Life insurance products to become more transparent from tomorrow

While product returns would be easier to understand, pending approvals may mean lesser insurance plans to choose from in the initial few days

The new product guidelines for linked and non-linked insurance products will be implemented from Tuesday, which will disclose all benefits and fund value calculations upfront, to ensure that customers are buying the products they need.

Anup Rau, chief executive, Reliance Life Insurance, says the new guidelines have categorised life insurance products into three broad categories--traditional insurance plans, variable insurance plans (VIPs) and unit-linked plans.

"New traditional products will have a higher death cover. For regular premium policies, the cover will be 10 times the annualised premium paid for those below 45 and seven times for others. the minimum death benefit in case of traditional plan is at least the amount of the sum assured and the additional benefits, if any."

The Insurance Regulatory and Development Authority (Irda) had brought out a new set of guidelines for life insurance products in February. While the minimum death benefit and surrender value have been altered for traditional product customers, who stay invested in a policy for a longer period, in the case of unit-linked products (Ulips), insurers will have to intimate customers about changes in the yield of the Ulip every month.

Further, Rau explained that as per the new norms, variable insurance plans will guarantee a certain minimum rate of return at the beginning of the policy, though they are linked to an index.

These variable insurance products will be treated at par with Ulips, those products will follow the same commission package for Ulips. Agents who tend to sell shorter tenure products will now have to shift their sales strategy to longer tenure products, since commissions have now been linked to tenure of a policy. Higher the duration, higher is the commission.

However, industry officials say the product mix, which is heavily tilted towards traditional products, will continue. Reliance Life, which has about 80% traditional plans and 20% Ulips, expects this trend to continue for some time.

"The new regulations make the traditional products, like endowment and money-back plans, more transparent and customer-friendly due to larger life cover and higher flexibility. It will definitely make traditional plans a more compelling proposition," added Rau.
 
Customers, say industry experts, will now be motivated to take a higher insurance cover. Niraj Shah, senior vice-president and head-products, ICICI Prudential Life Insurance, add the new product regulations, which will be applicable from October 1, include a higher level of insurance cover, more transparency and improvement in minimum surrender value for traditional products.

Shah also says Ulips continue to remain attractive due to the inherent advantages of transparency and flexibility to choose the level of insurance cover, premium payment term, asset allocation.

Ulips are presently sold mandatorily with a personalised benefit illustration. V Viswanand, director and head product solutions management, Max Life Insurance, says this requirement is now being extended to other product forms.

"The new guidelines have also provided for setting up a 'With Profit Committee', at the board level. While personalised benefit illustration will provide for greater transparency, the With Profit Committee is likely to lead to better and more transparent governance in the administration of Participating policies."

While customers will have a clearer idea of their policy with the new guidelines in place, there could be lesser number of products to choose from for a new customer. With the approval process still on at the regulator's office, estimates suggest each insurance company would only start off with six-eight products.

There is also a fear that some smaller life insurers may not have any product to sell on the first day, that is Tuesday, and would only be able to have products approved in next few weeks.