New Ulip norms starting 1st Sept, policyholders to advantage

Starting Wednesday, policyholders will get a much fairer deal if they invest in unit-linked insurance plans (Ulips).

The new rules of the Insurance Regulatory and Development Authority (Irda) take result from September 1. Ulips, which contributed 80(%) per cent of the total premium collected by private companies, will see an impressive change. Irda has capped the difference between net and gross yields during the policy term. Insurers will have to offer a minimum approved return even if a policyholder withdraws from the fund before maturity. For the 5^th year, the cap is fixed at 4(%) per cent.

WHAT’S IN STORE?
Move: The difference between net and gross yields capped during the policy term.	Effect: The policyholders will get higher returns on their Ulip investments.
Move: The lock-in period will increase from three years to five years.	Effect: If anyone withdraws in the first year, he will get back the amount after deduction of charges only after the 5th year.
Move: Surrender charges have been capped at a level much lower than what exists at present	Effect: It will ensure that only acquisition expenses are recovered in the event of the discontinuance of the policy.

From tomorrow, the lock-in period will increase from 3 years to 5 years. If a policyholder wants to remove in the 1^st year, he will get back the amount invested after deduction of various charges only after the 5^th year.

To ensure only gaining expenses are recovered in the event of the discontinuance of the policy, surrender charges have been capped at a level much lower than what exists at present. The industry had been benefiting from higher lapses. Funds collected from policyholders under lapsed policies are sent to a part fund and the money is given the the policholder after the company deducts all charges. The charges are as high as 100(%) per cent in some companies.

“We have always maintained that insurance is a long-term contract. Any pre-termination of policy is not good for all stakeholders,” said S B Mathur, secretary general, Life Insurance Council.

“Products are going to be more gorgeous now. We expect greater customer interest, as charges will be uniform as well as lower,” said G V Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance.

Rao added the customer could now expect higher returns, as the amount of funds invested was likely to go up.

Along with these changes, the regulator has set minimum disclosure guidelines for insurers.

“Now agents cannot take policyholders for a ride. They (policyholders) can now see the financial position of the company over the website and do not need to depend on agents,” added Mathur.

On the flip side, though overcharging and misspelling will come down, insurers say product innovation and customisation will be affected. Also, traditional plans will suit those in the lower ticket size segment.

ING Life banking on traditional products vis-a-vis ULIPs

Private life insurer ING Life India today said it would continue to focus on selling traditional products vis-a-vis Unit Linked Insurance Plans (Ulips).
“Traditional life insurance plans are helpful to all the stake holders, including the insured, insurer and the financial advisor,” ING Life India, executive vice-president (central and east), Syed Sarfaraz told the media here.
He informed the company already maintained a ‘healthy’ product mix with the traditional life insurance accounting for 60(%) per cent of the portfolio, while the balance coming under Ulips.
Ulips provides for life insurance, where the policy value varies according to the value of the primary assets at that time. It offers life insurance as well as an investment like mutual fund. While, the part of premium goes towards the sum assured, the balance is invested in instruments such as equity.
Recently, sector watchdog Insurance Regulatory and Development Authority (Irda) had tightened the norms for Ulips by raising lock-in-period from 3 to 5 years to provide risk safety. This has made Ulips long term financial instruments.
These guidelines followed the public spat between Irda and Securities and Exchange Board of India (Sebi) for jurisdiction over Ulips, which Sebi had claimed were equity products.
Based on traditional platform, the product guarantees the maturity value as decided by the parent, additional guarantee of death benefit to policyholder, guarantee of policy continuing in case of death of parent and guaranteed coverage for child after maturity.

Irda permission revelation in Ulip advertisements

To improve transparency in unit-linked insurance products (Ulips) and protect the interest of policyholders, the Insurance Regulatory and Development Authority (IrDA) has asked life insurers to release the underlying circumstances and elements while advertising products.
“A review of the advertisements, particularly those relating to unit-linked life insurance products, reveal the necessity to improve the content and presentation in fulfillment with the provisions of the above referred regulation and guidelines,” said IrDA.
The regulator said when an insurance advertisement is highlighting the benefit of guarantees; it obviously needs to disclose the underlying environment under which the guarantee operates, including cost of guarantee and charges.
Further, Irda said if the underlying conditions are very complex, the text, wording on guarantee must be accompanied by the phrase “Conditions Apply” in a font that is at least 50(%) per cent of the font size used to highlight the guarantee.
The advertisement will also have to clearly state the availability of underlying elements of ‘life insurance coverage’ to help identify the product as an insurance product.
It has warned against brand names of products that use terms or phrases that convey a fictional sense of security.

