BY TENSING RODRIGUES
1) I have come across the following news piece in a paper “Come October, the life insurance industry may be left with only a handful of products, as the regulator wants companies to ‘refile’ all existing products according to its new product design guidelines.”
Does that mean that we may not have much choice in life insurance policies after October 2012?- Telma Azavedo
Do not get unduly panicky, though that is what it may come to. In a way that was long overdue; good that the clean up is likely to happen now; but I am not sure whether the end result will come up to my expectations.
The Insurance Regulatory and Development Authority (IRDA) is expected to come out with product design guidelines for life insurance companies within a month. According to Mr S Roy Chowdhury, member (Life), IRDA, the move is aimed at preventing wrong selling of life insurance bringing parity among products offered by various insurance companies. IRDA has already set up a product design committee which includes representatives from the industry; it has also circulated draft guidelines to initiate discussions.
Some of the proposals in the draft include: maintaining minimum premium payment term at five years; capping the maximum commission that can be charged for the first year and subsequent years; and phasing out products guaranteeing highest NAV. The guidelines are expected to define minimum death benefit applicable in the case of participating (wherein policyholders are entitled to a share in the profits or surplus) and non-participating (wherein the returns are guaranteed and benefits disclosed upfront) products.
This is definitely a welcome move. But how smoothly the transition will take place is not sure.
IRDA wants the refiling to be done by September 30 and has directed the insurers to withdraw all the existing products based on the earlier guidelines by October 1. But the guidelines are yet to come. According to insurers it generally takes about two weeks to file one product. Considering that an insurer typically has more than 25 products in its portfolio, it is virtually impossible to refile all the products within three months. Also, given that the IRDA takes at least two to three months to approve a product, the deadlines are next to impossible to meet. That is why come October, there may be only a handful of life insurance products available in the market.
IRDA has however assured that it would issue the final guidelines soon and that it would fast-track the product approval process. We have to just wait and watch. Though good may come out of the process, the intervening period could be of utter confusion.