The proposed changes in various insurance products will be consumer-friendly and provide a flexibility to insurers in offering better services, industry experts say.
The Insurance Regulatory and Development Authority of India (Irdai) in a draft guideline for insurance linked and non-linked products late last month has proposed changes in norms for various insurance products, including those related with payment to nominees in case of death of policy holders.
The minimum death benefit has been made 7 times for regular premium products and 1.25 times for single premium products for all ages, Irdai has proposed in the draft exposure.
"The current limit for life cover for 45 years and low is ten times the annual income and for those above 45 years is seven times their annual income; the proposal is to make it seven for everybody.
"Though there is no clarity on the tax benefit yet but the new proposal will most likely be available under section 80C of the Income Tax Act, as only then it will be in favour of the consumer. It will make sense for people to buy it only if it is covered under tax," said Santosh Agarwal, Associate Director and Cluster Head- Life Insurance, Policybazaar.com.
Canara HSBC Oriental Bank of Commerce Life Insurance MD & CEO Anuj Mathur said the exposure draft of the new product regulations was long awaited by the industry, to review and revamp the 5-year old guidelines.
"The key theme appears to be to simplify the regulations, and provide more flexibility to customers to meet their financial needs through insurance products. At the same time, the regulations encourage innovation and nudge the industry towards offering better value to customers through product design," Mathur said.
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Among others, Irdai has proposed non-linked policies to acquire guaranteed surrender value after 2 years; extension of revival period for a policy to 5 years from 2 years at present for non-linked products; option of commutation up to 60 per cent in pension products as well as settlement option period can be extended till 10 years or original policy term whichever is lower.
"We believe that savings products should focus on maximising savings and are not the right products to address the protection gap. In the draft proposal, the regulator has rightly reduced the minimum sum assured requirement from 10 times to 7 times the annual premium," said Vighnesh Shahane, CEO and Whole Time Director, IDBI Federal Life Insurance.
Further, the proposal to allow customers to have the option to reduce premiums after 5 years for linked products up to 50 per cent as per their needs is welcomed, as it will help to keep the policy alive and boost persistency, he said.
"We also feel that the proposed norms on pension products are encouraging. It allows up to 60 per cent of the accumulated corpus to be commuted. It is also beneficial for the customer as he has a choice of open-market options, allowing him to choose the annuity provider," Shahane said.
The proposed changes, if implemented, will expectedly make life insurance product structures more flexible as well as customer friendly - such as increase in revival period, reduction in nil surrender value period from three to two years, longer settlement period, allowance for fund switches; and other flexibilities in term of product structures, said Vivek Jalan, Head, Insurance Consulting and Technology, Willis Towers Watson, India.
On the proposal for a partial withdrawals in case of linked pension plans, Agarwal of Policybazaar.com said that by this the regulator most likely mean the money can be allowed to be withdrawn in dire need, like in certain events of critical illness, disability or an accident or any other health issues for which the policyholder would want to withdraw the corpus for survival.
"So, flexibility of withdrawing money at key incidents will be helpful for the policyholders," Agarwal said.
The proposed changes also provides for insurers to design individual term, group term and credit and micro insurance products, among others.
Allowing insurers more flexibility around creation of both retail and group products means faster turnaround time and adjusting to market scenarios better, said Agarwal.
He also said that suggestion to allow policyholders to buy annuities from any insurer will further competition among insurance companies as they will not want to lose customers and will be compelled to provide better interest rates.
Currently, the policyholder has to annuitize their pension income from the same insurer at the interest rate that they have to offer.
Irdai had constituted a 'Committee on Review of Product Regulations Life' for reviewing the 2013 regulations on linked insurance products and non-linked insurance products.
The panel was set up as there have been significant changes in the trends in product structures driven by the customers' needs, wants and preferences since 2013.
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