Life insurance firms to discuss norms on surrender value on Sept 27 meeting

Compliance heads of life insurance companies are scheduled to meet the executives of Life Insurance Council on Friday and are likely to discuss the industry’s readiness to implement the new surrender value norms supposed to take effect on October 1 this year, unless an extension is granted, said multiple sources aware of the development.
 

In June, the Insurance Regulatory and Development Authority of India (Irdai) introduced revised surrender value norms to ensure better returns for policyholders exiting their policies prematurely. The life insurance companies, through the council, had sought a three-month extension from Irdai on implementing the new norms. Even the state-owned Life Insurance Corporation (LIC) had approached the regulator, seeking a review of the surrender norms.
 

The Irdai may not budge on the extension request, sources said, adding that the industry is now preparing to implement the norms and negotiating with distributors on commissions, and re-designing the products so that they can roll them out without any delay.
 

“Compliance heads of the companies will have a meeting with the Life Insurance Council on Friday (September 27) to discuss the industry's readiness to meet the new surrender value norms. The industry is grappling to meet the guidelines and make changes in products,” said a life insurance executive, on the condition of anonymity.

Insurers had asked for an extension from the regulator as revising all traditional products and renegotiating commercials with the distributors on the revised products was turning out to be a logistical nightmare.

According to Irdai’s revised norms, life insurers have to pay an enhanced special surrender value (SSV) after the completion of the first policy year, provided the customer has paid one full-year premium. Currently, companies do not pay such an amount to customers surrendering their policies in the first year.

Analysts have indicated that since life insurers will have to pay higher surrender value on non-linked products, the internal rate of return (IRR) for customers may reduce. Insurers have indicated the reduction in IRR will be because of the cumulative impact of the revised surrender value norms and the fall in bond yields, which are now at a 32-month low.

Meanwhile, listed life insurance companies have indicated that the new norms on surrender value by the regulator will negatively impact their margins, which have already been suffering due to the increased sale of unit-linked products due to a buoyant equity market.

Due to the impending implementation of the surrender value norms, the life insurance industry has also gone slow with new product launches, especially in the non-linked segment. Any new non-linked product will have to be launched in line with new surrender value norms.