Setting high standards

Written by Saikat Neogi | Updated: Oct 5 2012, 06:56am hrs
Irda to come out with guidelines on 10 standard products for faster approvals, making it simpler for customers to select plans

Selecting a life or general insurance product may become simpler as the Insurance Regulatory and Development Authority (Irda) will soon come out with guidelines on 10 standard products for faster approvals. The standard products will be part of the use and file process, which the finance minister had proposed in his 12-point package to revive the industry.

Currently, insurance companies, after designing a product, have to approach the regulator for approval. Under the use and file process, if the insurer complies with the conditions attached to a standard product, such a product will automatically be deemed approved after 15 days of intimation to the Irda unless the regulator finds the product non-compliant within that time period.

At a health insurance summit, Irda chairman J Hari Narayan said standard products will be designed in consultation with industry bodies. We will develop 10 standard products and will work closely with the Life Insurance Council and the General Insurance Council to see if we can develop such products, said Hari Narayan.

Analysts say policyholders often find it difficult to choose from multiple products and even get confused between participating and non-participating products.

To make products simpler and improve the penetration of insurance in India, finance minister P Chidambaram had said that Irda will come out with a policy to accord automatic clearance to standard life insurance products.

Irda will lay down guidelines on the principles underlying the design of any insurance product. Based on the recommendations of the working group that has been set up, Irda will issue draft guidelines and, after consultations, the final guidelines will be issued by the end of November. Once the guidelines are in place, it would be possible to observe the 30-day norm mandate for clearance of products, said Chidambaram.

Analysts say standards products should be designed for participating and non-participating endowment plans, whole life policy, pension and health insurance plan and, once such standard policies are in the market, it will lead to better persistency.

Insurance companies sell participating products where the bonus is declared every year. The bonus amount depends on the performance of the fund. In fact, participating products in the traditional category sell the most in the industry and also command higher commission for the agent. Non-participating policies are mostly pure term policies with higher protection. But since there are no returns, policyholders dont prefer such policies. The policies offered by various companies differ in features and standard products will help bring in some uniformity.

Irda has acknowledged that persistency is very low in the industry. The insurance industry requires to stabilise; they have to mature in their approach and I would say that (while) they are getting there, there is still some distance to go, said Hari Narayan.

After a series of regulatory changes, the life insurance industry is facing multiple challenges. After over a decade of opening up the sector to private players, the per capita premium in India is stagnating at $56 compared to the global average of $364. The total premium collection in FY12, according to the Life Insurance Council, dropped 3% to R2,83,315 crore compared to R2,91,605 crore in 2010-11. The total new business premium collected by the industry in FY12 was R1,13,678 crore compared to R1,25,618 crore in FY11, a drop of around 10%.

Sales of unit-linked insurance plan products witnessed a drop and customers moved towards traditional product. Linked new business saw a significant drop of 67% year-on-year to R17,455 crore in FY12 compared to R52,739 crore in FY11. Non-linked new business premium showed a 32% y-o-y growth to R96,224 crore as on March 2012 compared with R72,878 crore in March 2011.

To increase the penetration of insurance products, banks will be able to sell insurance products of more than one company by taking a broking license. All categories of banking correspondents will be allowed to sell micro insurance products, which will ensure their availability in all parts of the country. Moreover, policyholders can expect some tax breaks on pension products, which may be included as a separate limit over and above the R1 lakh under Section 80C of the Income Tax Act, 1961, for the purpose of income-tax deduction on the premium paid.

Poor numbers

* After over a decade of opening up the sector to private players, the per capita premium in India is stagnating at $56 compared to the global average of $364

* The total premium collection in FY12 dropped 3% to R2,83,315 cr against R2,91,605 cr in 2010-11

* The total new business premium collected by the industry in FY12 was R1,13,678 cr against R1,25,618 crore in FY11

* Linked new business saw a significant drop of 67% y-o-y to R17,455 crore in FY12 against R52,739 crore in FY11

* Non-linked new business premium showed a 32% y-o-y growth to R96,224 cr as on March 2012 against R72,878 cr in March 2011