Insurance cos against IRDA's product design & pricing norms

The insurance industry is not happy with the second exposure draft on product design and pricing. In particular, it wants to discuss the norms for Guaranteed Surrender Value with the insurance regulator, reports CNBC-TV18’s Mitra Joshi.

Insurance regulator IRDA's second exposure draft on product design and pricing has evoked mixed reactions from the industry. Most players welcome the norms, which give clarity on cover in traditional products. But, the Guaranteed Surrender Value norms have insurance companies atwitter. Currently, the minimum guaranteed surrender value is 30% of the total premium paid, minus the first year premium. But now, this will be governed by a slab. For second and third year, it will be 50% of the total premium paid. For fourth year, it will be 75% of the total premium paid. For fifth and sixth year it will be 90% of the total premium paid, and from seventh year onwards, it will be 100% of the total premium paid. Players say these slabs will leave nothing for the insurance companies themselves, and are pushing for talks with IRDA to soften the blow. “This requires a lot of deliberation at this stage, where the actuaries are putting their heads together. We would need to discuss it with IRDA also to figure out what the implications of proposed changes would be and probably figure out as to how we can handle this and re-examine the existing set of products,” said Suresh Agarwal, executive VP of Kotak Life Insurance. “The insurance company has to recover the cost of inter-mediation and also the overheads out of the premium collected. That it does on the pricing and based on the calculation it does over life of the product. Anything to disturb that behaviour to my mind would perhaps send out wrong signal,” said Ashvin Parekh of Ernst & Young. The insurance industry is already fighting a losing battle to revive demand for ULIP and pension products, and experts say these new guidelines will make life difficult for traditional products, which are currently keeping the industry afloat.