Regulations on non-linked insurance products :
These regulations cover various aspects of non-linked insurance products. Life insurance companies are required to ensure compliance with these regulations before 31st July 2013 for group products and before 30 September 2013 for individual products. The significant regulatory changes in relation to non-linked insurance products include:
1. Minimum floors on sums assured have been introduced for single and regular premium products depending on the age of the insured.
2. For individual products, the minimum policy term and the minimum premium term (for non-single premium policies) have both been set at five years.
3. Maximum commission (or remuneration to distributors in any form) limits have been introduced for all non-linked insurance products. The key changes include:
(a) The first year commission (FYC) limits for non-pension regular premium products with premium terms lower than 12 years have been reduced from the current limits. The limits on maximum commission increase with premium term, although the highest limit is the same as that currently permitted.
(b) The maximum distributor remuneration for group products is set at 2% of premium, subject to absolute INR-denominated caps.
(c) No commission payment is permitted on business procured through the direct marketing channel.
(d) Minimum guaranteed surrender values have been introduced at different policy durations. These levels are higher than the existing minimum guaranteed surrender value requirements. Companies are also required to pay ‘special surrender values’ based on asset shares underlying the policies. These asset shares are required to be calculated in accordance with the professional guidance provided by the Institute of Actuaries of India.
(e) ‘Variable insurance products,’ which have been defined as any non-linked products for which benefits depend upon regular interest rate credits, are now subjected to the same regulations as those applicable to unit-linked products.
(f) Benefit illustrations are now required to be presented assuming gross investment returns of 4% p.a. and 8% p.a. The regulations also require illustrations to be provided based on the rates specified by IRDA or the Life Insurance Council (which are currently at 6% p.a. and 10% p.a.)
(g) Significant regulations are introduced around the management of participating business, covering the need to set up an asset share framework; a governance mechanism involving a ‘with-profits committee’ which would include an independent director of the Board, the CEO, Appointed Actuary and an independent actuary; and the granting of power to the IRDA to prescribe methodology to allocate expenses between different funds.
The new regulations appear to be an attempt by the IRDA to improve the level of transparency and value for money for policyholders of non-linked life insurance products.