In an attempt to check mis-selling, the Insurance Regulatory and Development Authority (Irda) is planning to increase the lock-in period for unit-linked insurance plans (Ulips) from three to five years.
Talking to reporters on the sidelines of an insurance seminar, Irda member R Kannan said the regulator was taking steps to address concerns over mis-selling.
He said the move would reduce the problem of policyholders letting covers lapse and also benefit companies as it would help them minimise their administrative and marketing costs. “We are waiting for a consensus on the issue,” Kannan said. A senior executive at a large private sector insurance company said that the minimum tenure for a Ulip was five years at present, but partial withdrawals were allowed after three years.
“If the intent is to allow partial withdrawals only after five years, then it is good since insurance is a long-tenure product,” he said.
The chief executive officer of one of the country’s largest life insurance companies said that he had not heard of any industry-level discussion on the issue. He, however, added that the move would be beneficial for both policyholders and insurers. “Given the cost structure, returns would be better in case of a mutual fund if the investment tenure is five to six years. It makes sense to invest in Ulips only if you want to invest for at least seven or eight years,” he added
However, Future Generali Chief Actuary G N Agarwal said the move would benefit the mutual fund industry as the interest of Ulip buyers might be affected since they have to wait for five years before they could exit.
In recent months, Irda has tried to tighten regulations on Ulips. First, it put in place systems to ensure that policies were not front-loaded in terms of premium payment. Last month, it also reduced the charges levied on Ulips, though the circular was expected to be modified to factor in industry concerns.
