Insurers want 180 days grace period for premium default

To request Irda to postpone the September 1 deadline to meet the new norms.

The insurance sector is asking for extending the September 1 deadline set by the Insurance Regulatory and Development Authority (Irda) to comply with the new norms.

Insurers say there is not enough time for them to adopt the guidelines and enforce them within the stipulated time.

All leading life insurance companies, which met recently, have listed a host of issues on which they will seek clarifications from the insurance regulator. The Life Insurance Council (LIC) will take up the matter with Irda shortly.

“The regulations, as drafted, can give rise to operational difficulties. With so many issues to be clarified, it may not be possible to roll out the norms from September 1,” said a senior executive of an insurance company.

Insurers say to give policy-holders sufficient time to pay their premiums, a grace period of 15-30 days may result in unintended discontinuances, which can hurt their profitability. Since charges could be levied until the expiry of the grace period, insurers said they would cease if the policyholder chose to discontinue the policy. So, this proposal should not result in excessive charges. The life insurance industry will propose extension of the grace period to 180 days from the due date.

In addition, insurance companies want to accept premiums 180 days before the due date and allocate units against this. “Among economically weaker sections, there may be significant variability in expendable incomes. So, it will be fair to accept premiums when they can pay, rather than only when they are due,” the executive said.

Irda had mandated an increase in the lock–in period from three years to five years to discourage short-term investing. Insurers argue that within the lock-in period, the policyholder should have the option only to pay the premiums in full and enjoy the risk cover, or to withdraw from the policy without any risk cover.

LIC will also seek clarity on the guaranteed return of 3.5 per cent per annum which is to be applied during the period of discontinuance.

Irda, in its circular, said the guarantee rate would be reviewed from time to time but was silent on which parameters the review would be based.

A clarification will also be sought on whether the guaranteed rate will apply only to discontinuances after the date of the revision or to the entire discontinued liability.

The fixed guarantee rate of 4.5 per cent for all pension and annuity products has been termed by insurance companies as “too high” to deter premium discontinuance. A request will also be made to the insurance regulator to reconsider this rate.