Insurers cannot assure 10%-plus return from Jan

Life insurance companies can no longer market their policies illustrating more than 10 per cent gross returns.

Effective January 1, insurance agents will no longer have the liberty to cite illustrative figures on possible returns, as the industry has decided to cap the minimum illustrative return at 6 per cent and maximum at 10 per cent on all marketing literature. This is expected to curb misselling in the industry.

In their over-enthusiasm to sell policies, many agents have illustrated returns in excess of 16 per cent in a competitive market with 12 players.

Capping illustrative returns will bring about uniform and realistic projections, as many agents have in the past duped policyholders into buying risk covers based on high projected rate of returns, which are not guaranteed but simply illustrative. Unsuspectingly, policyholders have bought policies based on the illustrative returns projected.

"Customers will benefit because all illustrations will show the same investment returns, and they can then decide which is the best product for them. Moreover, with all information made available in terms of charges and benefits, customers can make a more informed decision in terms of which is the best product for them," said Aviva Life Insurance Company director marketing, Vivek Khanna.

Meanwhile, like all its private sector counterparts, the Life Insurance Corporation of India (LIC) has the illustrations ready for its 46 products.

However, LIC officials stated: "While we are ready with the necessary illustrations, we are still awaiting the gazzette notification on the illustration, as these were accepted by the life insurance executive council, and yet to be approved by the regulator."

Insurance companies have got their IT systems in place to commute these illustrations. According to section 64J of the Insurance Act 1938, for the industry to act in any matter with regards to standard of conduct and sound practices, it requires the approval of the regulator and be notified in the gazette of India.

With LIC's 10-lakh agency force, the corporation fears that should the IRDA modify the interest rate illustration, there would be an additional cost in the printing of literature.

Incidentally, LIC agents currently do not use illustrations in selling policies, and only cite the current rate of bonus given.

The illustrative returns will be reviewed every six months based on the movement in interest rates and other investment options. Charges will be the only differential factor.

"Everything being the same, insurers will lower charges to show higher fund value," said Birla Sun Life Insurance Company vice president actuarial K S Gopalkrishnan.

Policyholders will now look at product features as well as returns, he added, stating this practice will bring down the lapse policy rate.