A majority of the existing products may need to be re-filed with IRDAI to adhere to the proposed changes
In January 2014, the entire product portfolio of life insurance companies had to be withdrawn and new products introduced. Almost five years later, the industry is staring at a similar situation after the product regulation for life insurance policies have been modified. The regulations that are likely to be finalised in the next two weeks will require life insurers to have a re-look at their product portfolio and refile products.
Industry sources said that the regulator may give upto 8-10 months to refile products. "We want a longer time period to implement the changes so that the industry has time to have adequate products to sell. During the last change cycle, we were left with only two products for the initial few months," said the head of products at a mid-sized life insurer.
As of September 2018, life insurers had 798 products, of which 603 were individual products and 193 group insurance products. Insurance Regulatory and Development Authority of India (IRDAI) has tweaked the product structure for traditional as well as unit-linked insurance products (Ulips).
Product regulation changes were notified in February 2013 but insurers had time till January 2014 to implement the changes. This time too, insurers may need one year to completely replace the older products, though this will lead to a temporary shortage in the market.
"Since 2013, there were significant changes in the trends in product structures driven by customers' needs, wants and preferences. The industry was also representing to review the various provisions of the current product regulations to ensure insurance products cope with the dynamism of the market," said IRDAI.
The 2013 reforms and impact
IRDAI brought out a new set of guidelines for life insurance products in February 2013. While this was initially supposed to be implemented from October 1 of that year, life insurers were given an additional three months extension to adhere to the guidelines.
In the new rules, IRDAI had increased the minimum death benefit and surrender value to incentivise customers who stayed invested in a traditional policy for a longer period. In the case of Ulips, insurers had to inform customers about the changes in the yield of the Ulip on a monthly basis. Further, the rules had also banned the sale of highest NAV products on the grounds that these were not in the customer interest.
After life insurers were told to refile the products to conform to the changes, there was a sudden dearth of products available in the market.
On the other hand, the regulator’s office was flooded with applications for product approvals. Insurers follow a file-and-use process for launching new products. This means the new product with details of its pricing structure, returns and features has to be sent for approval to IRDAI and can be sold only after getting a regulatory nod.
Large insurers like Life Insurance Corporation of India (LIC) faced a major hit from the regulations. From 60, the number of products available for sale went down sharply to 16.
The 2018 regulations and how it will affect customers
In the draft norms released two weeks ago, IRDAI has said that life insurance companies will be able to offer flexible policy tenures for certain products. IRDAI also said that insurers can design term, credit life and micro-insurance products that have a range of policy tenures to choose from.
IRDAI had constituted a committee for reviewing the product regulations in the life insurance sector. Based on the report and comments from stakeholders, the regulator has brought out the draft regulations.
Insurers have time till November 15 to suggest any reforms in the draft, post which the final regulation will be published. Post this, the products teams of insurance companies have to review each policy that they sell to verify if they adhere to the new norms.
If they don’t, the insurers will be required to make changes and re-file the product with IRDAI. Similar to the last time, IRDAI will have a large team looking into the products and giving approvals.
Considering the number of products and the 24 life insurance companies who will be in a rush to get their products approved first, there could be intermittent periods where customers will have a limited choice of products to buy.
“Another area of concern is what will happen to the products that have been sold on certain conditions. Will the policyholder have to be informed about the changes and be sold a different product?,” said the chief executive of a private life insurer.
The regulations have not clarified what will happen to policies already sold to customers. For instance, in the pension product category, IRDAI has given the option for partial withdrawal for those linked to the equity markets. Since the products sold to customers do not have these features, to avail of the features, a customer may need to buy a new product.
