Panel to study impact of IRDAI's norms on higher surrender payout to policyholders

Mumbai: Life Insurance companies have formed a committee to study the actuarial and financial impact of the insurance regulator’s proposed norms on increasing the surrender value given to policyholders and decreasing the surrender charges charged on life insurance products, especially non-par savings products. Top listed and unlisted life insurers are part of the committee.

Life insurers have also sought an extension till January 31 to submit their views on the regulator’s draft guidelines. The Insurance Regulatory and Development Authority of India (IRDAI) had invited industry comments by January 3.

A senior industry official told DC, “The exposure draft if implemented will be draconian to the insurance industry for various reasons. Persistency levels will fall, and margins from non-participating products will fall impacting profitability. Policyholders would be incentivised to surrender their policies and buy another policy thereby impacting persistency of the business.

Secondly, because of paying higher surrender value, insurers will have to set aside more reserves. So, while the draft norms are customer-centric and very good for the customers, they do not benefit the insurers.

The draft norms have proposed the concept of a premium threshold for each life insurance product. Beyond this threshold, no surrender charges would be levied on the remaining premium, irrespective of when the policy is surrendered.