Policyholders, who had put in money in unit-linked insurance plans (Ulips) and discontinued later, have a reason to cheer. The Insurance Regulatory and Development Authority of India (Irdai), through a recent circular, has warned insurance companies not to delay the release of fund value in discontinued unit-linked products, even in cases where customers have opted for complete withdrawal within the lock-in period.
An earlier circular issued by the insurance regulator on August 26, 2016, had given policyholders the right to renew their discontinued policies within two years of discontinuance, irrespective of the end of the lock-in period.
According to Irda (Treatment of Discontinued Linked Insurance Policies) Regulations, 2010, policyholders should be paid back their fund value if they opt for withdrawal within the lock-in period and also if they do not seek revival within this period. Explaining the rationale behind the circular, R M Vishakha, managing director and chief executive officer, IndiaFirst Life Insurance says: “This circular was issued to provide clarification on the issue of revival of Ulip policies. Irdai has now made it clear that the two-year revival period is applicable irrespective of the lock-in period if the customer comes back and avails it by his own choice. In case the customer fails to intimate back or avails complete withdrawal within the lock-in period, the insurer is supposed to make the payout and foreclose the policy at the end of the lock-in period. This is to provide better security to customers.”
Persistency, a measure of the duration for which customers hold on to their policies before opting out, figures for 201516 reveal that only 61 per cent of policies sold are renewed after the 13th month, while insurers are able to retain only one-third of the policies sold by the 61st month. This means that two-thirds of policyholders opt out of their policies within five years of purchase. This is low compared to global standards. Globally, there is 90 per cent persistence of policies in the 13th month and 65 per cent after the 61st month, according to, Irdai’s Annual Report 2015-16.
In 2015-16, renewal of policies for private players rose 6.25 per cent compared to 2014-15. Life Insurance Corporation (LIC), on the other hand, saw a 23.26 per cent decline in renewals compared to the previous financial year. Overall, the insurance sector saw a rise of 3.5 per cent in renewal of policies (for Ulips or linked premiums) in 201516. This suggests private players have done a better job of retaining their policyholders.
Naval Goel, CEO and founder, Policyx.com, says: “People exit because they may feel that the rate of return in a particular policy is low, or their needs change and the benefits they needed at the time of purchase are no longer desirable. Sometimes, people may also feel that the premium is on the higher side and they might get a similar policy from another company at a cheaper rate.” Mis-selling a policy to a customer which is not suited to his needs is another major reason for low persistency in India.
The latest circular from Irdai on refund to customers is a wake-up call for insurers. The regulator has also put an ombudsman in place. If a customer does not get his refund in time, he should first approach the companies. If they don’t respond, the customer should file a complaint with the ombudsman.