India's top three private life insurers may have to modify their sales strategy with the Insurance Regulatory and Development Authority (Irda) deciding to crack down on the practice of offering riders with life insurance covers by capping the premium for riders at 30 per cent of the tariff for the main product.
The insurance regulator has also directed companies to clearly spell out the riders in a particular product. In the guidelines issued recently, Irda has said that riders attached to an insurance policy "shall bear the nature and character of the main policy and the insurer would have to make provisions accordingly in the books of accounts".
The three largest private new life insurers, Max New York, HDFC Standard and ICICI Prudential, have launched basic products and are offering a host of riders along with the base policy to offer flexibility in terms of choice for the policyholder.
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ICICI Prudential Life has initiated discussions with Irda and is also planning to modify some of its products. "We are talking to Irda on this, as it will reduce the flexibility for the customer," Shikha Sharma, managing director, said. Over 60 per cent of covers sold by ICICI Prudential last fiscal were sold with at least one rider.
Max New York Life chief executive and managing director Anuroop Tony Singh also said that he would ask Irda to review the decision. "The regulation is clearly unfavorable to customer interest. Limiting the premium collected on riders will take away this flexibility and customisation, which they seek. We therefore believe, this recommendation is unfair to the customer," he said in an e-mailed response.
Most new players have introduced the four basic products, and then left it to the individual policyholder to choose what kind of additional cover he would like. Prior to the liberalisation of the insurance market, riders were non-existent. The emergence of new players has seen changes in the products sold, with the move more towards needs-based selling techniques, which are brought about with the introduction of riders.
Most players are offering a range of riders - covering benefits like accidental death, critical illness, term, waiver of premium, total and permanent disability, paid-up additions, guaranteed insurability and spouse's insurance - with the base plans.
New players have introduced covers with riders whereby the number of combinations can be as many as 250 different covers with just eight basic plans and nine riders, said Watson Wyatt managing director Richard Holloway.
With the insurance regulator imposing a restriction, it could well mean that individuals will not be able to buy as many riders as they like. The number of riders would thus be limited by the size of the base policy and the age of the policyholder.
The Irda capping the premium for riders will force insurance companies to re-design their products. "We will have to create a pre-designed bundle of products where the customer will have less choice," said Sharma.