Non-linked variable products, Ulips to be treated on a par

Irda has said if the polices are procured through direct marketing, no commission would be allowed

Insurance Regulatory and Development Authority (Irda) has published the traditional product guidelines, termed as the 'most ambitious project' of Irda, in the gazette.

The guidelines have called for non-linked variable insurance products (index-linked products) to be treated at par with unit-linked products (Ulips). The insurers have been given time till June 30 2013 and September 30, 2013 to re-file their group and individual products respectively.

The ceiling for first year commissions has been put at 15% for the first year for a 5 year term, 30% for 10 years and 35% for 12 years or more (40% for insurers aged less than 10 years). If the polices are procured by direct marketing, Irda said that no commission will be allowed for direct marketing.

GV Nageswara Rao, MD & CEO, IDBI Federal Life Insurance said that this would impact sales of non-par variable insurance products would be affected, due to them being treated similar to Ulips. "Sales will move towards participatory traditional products, as high charges and lower commissions would lead to agents, shifting towards par-products," he said. He added that non-par products constitute about 20% of their business.

If these Ilips or index linked products are excluded, the company is left with other products like 'pure-term products' which does not generate much volumes, according to him. He further said that the new guidelines would impact the new business premium margins, as the guidelines have said that shareholders returns will be set at 10% of the surplus. Policyholders would be entitled to 90% share of the surplus.

The minimum guaranteed surrender value would be 30% of the total premiums paid less any survival benefits paid, if policy is surrendered in the second and third year. If surrendered in the fourth year, it would be 70% of the total premiums paid less any survival benefits already paid. If surrendered during the fifth to the seventh policy year, it would be 90% of total premiums paid, less any survival benefits already paid," the norms said.  The surrender value beyond the seventh year would need to be filed by the insurer under the File & Use for clearance.

Irda fixed the minimum death benefit at highest of 125% of the single premium or minimum guaranteed sum assured on maturity or any absolute amount to be paid on death, for single premium products. For other products, it will be highest of 10 times the annualised premium or 105% of all premiums paid on date on death, or minimum guaranteed sum assured on maturity or any absolute amount to be paid on death.

Another senior official with a life insurance firm said that Ilips were a unique category and should not be included into the Ulip segment in terms of charges, reduction in yield, discontinuance terms and surrender value.

For pension products, it said that upon surrender of pension products, one-third can be commuted and balance can be received only as annuity upon superannuation with the same insurer. The same option is available upon vesting with additional option of extension of deferment period if aged less than 55 on vesting.