V Srinivas & Ramanathan V, TCS BaNCS
In this white paper, we discuss the impact of new regulations on policyholders as notified by Insurance Regulatory and Development Authority (IRDA) regarding Non-linked Insurance Products (NLIP).
IRDA is a statutory body that regulates the insurance sector in India, to protect the interests of policyholders, while ensuring growth of the insurance industry.
Life is unpredictable and loss of life can negatively affect families and everyone involved, especially if the deceased happens to be the sole bread winner. Life insurance provides financial security and protection against loss of income that would result if the insured passed away.
IRDA has set out new regulations pertaining to non-linked insurance policies (also known as traditional policies) to benefit policyholders. They were formulated with an aim to improve and standardize insurance processes and for protecting the interests of insurance customers.
The regulatory changes encompass multiple areas including changes in structure for minimum death benefit, surrender value payment, use of latest mortality tables and commission structures.
IRDA was constituted and established by an Act of Parliament of India called the Insurance Regulatory and Development Authority Act, 1999. IRDA is the watchdog and controller of the insurance industry in India and it works to bring better regulations for the welfare of policyholders.
Earlier in the year 2010, IRDA revised the regulations applicable to the Unit-linked Insurance Policies (ULIP). Important points in the regulations were:
- Lock-in period of the products increased to 5 years from 3 years
- Minimum premium payment term increased to 5 years
- Insurance cover made compulsory for all insurance products
- Maximum limit on expenses was introduced. Prior to the regulations, policyholders were subjected to huge losses due to heavy expenses
These regulations changed the face of the ULIP insurance market and IRDA has now formulated a new set of regulations for NLIPs.
IRDA, in its Gazette notification on 16th February 2013, has stipulated a number of path-breaking changes in the guidelines for designing a traditional life insurance product. These guidelines require that existing products of life insurers which are non-compliant cannot be marketed post the deadline stipulated by IRDA, that is, 30th September 2013. Products launched in accordance with the new guidelines are to be marketed with effect from 1st September 2013. However, IRDA has revised this deadline to 31st December 2013. Hence, insurers are now required to launch products that comply with the revised guidelines on or before 1st January 2014. IRDA’s new guidelines will certainly impact the Indian insurance industry since NLIPs are the most popular insurance products sold in India. Most policies sold by the Life Insurance Corporation of India (LIC), a government-owned insurer, are NLIPs.
In India, the number of people who have insurance cover is meager and there is huge potential for growth in the industry. Considering the growth of India’s population, we can safely assume that every citizen of the country may need to factor in at least one life insurance policy into their financial goals.
Keeping all this in mind, IRDA has created a set of new guidelines that may provide impetus for growth of insurance business in India and increase penetration of the life insurance business.
Read the white paper.