A highly placed source indicated that “the IRDAI believes that rules should apply uniformly across all insurance companies, including LIC.” Furthermore, the official noted that many insurers are prepared for the October 1 changes regarding revised surrender value norms.
LIC had proposed an increase in the interest rate assumption for calculating surrender values and suggested using a plan-based Government Securities (G-Sec) benchmark. In its final master circular on surrender values, the IRDAI has significantly reduced surrender charges on traditional savings plans, which currently yield minimal or no payout if premiums are discontinued. The regulator has emphasized the need for insurers to ensure “reasonableness and value for money” for both exiting and continuing policyholders when determining surrender values.
The new regulations stipulate that the discount rate for calculating the Special Surrender Value (SSV) can be set at the 10-Year G-Sec yield plus 50 basis points, an adjustment from prior norms. LIC has requested an increase in this cushion and proposed to exclude the 10-Year G-Sec yield from surrender value calculations, advocating for plan-based benchmarking instead. This proposal stems from the fact that nearly 70% of life insurance investments are in 30-year government bonds.
Regarding changes to health products, a health department head at a non-life insurance company commented, “IRDAI expects us to offer comprehensive coverage for all illnesses and treatments, including Ayurveda and homeopathy, as well as outpatient and hospitalization coverage for all ages and conditions. Evaluating and formulating an actuarial underwriting policy for these requirements is time-consuming, and our field force will need adequate training.”
While the industry has requested an additional two-month extension, the regulator has already provided a four-month period since draft norms were introduced in June. “We have explained our position to IRDAI, but an extension is not forthcoming,” the health insurance official added.
Insurers can continue to sell existing products until September 30, 2024, after which they must comply with the new norms.