K Sahay, MD & CEO, Star Union Dai-ichi Life Insurance Co. Ltd., explains how IRDA guidelines have transformed the life insurance sector.
During the second quarter of the year 2010-11, IRDA came out with certain guidelines in respect of ULIP products which became effective from September 1, 2010 resulting in availability of the new avatar of ULIP products in the market which restored to the customer his right on his money paid by way of premium to the life insurance companies.
Since 2001-10, excitement about the potentiality in the market and unhealthy competition among companies to capture maximum chunk of market, somewhere in the way, 'insurance' got overtaken by 'investment'.IRDA's intervention has been a bold action to correct the understanding and designing of a life insurance product.
Now when we look back and examine the terms and conditions as well as the cost structure of some of very aggressive products in the market attracting huge flow of premium from market during the last 4 to 5 years, we find that neither the companies nor the policy holders benefited from such products. If 'investment' is the dominant factor in the portfolio of products of a company, then the company unconsciously transforms itself into an investment company even though it may be having the pretentions of marketing life insurance.
Life insurance has always been a long-term instrument in the hands of an individual who is responsible for a decent life for his spouse in all situations in life; who wants to guarantee great future to his children; and who wants to support his parents in good times as well as in adversity.
The product, therefore, has to be an all-season saving product, consistent in its rate of growth and simple to understand and to receive the benefits.This is an instrument which exists with an individual like other essential gadgets in life and it provides him a solid wall to fall back upon at any time he needs to find a support for himself.
I strongly believe that no action of the Regulator has done so much good to the industry as is the action regarding 'capping on charges' and prescribing terms and conditions which restored the true spirit of life insurance in such products.
The action, of course, slowed down growth of business for almost all the companies but there is a clear roadmap ahead of all of us and I am sure that all the life insurance companies will now be doing business in a more healthy and responsible manner.
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