What the IRDA Recommends for Life Insurance in India

Few of us know that there is a regulatory body that oversees the functioning of all types of insurance firms in India, with a focus on benefiting the consumer. The Insurance Regulatory and Development Authority or IRDA works to “protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.” Set up under the Insurance Regulatory and Development Authority Act of 1999, the IRDA is an autonomous agency headquartered in Hyderabad. All members of this 10-member body are appointed by the government and consist of the Chairman, five full-time members and four part-time members.

With increase in the allowance for foreign investment in the Indian insurance sector to 49% in 2014, as well as the growing younger and working population in the country, there is huge scope for growth for insurers. Little wonder then that there are so many Indian and multinational firms vying for consumer attention in this segment. This has further prompted the IRDA to focus on driving customer centric services for life insurance in India.

Recommendations for Improved Practices by the IRDA

With the aim of improving customer focus, the IRDA has put forth recommendations not only to bring about changes in the product design for life insurance in India but to also enhance sales practices. The new guidelines, which came into force in January 2014, lays special emphasis on traditional life insurance products to ensure that they not only have a long-term focus but are also more transparent. The basic themes of the new guidelines include:
1. Customer Orientation: To make the products more consumer centric, the IRDA has recommended that traditional policies offer higher surrender value at the end of their five-year tenure. In case a policyholder wishes to give up their policy before the completion of this tenure, a minimum of 30% to a maximum of 90% of all premiums paid over the last two years as surrender value is guaranteed under the new guidelines. This aims to offer better liquidity to the policyholder in the event of an emergency.
2. Transparency: In an attempt to increase transparency, insurance products now need to offer customized illustration of non-guaranteed and guaranteed benefits that provide gross investment returns of 8% and 4%, respectively. The benefits illustration should be part of the policy contract between policyholder and the agent. Prior to these guidelines, this was mandatory only for ULIPs. In addition, to improve transparency of corporate governance, all insurance companies are required to set up a “With Profit Committee” at their board level. The committee will be responsible for approving the asset mix, as well as the expense allocation and investment income for the fund.
3. Protection: To promote the core aim of protection that life insurance in India offers consumers, the IRDA guidelines now require death benefits to equal a minimum of 105% of all premiums paid on the policy till date. The new regulations also require that the minimum sum for a policy should be 10 times the annual premium for policyholders below the age of 45 and seven times for those above 45 years.

Continuing its efforts to make the experience better for the consumer, the IRDA is looking at new norms in 2015, where banks will act as intermediaries for insurance companies to offer a better range of products for life insurance in India.