Same terms for existing policyholders

Unlike MF mergers, which allow an exit without any load for one month, there is no such provision for insurance firms mergers. Existing policies, including expenses, do not change

This situation is widely different from mutual funds in which the fund house has to compulsorily give investors of the merged fund the option to exit without any load for one month.

The good news is that the terms and conditions of their existing policy, including expenses, will not change. “A life insurance policy is a long-term contract of 15-20 years. One area that the Irdai would focus on is that companies honour contract terms so that policyholders get the promised bonus and pay outs in accordance with the original wordings and terms and conditions,” says Shashwat Sharma, partner – financial services, KPMG India.

 

In the past, while working on draft rules for mergers and acquisitions of life insurance companies, Irdai -appointed committees have mulled providing investors an exit option if they don’t want to continue with the new entity. Exit options essentially mean the policyholder is allowed to give up the policy without any charges. But this is not part of insurance regulations now.

What could possibly happen is that an insurance company may give an option to customers to shift to one of its popular products. For example, one company may have a term plan that has lower premiums. Companies can give option to existing policyholders to discontinue the present policy and shift to a cheaper plan if they wish, which would make sense for policyholders. For this, a customer can give a self-declaration of good health rather than going through medical tests, says an executive of a life insurance firm. A similar offer could be made for simpler products like personal accident plans. But shifting from Ulip, traditional or pension products is challenging.

In savings and investment product categories like Ulips, a lot depends on which insurer has better fund managers, who have given better and consistent returns. “The entities would look at each other’s strengths in this area and rationalise their operations. This could translate to better returns for policyholders,” says Sharma.

Experts believe the merger between HDFC Life and Max Life would mean better services and more product options for existing policyholders.

“The two can also use each other’s strengths and network to grow faster. This means higher number of branches for policyholders and also more agents to service them. One company may be strong in digital and the other may have more innovative products. Policyholders would get the benefit of these strengths,” says Joydeep Roy, partner and leader - insurance, PwC India. 

In the case of HDFC Life and Max Life, for example, the former has 15,108 employees, while the latter has 8,780. HDFC Life operates through 398 branches and Max Life through 211. HDFC Life has 36 products and Max Life 22. While HDFC life has partnerships with HDFC Bank, IDFC Bank and RBL Bank, Max Life’s partners include Axis Bank, YES Bank, and Lakshmi Vilas Bank.