Irdai panel suggests introduction of index-linked insurance products

An Irdai panel has made a case for the introduction of index-linked insurance products (ILIP) an apt alternative to the current conventional guaranteed products and ULIPs.

In August last year, the Insurance Regulatory and Development Authority of India (Irdai) had constituted a working group (WG) for the purpose of examining the need of index linked products in India.

The panel has submitted its report to the regulator on which comments have been invited till March 8.

The report said the relevance of ILIP is further enhanced, in the current context of volatile investment markets leading to the customer preference for guarantees. And, it has therefore possibly resulted in the current industry practice of selling significant amount of guaranteed products with plausible increased balance sheet risk for the insurers.

"The WG therefore believes that ILIPs could be an apt alternative or complimentary option to the current conventional guaranteed products (including annuities and savings products) and ULIPs, particularly in the context of volatile investment markets/ stressed interest rates," it said.

For the annuity product with return of purchase price, the recommendation of the panel is to allow resetting of annuity rates with reference to a specified index on top of the minimum stipulated guarantees at stated periodicity.

The customer concerns are to be taken care of with a properly disclosed benchmark index, besides offering the customers a choice to change the annuity option, to switch the full amount to other form of annuities or opt for open market option.

This will reduce the risks for insurers as well as enhance the customer value and options for the annuitants and pensioners, it said.

"The working group recommends that under ULIPs, a segregated fund may also be allowed to be offered as an option with an option to invest in assets confirming to a chosen index," the report said.

It notes that a need exists to have ILIP which would not only give more options and alternatives to the policyholders to choose from, but also could help the insurers to manage their asset liability management risks in a better way.