IRDAI asks insurers to cut costs, pass on gains to customers

IRDAI has moved insurers to cut down on their expenses and pass on their savings to customers, which is potentially set to bring down policy costs. This was mentioned in its latest guidelines, released. It further requested insurance firms to chart out clear plans for reducing their expenses and transferring gains via lower premiums for policyholders.

IRDAI is looking for a ‘well-documented policy’, which must be approved by each insurer’s board annually. It will then be implemented, subject to the total Expense of Management (EoM). This is anticipated to result in better pricing and products for customers. At present, term plans pay 40% of the premium as the commission for the first year, while policies by other life insurers offer 15-35%, on the basis of the premium paying term.

Tarun Chugh, MD and CEO of Bajaj Allianz Life Insurance Co. Ltd. stated that customers will see prices coming down while the benefits improve. According to the newest guidelines, EoM caps are to be linked with product categories.

For example, the EoM ceiling on pure risk products like premium term insurance policies of more than 10 years, will be 100% of the first year’s premium. However, it will be 25% of the renewal premiums in the following years. The maximum limit for other individual categories is 80% of the year 1 regular premium, and a ceiling of 15% is provided for deferred annuity products.