Returns on Ulip pension plans put to increase

As Irda refuses to move on guaranteed returns.

The Insurance Regulatory and Development Authority (Irda) has fixed to its guns on returns from unit linked pension plans. Despite several representations from the industry, the monitor has decided that insurers will have to provide guaranteed returns of 4.5(%) per cent on gross premiums until March 11, 2011.

After that, returns will be linked to the overturn repo rate or the rate at which banks deposit their extra funds with the Reserve Bank of India for a day. Investors will get half a percentage point more than the standard reverse repo rate at the end of each quarter. In a note to insurance companies, the regulator said returns will be in the range of 3(%) per cent to 6(%) per cent.
This move will result in increased returns for investors after the new rules come into result from September 1.
On group pension plans, the guaranteed return will be applicable to individual contributions made to group pension products, if the agreement has been in force for 5 years continuously. After failing to reduce the rate of return earlier, insurers had in a meeting held a fortnight back with the regulator, requested that the 4.5(%) per cent should be paid on the net premium. But Irda rejected this request.
Insurers are as expected unhappy. “Managing this return on gross premium will make the product costlier by 2(%) per cent. We wanted return to be subjected to net premium,” said an actuary of a large insurance company.
In another significant explanation to its June 28 circular, Irda has asked insurance companies to come to a formula while charging the premium allocation and premium management charges during the first 5 years of the policy contract. “The charges could change from year-to-year in a logically, orderly manner so that the difference between the maximum and the minimum charges shall not vary by more than 1.5 times,” Irda said. For instance, if the charge in the 5th year is say, 10(%) per cent, the first year’s charge cannot exceed 15(%) per cent.
In another clarification, Irda said the top-up premiums on unit-linked insurance plans (Ulips) will not be based on the entry age, but on the age at which the top-up premium is paid. “The top-up premium will also have a lock-in period of 5 years. Policyholders will not be allowed to top-up the premium during the last 5 years of the term. The contractual premium payable by the policyholder cannot be altered during the policy term,” IrDA has said.

CUP OF JOY

# Guaranteed return on unit linked pension plans to be in the range of 3-6 per cent

# Returns will be 50 bps above the average of reverse repo rate at the end of each quarter

# Charges to be evenly distributed in the first five years of the policy term

# Charges could change in evenly manner, should not vary more than 1.5 per cent

# Life cover on top-up premium to be based at the age of payment and not at the entry age
For example, if a person wants to top-up his premium under the present norms, his premium will go into the investible corpus. Under the revised norms, he will not be allowed to pay a top-up premium in the initial 5 years. After that, when he pays a top-up premium on the existing policy, he will be provided a life cover based on his existing age, not the entry age. This implies that the mortality rate would come into play and the policyholder will have to pay a higher amount.
While loans have been allowed against policies, insurers can now charge interest.

Birla Sun Life Insurance rides Ulips to timepiece profit

Increased focus on unit linked life insurance plans has helped Birla Sun Life Insurance Company book net profit for the first point in 10 years for the quarter ended June 2010.

This happens at a time when the unit-linked insurance products (Ulips) face many dogmatic hurdles.

For the April-June quarter, the company posted a net profit of Rs 9 crore beside net loss of Rs 111 crore in equivalent period previous financial years.

“The company is working on reinforcing the Ulip as a long term protection cum savings product,” the company said in its release.

The Bachat (Endowment) plan launched in May this year is garnering positive reply from investors, the release said.

The company has more than 85(%) per cent of the their portfolio in Ulips, while traditional plans amount to a sub-15(%) per cent.

While the new business premium saw 7(%) per cent increase, the renewal premium helped the revenue growth with a 27(%) per cent increase. The new business premium grew to Rs 473 crore and the renewal grew to Rs 669 crore for the financial year ended March 2010.

The company recorded a growth of 18(%) per cent in total premium income at Rs 1,143 crore. Assets under management (AUM) of the company scaled up by 44(%) per cent to Rs 16,841 crore.

The company’s value of new business margin (NBM) grew from 20.3(%) per cent last year to 22.5(%) per cent this financial year. The company made the public admission of its fixed value of Rs 3,816 crore as on March 2010, up 25(%) per cent year on year.

Embedded value is the future value of the present business (in-force policies) of the life insurance company.

Get more information Life Insurance