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With guaranteed surrender value of 90% and maturity corpus' assured return of 4% and 8%, insurers said that there are very few design options under the new structure, for participating products.
Gopesh Modi, Manager-Actuary at Edelweiss Tokio Life Insurance explained that it will be difficult to design long term products on par platform.
"This would lead to companies to non-par platform which has inherent guarantees. This will create long-term systemic risk in the industry," said Modi.
Participating or with profit policies are those where the policyholder participates in the profits of the company which is paid out as bonus to the policyholder. Money back plans are example of this product. Non participating or without profit policies are plans where the policyholders are not entitled to participate in the profit of an insurance company. Pure term products are usually non-par products.
In its new product guidelines, Insurance Regulatory and Development Authority (Irda) said that par products would have to declare a regular bonus on an annual basis and further terminal bonus, if any, declared shall become payable on the specified events agreed in the policy or at the end of the term of the policy. Non-par products, on the other hand, would have to explicitly state all benefits at the outset. Further, additional benefits, if any, accrued at regular intervals during the policy term, have to be stated.
A senior official from Star Union Dai-ichi Life Insurance said, "While marketing participating products is easier, there are chances that more of non-participating products will hit the market now. This is because, here the insurers are not subject to share their profits with the policy holders unlike the case with participating products. Hence, there can be temptation within insurers to launch more of non-participating products. If these products are better packaged with higher guaranteed benefits, it will definitely be more attractive for the customers as well."
Par products, under the new norms, will have to offer assured returns of 4 and 8%, which insurers said, will be difficult to achieve given the mortality costs. A senior official of a private life insurance company said that keeping the cost structure and bonus payouts in mind, it will be a challenge to develop products that are not only complaint with the new norms, but also cater to the customers' savings and financial needs. "The scope for innovation, in this segment, would hence be limited," the official said.
From a long-term perspective, industry experts said that too much exposure to non-par products would be detrimental to the insurance companies. The chief actuary of a private life insurance company opined that long-term products need to be invested into, for giving appropriate returns to policyholders. However, in the absence of products in 30-year tenure category, some portion of the risks might go unhedged. This will lead to a hit on the liability of the companies," the executive said.
For non-par products with policy term between five to ten years for age below 45 years, the minimum death benefit has been fixed at either five times the annualised premium or 105% of all premiums paid on the date of death or the least guaranteed sum assured on maturity or any absolute amount assured to be paid on death, whichever was the highest.
For par products with policy term between five to ten years for age below 45 years, it would either be five times the annualised premium or any absolute amount assured to be paid on death or the least guaranteed sum assured on maturity, whichever is the highest. Bonuses, which haven't been paid earlier for par products, will also be paid at time of death.
