Irda likely to relax cap on Ulip charges

Insurers want mortality charges outside the ceiling

The Insurance Regulatory and Development Authority (Irda) is likely to relax the cap on distribution cost of unit-linked insurance plans (Ulips). The cap is to be effective from October 1, 2009.

The move follows a meeting of the Life Insurance Council today, where insurers suggested that mortality charges, which go into fixing the risk premium, be kept outside the ceiling imposed by Irda last week. Irda representatives were also present at the meeting.

S B Mathur, secretary general of the insurance body, said the council had recommended a few things and expected the regulator to take a call before the deadline.

“Mortality and risk charges depend on the age and choice of the sum assured. Therefore, these charges need to be kept outside the overall cap,” said IDBI Fortis Managing Director and Chief Executive Officer G V Nageswara Rao, who attended the meeting.

Insurers argued that application of the cap to mortality charges might prevent insurers from offering cover to people in the higher age group, thereby negating the efforts for increased insurance penetration.

The regulator has capped fund management charges at 1.5 per cent for polices with tenure of less than 10 years and at 1.25 per cent for polices with tenure over 10 years.

Now, insurers have recommended a uniform cap across all tenures. According to insurance company executives, if there is segregation in the product, charges should be pushed upward.

“Irda should not impose cap on multiple charges. There should be flexibility in managing expenses,” said an insurance executive.

“...For someone entering pension products at the age of 25, an insurance company will have to mange his/her corpus for another 45 years. It will be difficult for insurers to offer products at 1.25 per cent,” said Mathur.

However, another executive said that it was just an interim circular and that Irda would follow it up with operational guidelines with explanation.