Insurance Regulatory and Development Authority has constituted a committee for reviewing norms that require 50% of the funds mobilised from traditional life policies to be invested in government bonds. According to the committee’s report, the restriction on investments does not permit life companies to generate a return of even 8% in traditional policies given the drop in yields on government bonds.
“The expectation of generating a return of at least 8% per annum is a tall order given that at least 50% of assets of the insurer are mandatorily to be backed by G-Secs (government securities), which currently yield 6.7-7.2% per annum. Further, given the downward pressure on interest rates, the actual yields on future premiums are only expected to be lower,” said the report. In reality, almost 80% of the proceeds of traditional policies are invested in government bonds since other investments do not qualify.
According to the report, there is a need to lower the mandatory proportion of ‘G-Secs’ in the life fund and the pension & general annuity funds and allow for more exposure in alternative higher yielding assets (for example, equity or property) or high-rated corporate bonds. The panel has also suggested that the regulator allow insurance companies to adopt a modular product approach for designing insurance products.
Currently, the regulator has approved a policy which is a bundle of various benefits payable at the occurrence of different events. The panel has said that the regulator can approve benefit modules such as death benefit, maturity benefit, etc, which can then be bundled either by the insurer or the customers to suit their requirements.
The committee has also called for liberalisation of regulations that restrict the kind of health cover that can be provided by life companies by calling for a level playing field. For this, life companies should be allowed to sell indemnity products and provide wellness benefits.