The Insurance Regulatory and Development Authority (Irda) has notified changes made to the guidelines on design of life insurance products in the gazette.
All existing group products will stand withdrawn effective July 1 and all individual products from October 1, the regulator has said.
Under the new regime, traditional life products will include participating, non-participating non-linked and non-participating linked plans and variable insurance products (VIPs).
Under participating plans, the bonus is linked to the performance of the fund and it is not declared or guaranteed before, whereas in non-participating policies, the benefits are declared upfront. In VIPs, too, the benefits are declared upfront, though they are linked to an index as per the regulation.
The regulator has also specified the mandatory guaranteed surrender value given to policyholders in case of terminating the policy.
The regulator has made traditional plans more customer-centric and pure insurance-oriented, said a senior Irda official, while calling for faster product clearances.
Higher death benefits
New traditional products will have a higher death cover.
For all single premium policies, the death cover should be 125% of the minimum sum assured for those less than 45-years-old and 110% for others. For regular premium policies, the cover will be 10 times the annualised premium paid for those below 45 and seven times for others.
According to experts, the savings element in the policy will go down. Also, for longer tenure policies, the extent of death cover will be higher according to the prescribed formula.
For instance, if the tenure of the policy is 30 years, the death cover or benefit will be 30X *1.05, where X is the premium payment period.
By changing this, Irda is ensuring the death benefit at least matches the return of all premiums paid till date.
“Insurers may go for products with lesser tenure under the new regime and redesign would be extremely difficult as per the new rule,” said a senior industry official.
In order to reduce the heavy reliance on reinsurance companies for honouring the claims, Irda is now asking insurers to justify passing on the risk to reinsurers. The regulator may decide the retention limit after considering a variety of factors, such as the number of years in operation of the insurance company, risk appetite and so on.
“New and smaller companies with low capital base will take a hit as they need to be sure of the risk and they may not be able to absorb any fluctuation in mortality experiences,” said Sunil Sharma, appointed actuary, Kotak Life Insurance.