Life insurers seek Irda move on trading issue

Life insurance companies through the Life Insurance Council (a body representing all life insurers) propose to approach the Insurance Regulatory Development Authority of India (IRDA) to restrict assignments (read transfer of rights and benefits to a person or company) for trading purpose.

The Life Insurance Council, secretary general, S V Mony said, "We are not in favour of trading of policies as it is against the principle of insurable interest. The Life Insurance Council will be writing to the IRDA asking it to explore ways to make it possible to restrict assignments for trading purpose without waiting for the amendments to the Insurance Act as the policy contract is between the insurance company and the insured."

C S Rao, chairman IRDA, earlier in a telecon with Business Standard had said that the IRDA can introduce assignments guidelines (restricting assignment for specific conditions) only when the Insurance Act is amended. The amendments to the Insurance Act will empower IRDA to restrict and regulate assignments. Rao referred to the K P Narsimhan Committee report saying that assignments should be permitted only under certain conditions.

Meanwhile, LIC filed a special leave petition in the Supreme Court earlier this month for the two cases it lost in the high court last month.

The first case was on assignments for trading purpose and the second on assignments for lending purpose.

According to Ketan B Mehta, director of Insure Policy Plus Services and Bachraj Finance (the company that won both the cases against LIC), none of the private insurers have refused to register assignments for trading purpose. The company trades in policies of Bajaj Allianz Life Insurance, Tata-AIG Life Insurance, Max New York Life, Reliance General, Birla Sunlife and Kotak Life Insurance.

Says Mehta, "Trading is typically done in lapsed polices. Once a policy lapses, the death cover stops to exist, then it is no more an insurance product but an investment product."

"Trading in policies benefits all the parties involved. The agents are benefited as the policy continues till maturity so he continues to earn commission, the life insurance company saves on the acquisition and marketing expenditure as the old policy continues, besides the policy holder gets an amount more than what the insurer would have paid as the surrender value," Mehta added.

Assignment or transfer is a method by which a policy holder can transfer his rights and benefits in the life insurance policy to another entity. The assignee entity can be a family member, relative, friend, a lending institution like a bank or a non-banking finance company.