IRDA's lens on high NAV products

'Highest NAV guaranteed products' are the latest controversy to have hit the insurance industry. The Rs 5,000 crore segment is facing regulatory ire with the IRDA looking to ban the products. CNBC-TV18's Mitra Joshi and Gopika Gopakumar find out why.

A couple of months back high NAV guaranteed products were the flavour of the season.
To begin with, let's explain why these products became popular.
Essentially these products guaranteed that if you invest in the fund, you would get the highest NAV (net asset value) during your period of investment, say seven to 10 years.
But this led to confusion with insurance companies referring to the highest NAV of the fund but insurance holders confusing it with the NAV of the market itself. Consequently, insurance regulator IRDA has now stepped in, asking companies not to market these products as they are not understood easily by buyers.
"We have issued an exposure draft. We have raised in one of the proposals we are considering is to prohibiting and not allowing sale high guaranteed products. Let us hear what the insurance companies say and after considering we will come out with appropriate regulation," J Hari Narayan, Chairman, IRDA told CNBC-TV18.
Even the insurance agents admit not all customers understand the workings of the fund . Gajendra Kothari, MD & CEO, Etica Wealth Mgmt says, "It is very difficult to sell because the concept is very complicated to enable the customer to understand because the moment, I say it is an administered NAV from equity to debt shifting, he may become uncomfortable, he may not understand it completely."
But companies selling these products are not ready to give up yet.
Though some companies have withdrawn these products, 10 high guaranteed NAV products belonging to companies like HDFC Life, SBI Life, ICICI Prudential Life and Birla Sun Life still remain in the market.
 
On an average these products contribute 15% to the overall premium of these companies. The overall AUM of these products is around Rs 5,000 crore.
 
Consequently, despite being controversial, insurance companies do not want to lose the business coming in from high guaranteed NAV products. All eyes now on whether a solution can be worked out when the companies meet IRDA officials on May 22.