Life insurance: Customer-friendly norms, better products in 2019

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Published: December 24, 2019 12:20:20 AM

This year saw Irdai take key initiatives in ensuring policyholder-friendly surrender and annuity norms, a faster claims process, and create a regulatory sandbox for innovative products.

life insurance, insuranceIllustration: Shyam Kumar Prasad

The year 2019 saw life insurance companies focusing on protection solutions, embracing technology and launching innovative online products. The regulator, too focused on policyholders’ interest which benefitted both customers and the industry.

New Business Premium—the lifeline of the industry—has grown 37% year-on-year to Rs 1.7 lakh crore till November this year. Household financial savings has been shifting in favour of financial savings. Individual Annualised Premium Equivalent (APE) has grown 17% this year till November.

Insurance is an important instrument for long-term savings as around 17% of incremental household financial savings are allocated to insurance. The insurance regulator has taken a steps to make products focused on policyholders’ interest. The Insurance Regulatory and Development Authority of India (Irdai) has introduced changes in filing new or modified products, enhanced surrender values and relaxed survival period for lapsed policies. The regulatory sandbox initiative enables insurers to evaluate and test innovative solutions.

Digital in focus

The use of technology has impacted product design and has led to efficiency in sales and claims. Online sales contribute an estimated 16% of the overall premiums. A report by JM Financial says that in life insurance, while offline mode is the most used during the first premium payment, around 35% of total renewal premiums are paid online.

Digital insurance has made the purchase of a life insurance policy simple, enabling faster processing of policies and efficient claim settlements. As life insurance in India is price-sensitive, a potential policy buyer does consider price to be an important factor as online products are cheaper than the offline ones.

Here are some of the key initiatives taken by the regulator this year.

Surrender, annuity norms

All protection-oriented non-linked products will have guaranteed surrender value. If the premium has been paid for two consecutive years, the policy will acquire a guaranteed surrender value. It will be 30% of the total premium paid less any survival benefits already paid, if surrendered during the second year of the policy. In case the policy is surrendered during third year, it will be 35% of the total premium paid, less any survival benefits. If surrendered between the fourth and the seventh year, then it will be 50% of the total premium paid. In case it is surrendered during the last two years of the policy, then the policyholder will get back 90% of the premium paid.

Faster claims process

Irdai has issued a circular asking insurers to inform claim settlement status to policyholders at various stages of processing and give policyholders an option to receive payment of claims in installments under certain policies such as personal accident and benefit-based health insurance covers.

In case of health insurance, where third-party administrator are engaged for rendering claims services, insurers have to ensure that status of claim is notified to the claimant at every stage of claim.

Plain-vanilla policies

The regulator has issued a master circular for point of sales products and persons for life insurance. (POSP-LI). The products will be plain-vanilla life insurance policies where each benefit is predefined and disclosed upfront at the time of sale itself and is easy to understand. The category of products that will be offered by POS-Life will be pure term insurance products with or without return of premium. They can sell non-linked non-participating endowment product, immediate annuity products and non-linked non-par health insurance products with fixed benefits.

Regulatory sandbox

In order to experiment with innovative approaches including fintech solutions, Irdai has created a regulatory sandbox. It will provide flexibility in dealing with regulatory requirements and focus on the core issue of policyholder protection. The sandbox approach will also help to strike a balance between development of the insurance sector and protecting the interest of policyholders. An applicant wanting to promote any innovation in insurance will have to demonstrate to Irdai that it will help increase insurance penetration and provide enhanced services to the policyholders. Irdai may consider granting limited regulatory relaxation to the proposal that promotes innovation in insurance.

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