Increase lock-in period, cut agent's commission: IRDA
New guidelines have been incorporated in the ULIPs which will be sold from September 1. The most important change is that the lock-in period will be increased from three to five years for all ULIPs. No residuary payments on policies which are lapsed, surrendered or discontinued will be made during this period. The residuary payments for policies arising out of policies which stand lapsed, surrendered or discontinued during the lock-in period shall be payable on the expiry of the lock-in period.
Any additional payments made will be treated as single premium for the purpose of insurance cover. All limited premium ULIPs, other than single premium products will have a premium paying term of at least five years. All ULIPs, other than pension and annuity products are mandated to provide a minimum mortality cover or a health cover. At no time the annual health cover will be less than 105 percent of the total premiums paid, according to the IRDA circular. All ULIPs pensions or annuity products shall offer a minimum guaranteed return of 4.5 percent per annum or as specified by IRDA from time to time, on the maturity date.
The maximum loan amount which can be sanctioned under any ULIP must not exceed 40 percent of the net asset value in those products where equity accounts for more than 60 percent of the total share and must not exceed 50 percent of the net asset value of those products where debt instruments accounts for more than 60 percent of the total share.
Kamesh Goyal, Country manager and CEO, Bajaj Allianz Life Insurance said that the ULIPs guidelines will hit the industry's profitability. "Now, ULIPs guidelines will totally skew cost structure. New model will kill the distributor model of ULIPs. The basic framework has been changed dramatically," said Goyal.
Some of the major changes like the lock-in period and compulsory annuitisation are welcomed. However, the capping of expenses guidelines have been made very stringent, and will have far-reaching consequences for the industry. "Small regular premium policies will become unviable; thus, large proportion of people who were paying premium of less than 15,000 or so a year will suffer badly. Secondly, the commission structure can't sustain an agent's income and agency channel will suffer badly. I hope we don't land up in a situation where product is very good but no one is willing to sell it," Goyal added.
"The game will change now as the companies will have to go back to their drawing board to discuss how much more capital they would require and how will they calibrate their expansion," said D Muralidharan, COO, Kotak Old Mutual Life Insurance.
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