Articles

The insurance regulator, the Insurance Regulatory and Development Authority (Irda), has relaxed its earlier decision asking insurance companies to guarantee a minimum return of 4.5 per cent on unit-linked pension policies. This will pave the way for private life insurance companies to offer unit-linked insurance policies (Ulips), along with state-run Life Insurance Corporation of India (LIC). However, insurance companies have been given the flexibility to fix guaranteed returns on Ulips. But, it will continue to be mandatory for insurance companies to offer guaranteed returns.

Guaranteed returns will have to be clearly stipulated by the insurance companies on all pension products like Ulips, individual and group plans. These new norms will become operative beginning next month. The regulator will be strict about pension products that do not meet the new guidelines. As per the norms, insurance companies will have to disclose the assured benefit that would accrue to insurer at the time of sale. Insurers will have to specify an amount in absolute terms that they will pay on vesting date.

“The new norms have lot of customer-friendly features like assured benefit in the form of minimum guarantee on premium paid on surrender of the policy, death or maturity, which assure downside protection. Also, we expect a lot of competition among insurers and the guarantee component will be crucial,” said GV Nageswara Rao, MD and CEO of IDBI Federal Life. Irda has said that same, single insurer that issued the pension plan will have to be retained for annuity payments. This, in effect, restricts the policyholder from shifting his corpus to a different insurer offering better returns.

“One major change, which has been made in the new pension plan guidelines, is that the policyholder would have to buy the annuity plan from the same insurer and he will not be able to shift to another insurer right after his policy tenure is over. Policyholders who want to discontinue their Ulip pension plan before the five-year lock-in period will be allowed to withdraw the accumulated fund after five years without converting into an annuity product,” said Andrew Cartwright, appointed actuary, Kotak Mahindra Old Mutual Life Insurance.

“The option to buy another pension policy after surrender or maturity of the existing policy will mean that there is no immediate compulsion to convert the proceeds to annuity. The extension of vesting date beyond the originally opted vested date gives flexibility in pension products. The benefit illustration has to be provided not only at the time of sale but in every year of the tenure so that the policyholder can track year after year,” said Rituraj Bhattacharya, head of product development and market management, Bajaj Allianz Life Insurance.

Irda has limited the scope of riders (attachments with base policy) in pension plans. Premium on riders in pensions plans cannot exceed 15 per cent of the total plan amount, against 30 per cent earlier. “The new pension plan guidelines will impact Ulips, as well as traditional pension plans. Traditional pension plans, which are already hard for insurers to sell, will see further slump in sales after the guarantee. We also do not expect a lot of fund options for the policyholders to choose from since the insurers will have to guarantee returns,” said GN Agarwal, chief actuary, Future Generali India Life Insurance.

In September 2010, Irda had introduced new guidelines on unit-linked pension plans. However, even after more than a year after the guidelines were released, no private life insurance company launched regular Ulip pension plans. At present, only LIC has a unit-linked pension plan offering a guarantee of 4.5 per cent. Some insurance companies, such as ICICI Prudential and HDFC Life Insurance, have launched single-premium Ulip pension plans.