Traditional Life Insurance Products To Come Under The Scanner

By Policy Tiger

Life Insurance companies have been hit hard by the cap on charges that IRDA has mandated on ULIPs.. Come Sep 1, the surrender charges, administration charges and the commission that Life Insurance companies recompense on ULIPs will come down considerably. While this is good for the buyer, the worry is that in the short term, it may become unattractive for the distribution channels, and thence less humans may have admission to life insurance. The portion part of ULIPs as a portion of the overall business of the private life insurance companies is more outstanding than 60%. Under such a scenario, the private life insurance companies have began focusing on traditionalistic, non guaranteed productions as there has been no capping on charges on these products.

But not long back, there has been a scare amidst the life insurance companies that once the ULIPs are out of the way, IRDA would look anew at the guaranteed productions. There have been unconfirmed reports with regards to IRDA looking nearly at the charges and commission structures of guaranteed productions over the following three months. However, the IRDA chairman has come out with an assertion not long back that there are no plans on IRDAs front to cap the charges that insurers employ on traditionalistic savings cum insurance productions. IRDA is of the view, leastways publicly, that the traditionalistic productions suchlike term, cash back and endowment are at a mature stage of their life cycle and there’s no require to micromanage them by applying the caps on charges.

Public posturing detached, the author is of the view that the regulator will unquestionably keep a hawk eye on these productions to make sure that the insurers, after being stifled on the ULIP front, don’t misuse this category of productions to go back to the commission and charge levels which IRDA is determined to fetch down. IRDA would not want traditionalistic productions to provide a loophole to the current regulation that they have painstakingly eked out. On being probed that commissions as high as 80% of the primary year premium were being salaried on traditionalistic productions, IRDA cited that they’ll assure that such misbehaviors are tackled.

In India, due to the rush for business by private life insurers for new business, the strategy has bred a fat cat distribution strategy wherein the distributors with higher volumes of business have got utilized to commission levels as high as 60-70% of the primary year premium. It is but natural that these channels will attempt and protect themselves when these income levels are threatened by the modern IRDA regulation. Thus, they’ll find new ways to beat the strategy and guaranteed productions offer the silver lining to them in this crisis. IRDA would do well to assure that these productions don’t become a channel to exploit the intermediate unsuspecting buyer, whose level of knowingness and understanding with regards to the life insurance products is rather low.

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