New insurance norms to hurt investments

New insurance regulator TS Vijayan gives the sector no reason to party, companies are up in arms, they say that the new guidelines for insurance products threaten to hurt an already bleeding industry.

Insurance Regulatory and Development Authority (IRDA) has ignored demands that the traditional product guidelines be taken back to the drawing board. Players believe that these rules will do nothing to staunch the bleeding reported.

When Hari Narayan retired as IRDA chairman, the insurance sector breathed easier. Players felt TS Vijayan, who took over as the new chairman, would accommodate their demand to review, and redraft, the proposed traditional product guidelines, but Vijayan has not bowed to pressure.

The guidelines, which were notified last week, have sent shockwaves across the sector. The clause that insurers find most threatening, hikes the minimum premium-paying term for a policy at 5 years, a move that could keep policy-holders away.

GN Agarwal, Acting CEO of Future Generali Life Insurance says, “Earlier there was more choice. If somebody had 3 year service, then policy was 3 years only. Now, he doesn’t have that option, rather he has to take premium paying term of 5 years and maybe after retirement he has to pay for 2 more years.”

The rules also tweak the guaranteed surrender value slabs so instead of a flat 30 percent guarantee, 2nd and 3rd year surrenders will fetch 30 percent of premium paid. Surrenders between years 4 and 7 will fetch 50 percent and surrenders taking place 2 years before maturity will fetch 90 percent. Insurance companies say this will hurt balance sheets and will force them to review their investment strategies.

Jayant Dua, MD & CEO, Birla Sun Life Insurance adds, “We will have to re-look into how we invest the monies that are available with us. There is a sense of conservatism that will come in because there is a guarantee that has to go out. At the end of the day, it will have a margin pressure on the industry too.”

The job of an insurance agent will also get tougher. The rules set a new commission structure wherein the agent will get a 15 percent commission if he sells a 5-year policy and a 30 percent commission will come through only if a policy with a 10-year-plus tenure is sold. The industry still hopes these rules will be made easier.

The industry wants Finance Ministry and IRDA to look into these guidelines, and push for changes that will help an already-bleeding insurance sector get back on its feet. There’s optimism this may happen, since India’s insurance giant, Life Insurance Corporation (LIC), which is also a public sector undertaking, is on their side.