After setting stiff norms for unit-linked insurance plans (Ulips), the Insurance Regulatory and Development Authority (Irda) is planning to cap charges on traditional products within three months.
“We will review the situation after September. If insurers try to cover the cost of squeeze in margins (due to new Ulip norms) by levying a higher charge on conventional products, we will cap it,” said a senior Irda official.
Last year, after the market regulator banned entry load on mutual funds, Irda capped overall charges on Ulips from January this year.
The difference between the net and the gross yield was capped at three per cent for products with a tenor of less than 10 years and at 2.25 per cent for those with a tenor of more than 10 years. In the new Ulip guidelines, the regulator capped this difference even during the policy term.
“At present, we are busy clearing Ulips. We will start working on the guidelines within three months of seeing the impact of the cap on Ulips,” the official added.
The regulations allow insurers to pay up to 40 per cent commission on life insurance products, including traditional plans. Insurers with more than 10 years of operation can pay only up to 35 per cent commission on selling both Ulips and conventional products.
Insurance companies are, however, against any price control and micro management by the regulator in conventional policies. “Fundamentally, we are against price control. But the industry also needs to become more responsible while designing products. On participatory products, the regulation is such that 90 per cent profit goes to policyholders and only 10 per cent to shareholders. Given the high protection and other features, there products need not be subject to price control,” said Rajesh Sud managing director and CEO, Max New York Life.
“There is nothing to cap in traditional products. These are a different class of products. There is a well defined premium and investment pattern stipulated by the regulator. They do not have any characteristic of Ulips,” said G V Nageswara Rao managing director and CEO, IDBI Fortis Life Insurance.