IRDA move will kill variable insurance segment: Industry

The Insurance Regulatory and Development Authority (IRDA) Thursday made two major announcements - issuance of draft on norms governing the variable insurance products (VIP) and the ban on universal life products (now defined as variable insurance product).
Both the moves have evoked mixed reactions from the industry players.

According to industry officials, guaranteeing returns over long term, proposed by the regulator for VIP, would effectively kill the segment, similar to what happened with unit linked pension policies.

"Rather than issuing restrictive guidelines that reduce the industry's ability to design and sell products that are suited to the Indian consumer, IRDA should consider company specific differentiated feedback," chief executive officer and managing director of Max New York Life, Rajesh Sud, told IANS.Bharti Axa Life's chief financial officer V.Srinivasan told IANS: "IRDA may want the insurers to peg the guarantee to the returns provided by a long term government security."

Not many private life insurers have launched a regular unit linked insurance policy (ULIP) pension product as per the IRDA's new guidelines. Some insurers, however, have launched single premium ULIP pension plans.

The latest draft defines a VIP as non-linked product which provides death benefit equivalent to sum assured, plus balance in the savings account and maturity benefit which equals the balance in savings account.

The minimum policy term will be five years, the lock in period will be three years and no single premium and top-ups will be permitted.The minimum sum assured (value of insurance) should be ten times the annualised premium of Rs.50,000 (upto 45 years of age) and seven times for those who are over 45 years at the time of entry.
The maximum expense loading permissible will be 25 percent, subject to a maximum of Rs.10,000 in the first year. Second year onwards, it will be five percent, subject to a maximum of Rs.5,000.

The commission rate on the risk premium will be 35 percent in the first year, 7.5 percent and five percent in the second and third year respectively.

Officials say as per the draft norms, the first year commission to agents cannot be more than six percent and the product will not be sold by the sales team.

But what has upset the industry players is the abrupt banning of universal life product with just a day's notice, though some officials have welcomed the move.

"It is unfortunate that IRDA has decided to ban the duly approved universal life plans without providing adequate time to transit and discuss product deficiencies. Our company pioneered the universal life design in India through its offering Max New York Life Secure Dreams," Sud said.

"Such knee-jerk reaction causes considerable concern to all stakeholders and could have been better managed," he added.

"It is very difficult for the companies affected by the ban order to inform their agents within a day. Selling life insurance is a long drawn affair. It will be embarrassing for the agent to tell his prospect to hurry up as the counter would be closed that evening," general secretary of Life Insurance Council of India, S.B. Mathur, told IANS.

"In its ban order, IRDA has said that it has received complaints on sale practices of the insurers regarding universal life products. Instead of addressing that directly, it chose to ban the product directly," remarked a senior industry official, who did not wish to be identified.