiff to be practical.
“They will impact the industry growth negatively. There could well be a time when there are no insurance products in the market as the time gap between withdrawal of existing products and approval of new products will likely be considerable,” said a senior industry official.
Others said this is not the right time to implement such regulations as it clashes with the period when policy sales are usually higher than normal (as people buy insurance to save on tax).
The new guidelines define minimum death benefit applicable in the case of participating (par) policies (wherein policyholders are entitled to a share in profits or surplus) and non-participating (non-par) products (wherein returns are guaranteed and benefits disclosed upfront).
The guidelines suggest par products be offered only on non-linked platforms and non-par on traditional or unit-linked platforms. They outline the ways for accrual and payout of benefits under such products.
Irda suggests minimum guaranteed surrender value for traditional plans: a minimum guaranteed surrender value of 50 % of the total premiums paid, if the policy is surrendered in the second or third year.
If it is surrendered in the fourth year, the minimum guaranteed surrender value would be 75% of the total premiums paid. For surrender during the fifth, sixth or seventh year, the value would be 90% of the total premiums paid. Thereafter, it would be 100% of the total premiums paid
The regulator is in the process of finalising other guidelines on reinsurance and Bancassurance and these are expected to be out next month.