IRDA writes new norms for insurance agents

Insurance Regulatory and Development Authority (IRDA) now wants a complete overhaul of the rule governing insurance agents. CNBC-TV18’s Avni Raja reports that the insurance regulator is pushing for a change in rules so that insurance is sold as long-term products. 

Insurance agents will now be bound by new rules laid down by the insurance regulator IRDA. The idea behind the regulations is to encourage investors to stay invested in the long-term. These rules are aimed at reducing the surrender rate and the number of policies that lapse. So what is the regulator proposing?

If any agency's annual persistency ratio is less that 50%, the agency's license will not be renewed.  Persistency ratio is a measure of the number of policyholders who stick on to the period of the policy. Every agent will have to sell at least 20 policies and procure a minimum of 1.5 lakh new business premium every year.

Family members of employees of insurers cannot be recruited as agents by the same insurer. And finally, in case a policy lapses, the agent's commission will be withheld in the first year and paid only on the basis of persistency in later years. 

IRDA data reveals that the current persistency rate in the industry through agents is not very high. One in five policies sold lapse in the first year itself. By the 5th year, nearly half of the policies sold end up lapsing.

 

Source - http://www.moneycontrol.com/news/economy/irda-writes-new-norms-for-insurance-agents-_471155.html

Now, check out more options for pension plans

Those buying pension plans from insurance companies may soon find the returns are too low. The minimum guaranteed return - 4.5 per cent (subject to change) - is unlikely to beat inflation. This is not comforting for someone looking at building a retirement corpus through a pension plan.

The new-look pension plans, according to the Insurance Development and Regulatory Authority guidelines, will be launched from September 1.

"This will protect investors' lifetime savings from adverse fluctuations at the time of maturity," Irda had said while issuing the guidelines.

The only section that feels this guaranteed return - higher than the 3.5 per cent that savings deposits offer - is too high is the insurance community itself. According to reports, insurers plan to approach the regulator to reduce this rate.

"Due to the regulation, companies will have to channelise their strategies to ensure guaranteed returns on regular premium plans. Investments in equity instruments will become limited or even nil. This product will lose appeal," said G N Agarwal, chief actuary, Future Generali India, Life Insurance Company. Agarwal said a person needed prominent equity investments to get returns that could beat inflation.

While the guaranteed return is quite low, the regulator has also taken other steps that will result in forced savings for the buyer. For one, the policyholder will not be allowed partial withdrawals during the tenure of the policy.

On maturity, the pensioner can commute up to one-third of the corpus in hand. For the remaining two-thirds, Irda said: "The insurer shall convert the accumulated fund value into an annuity at maturity." The same applies even to a person who surrenders the policy midway.

"All other guidelines for Ulips apply to retirement products, too. These include distribution of overall charges evenly during the lock-in period, a cap on charges and a lock-in for five years," said the head of product development at a life insurance company.

In comparison, there are other pension products that offer better returns. For example, UTI Mutual Fund and Franklin Templeton Mutual Fund have one pension scheme each. Both have a debt-equity ratio of 60:40.

Templeton India Pension has returned 13.85 per cent annually since its launch over 13 years ago. UTI Retirement Benefit Pension has given returns of 11.53 per cent in over 15 years since its launch in December 1994.

The Franklin Templeton Mutual Fund scheme allows withdrawal after 1,095 days (three years). UTI Mutual Fund's scheme offers two options — a three-year lock-in or no lock-in. The three-year lock-in scheme gives tax benefit.

Then, there is the public provident (PPF) fund and the employee provident fund (EPF). These two work out to be better options because of their impressive returns of 8.5 per cent (EPF) and eight per cent (PPF), respectively.

The amount accumulated in EPF is paid at the time of retirement. When a person changes a job, he can either withdraw the entire amount or get the account transferred to the new organisation. The tenure of a PPF account is 15 years and an employee can extend it by another five. A PPF account holder can also make partial withdrawals.

The three options - mutual funds, EPF and PPF - give the pensioner the freedom to plan investments after retirement at will.

On the other hand, a Ulip pension plan will allow only one-third of the corpus to be commuted, as the rest will have to be used to purchase an annuity. Moreover, annuity plans have their own drawbacks.

For example, if a person opts for a plan where the spouse should continue to get money after his demise, the payout will be lower.

"Someone who wants the same comfort earlier pension plans offered can look at the New Pension Scheme (NPS)," said Malhar Majumder, a certified financial planner. NPS is equally tax effective and offers life-stage investing – the equity-debt allocation changes with age.

Source - http://business.rediff.com/report/2010/jul/06/perfin-look-at-other-options-for-pension-needs.htm

IRDA increases lock-in period for ULIPs to 5 yrs

The much awaited guidelines for Unit Linked Insurance Plans or ULIPs are finally out. These guidelines come on the back of the ordinance that brought ULIPs under the jurisdiction of the insurance regulator Insurance Regulatory and Development Authority or IRDA, and put an end to the dispute between markets regulator SEBI and IRDA, reports CNBC-TV18’s Avni Raja.

The most important thing coming out of the guidelines is that the lock-in period for ULIPs have been increased from three to five years. This has largely been done because IRDA wants to ensure that ULIPs are treated as a long term insurance product and not as any short term product. All ULIPs, except pension, are annuity products and have to have either a mortality cover or a health cover.

Any top up on insurance premiums will be treated as a single premium, which means that every top up that one makes will have to have an additional insurance cover backing it as well.

As far as pension and annuity products are concerned, there will be no partial withdrawals allowed. However, these pension annuity products need not have either a life or a health cover but it compulsorily will have to be turned into an annuity on maturity.

Also, these pension annuity products will have to offer a minimum guarantee of 4.5% per annum or as the regulator suggests going forward. As far as loans are concerned, up to 40% of the NAV can be taken as a loan but it has to be an equity oriented ULIP where more than 60% is equity oriented.

The charge structure is a little complex as the insurer has to distribute the charges evenly across the entire tenure of the products. A lot of frontloading of charges has existed till now. But now that will no longer be the case and one will be able to frontload only to the extent of the first four years. After that the regulator has set out for each year how much the charge will be levied. For example for the fifth year it will be 4%, for the sixth year it will be 3.75% and so on. This will ensure that no consumer gets affected if they surrender the policy after the fifth year.

The new guidelines will be effective from the September 1 to give the companies enough time to adhere to them.

Source - http://www.moneycontrol.com/news/cnbc-tv18-comments/irda-increases-lock-in-period-for-ulips-to-5-yrs-_466745.html