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Insurance regulator rejects new pension product filings

Asks insurers to file again with guaranteed surrender values

Niladri Bhattacharya  |  Mumbai 

The recent controversy surrounding pension plans has taken another turn, with the Regulatory and Development Authority (Irda) rejecting all filed under the in November.

The regulator has asked insurers to refile their products, as the filings “did not conform” to the issued guidelines. Since November, when the new guidelines came into effect, at least 23 were filed by different insurers. All leading life companies which Business Standard contacted confirmed the development.

Given the regulator takes at least three-four months to approve any product and insurers have already withdrawn all existing pension plans based on earlier guidelines from January 1, it is unlikely the companies would be able to offer any retirement solutions to customers during this tax-saving season (January-March quarter).


* unhappy with the surrender value norm associated with filed products

* Firms say investment in short-term papers will be hit by the prescribed rate

* Since new norms came into effect, at least 23 products were filed by insurers

* Companies unlikely to offer retirement solutions to customers this quarter

According to sources in companies, the regulator was not happy with the surrender value norm associated with the filed products, according to which insurers offered either 50 per cent of the fund value or accumulated premiums (whichever was higher). Accordingly, has asked insurers to refile the products for which the surrender value should be based on the fund value or the premiums accumulated at a guaranteed rate, whichever was higher.

The officials claimed offering a guaranteed surrender value at the prescribed rate would restrict investments options in short-term securities, which would make the product unattractive. “This would force insurance companies to invest in short-term cash-type instruments, which is not ideal as an asset allocation strategy for managing funds under a pension product. This would not be beneficial for customers, given the long-term nature of these products,” said an actuary with a private life insurance company.

The Life Insurance Council, the representative body for life insurance companies, would take up the matter with the regulator later this week.

“Whenever a person buys a pension plan, it means he enters into a long-term contract with the insurer. Accordingly, the company invests in long-term securities to guarantee a rate of return. Now, if somebody wants to come out early and the insurer is required to pay the same rate of return, it would restrict investments. Hence, there must be some penalty for premature withdrawal or surrender,” said an industry expert.

The controversy surrounding pension plans began in September 2010, when came out with new regulations on such products, mandating a minimum annual guarantee of 4.5 per cent. As a result, sales of pension plans plummeted to Rs 600 crore during the first six month of the current financial year, compared with Rs 17,000 crore in the same period a year ago. In terms of the number of policies issued, the share of pension plans dropped to a mere 0.36 per cent in the first six months of the current financial year, compared with 16 per cent in the year-ago period.

In the revised pension guidelines issued in November, Irda withdrew the 4.5 per cent guaranteed returns clause, but maintained there should be some guarantee element with the plan, either by way of offering positive returns on premiums paid during the period of the contract, or through assured maturity benefits.

First Published: Thu, January 19 2012. 00:55 IST