By Venkatachari Jagannathan, IANS,
Chennai : The insurance regulator has tightened the norms on all unit linked insurance plans (ULIPs) to offer life cover on these products, even as it is fighting a turf war with markets watchdog on overseeing such equity-linked schemes.
The Insurance Regulatory and Development Authority (IRDA) has said the norms would be applicable from July 1, adding that all ULIP policies, including pension and annuity products, should offer a minimum sum assured payable on death.
The tightening of rules is seen as a fallout of its tussle with the capital markets regulator, the Securities and Exchange Board of India (SEBI), over the regulation of ULIPs, a popular investment product.
But IRDA member-actuary R. Kannan said the policy revision was an ongoing process. “The new norms are no way connected with the current issue with SEBI,” Kannan told IANS.
SEBI last month had barred 14 insurers from selling these products without its approval. The ban was, however, lifted after the government’s intervention. The matter has gone to the courts, which will rule who would regulate ULIPs.
The IRDA had banned loans on ULIPs and allowed partial withdrawals only after fifth anniversary year of the policy.
Under the revised guideline, however, in the ULIP pension and annuity products, it has banned partial withdrawal and asked the life insurers to convert the accumulated fund value into an annuity at maturity.
But the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum at the time of maturity.
In the case of surrender, only up to a maximum of one-third of the surrender value could be availed in lump sum and the remaining amount must be used to purchase an annuity, the new norm stipulates.
On the top-up premium, IRDA has stipulated that it should have a lock-in period of three years from the date of payment. Top-ups are not allowed during the last three years of the contract.
A top official of a private life insurer told IANS that most of pension and annuity products were sold as pure investment products. “As a result, life insurers see large surrenders and withdrawals in these two segments affecting their operations.”
For most of the life insurers, pension products contribute nearly 25 percent to their premium income. With turf war between IRDA and SEBI on the ULIP issue, he said, the former seemed to pre-empt any such recurrence in the pension and annuity products.
But Kannan said: “The rationale for the new guideline is to offer life insurance cover in all products. While longevity risk of a policyholder is borne by the life insurer in the case of pension products, we wanted to offer life insurance cover on all products”.
Citing the 47 pension products currently in the market, Kannan said only 25 offered life insurance cover and the remaining 22 provided an option for the policy-holder to opt for life cover.
“Only 35-40 percent of the pension policy holders have life insurance cover and we want to offer that to all the policy holders,” Kannan said.
However, R. Ramakrishnan, industry expert and a member of the Malhotra committee on insurance reforms, said the concept of top up premium should be scrapped.
“Top-up is purely a mutual fund concept and it shouldn’t be allowed in life insurance policies. For the amount of top-up a person should be issued a single premium policy,” he told IANS.
According to him, there is no difference between pension and annuity products in India unlike in the UK where pension products are offered handsome tax concessions.
“To prevent surrenders and withdrawals the difference between the premium paid and the surrender value should be taxed at source,” Ramakrishnan suggested.
(V. Jagannathan can be reached at [email protected] and [email protected])