The Insurance Regulatory and Development Authority of India (IRDAI) has recently introduced a series of regulatory updates aimed at enhancing the life insurance landscape in India. These changes, introduced in the first-half of the year. are poised to significantly impact consumers, insurers, and the overall insurance market. This article will explore the key regulatory amendments, including revised underwriting guidelines and surrender value norms, and their implications for policyholders, insurers, and the broader financial ecosystem.
Return of Surrender Value
- As per the new provision, the policyholder who is unwilling or unable to pay the premium will have the benefit of receiving a higher surrender value or exit payout. as compared to earlier times.
- Now, the insurers will have to pay Special Surrender Value (SSV) in case the exit takes place after one year, whereas earlier, no payouts were provided in the first year.
- Policies with a limited premium payment period of less than 5 years and single premium insurance, SSV is payable immediately upon receipt of the first full year premium or single premium, as applicable.
Mandatory Policy Loans
- The IRDAI has mandated the facility of policy loans for all life insurance savings products, enabling policyholders to meet liquidity requirements.
- Also known as “life Insurance loan” allows a person to borrow from their insurance company using the cash value of their policy as collateral.
- The loans will not be available on Unit Linked Insurance Products (ULIPS)
Insurance for Rural Sector
- In order to achieve the objective of “Insurance for all” IRDAI proposed mandatory coverage in rural areas with respect to life Insurance.
- The minimum number of gram panchayats that would be subjected to this in the first year would be 25,000, and in each Gram Panchayat, the minimum number of lives to be covered by all life insurers would be 30%.
- In the next 2 years, the increase would be to 40% lives subject to a minimum of 50,000 gram panchayats and 50 per cent lives subject to a minimum of 75,000 gram panchayats in the third year, respectively.
Decreased Upfront Commission
- The IRDAI has proposed to decrease the upfront commission in order to make the surrender value and premium of life insurance policies better.
- The IRDAI in its new commission structure might reduce the hefty upfront commission and increase the trail commission in the first year resulting in reduced front loading cost of life insurance Company.
- This, in turn, will benefit the policyholder as the premium will get lower and the surrender value will also get better.
- Trail commission – is a certain percentage of commission received by agents as long as the policy holder keeps paying the premium.
General Guidance
- Free Look Period – Policyholder has the right to review and cancel the policy within 30 days if not satisfied.
- Variety of Products – Providing more choices and flexibility to customers to suit their age, region, occupation, and disability. The product should have variety as well as affordability. It should not be one product fit for all.
- Focus shift – towards ensuring insurance policies stay active, preventing customers from being sold mis-selling Insurance, and prioritizing the financial well-being of policyholders by offering long-term advantages.
- Grace period – 15 days grace period in case premium is paid monthly/ 30 days if paid quarterly or half-yearly, or annually. Risk cover would still be available during this period.
- Ombudsman Award – The Insurer is required to comply with the award of the Insurance Ombudsman within 30 days of receipt of award by the Insurer.
