Life insurers have sharply reacted to the new norms set by the Insurance Regulatory & Development Authority (Irda). The regulator has drastically modified the unit linked insurance plans (Ulips), which have been popular with customers as investment-linked insurance plans.
Life Insurance Council secretary general SB Mathur said though there is a lot of protection for customers now, some of the steps taken by Irda are very harsh to the life insurers and go against the fundamentals of Ulips. The higher the risk, the lesser was the return and hence guaranteed return of 4.5% will be difficult task before the insurers.
?It is the equity, and not risk, which can give higher returns. So, returns are all set to come down. Insurers will have to infuse capital to maintain their solvency margins. In fact, we are moving from defined benefit to defined contribution,? he said
Deepak Sood, MD & CEO, Future Generali India Life Insurance, said, ?In the medium to long term, these changes could seriously impact choice of investment options to customers, restrict product design-innovation, increase new business strain and call for higher capital requirements for insurers thus impacting the profitability of insurers.?
Irda has increased the lock-in period for all Ulips from three to five years, including top-up premiums, thereby making them long-term financial instruments which basically provide risk protection.
Further, all regular or limited premium Ulips shall have level paying premiums. Any additional payments shall be treated as single premium for the purpose of insurance cover.
Kamesh Goyal, country manager & CEO, Bajaj Allianz Life Insurance, said some of the major changes like lock-in period and compulsory annuitisation are quite good. However, the capping of expenses guidelines have been made very stringent. ?I hope we don?t land up in a situation where product is very good but no one willing to sell it,? he said.
Kotak Old Mutual Life Insurance COO D Muralidharan said the far-reaching changes will act as game changer as the companies will have to go back to their drawing board to discuss how much more capital they would require and how they will calibrate their expansion plans.
?Sales of Ulips will not be hit much. Rather, the Irda guidelines will smoothen the process. We will have to train our agents how should the long-term products be sold,? he said.
Rajesh Relan, managing director, MetLife India Insurance said that what is certain is that all the existing Ulip products will undergo a change for the Industry. ?The full impact on the industry players is yet to be ascertained as we seek further clarifications,? he added.
However a senior Irda official said on condition of anonymity that no review is possible at this point of time. ?We will have to see the impact until the end of the current fiscal before we think of reviewing it,? he said.