Insurers will have to register over 40 per cent of their unit-liked insurance product (Ulip) offerings before December 31 with the Insurance Regulatory and Development Authority (Irda) again to comply with the new norms on cost structure of insurance products.
Insurance companies’ executives said the number would have been even bigger if the guidelines were not amended. The regulator is likely to bring mortality charges out of the overall ceiling on charges and remove individual cap on fund management cost. “Most pension products will comply with the norms. Since Ulips constitute the bulk of insurers’ portfolio, either they will have to remove their existing products or re-file them,” said Optima Insurance Brokers’ Chief Executive officer Rahul Agarwal.
“Margins of insurance companies are already thin. Irda’s objective is to cut down the commission of the intermediaries. If we keep out mortality charges, around 50-60 per cent of the products will meet the changed norm,” said Future Generali Chief Actuary GN Agrawal.
After removing mortality charge, which is used to calculate the risk premium, almost 60 per cent of the existing Ulips will comply with the cost structure laid down by the regulator.
The premium allocation charge generally comes to around 60-70 per cent of the first year premium, consisting of commission paid to the agents, policy administration charges at 10 per cent, while fund management charges vary from one per cent to 2.25 per cent for the first year.
Insurers are likely to reduce the overall charges to 55-60 per cent against the existing 80-85 per cent. This will lead to changes in the cost structure.
Ulips are the main sustenance of insurance companies. It fetches over 90 per cent of the new business premium. With over 30 crore life insurance policyholders, the impact will be significant.
According to Irda, the difference between the gross and net yield cannot exceed three per cent for a 10-year policy and 2.25 per cent for policies with tenure of over 10 years.
