India: Life Insurance Product Regulations: Exposure Draft Issued

Last Updated: 5 December 2018
Article by Celia Jenkins and Swathi Ramakrishnan

The forms and design of life insurance products in India has been regulated through various guidance issued by IRDAI from time to time. By way of illustration, the IRDAI, had issued guidelines on group insurance policies and ULIPs, the latter of which was amended and updated from time to time. In 2013, the IRDA (Linked Insurance Products) Regulations 2013 and IRDAI (Non-Linked Products) Regulations 2013 were issued for unit linked and non-linked insurance products respectively, which consolidated the provisions for types, design and operations of linked and non-linked life insurance products.

Recently, considering the changing trends in innovation in methods of placing products in the market, novelties in product structures and product benefits, the IRDAI constituted a committee on 13th January 2017 to review the IRDA (Linked Insurance Products) Regulations 2013 and IRDAI (Non-Linked Products) Regulations 2013. The committee released its recommendations on 26th October 2018.

Based on the recommendations of the committee and the feedback received, the IRDAI recently released an exposure draft of IRDAI (Linked Insurance Products) Regulations 2018 and the IRDAI (Non-Linked Products) Regulations 2018 (collectively referred to as Draft Regulations) to seek comments and suggestions from the various stakeholders.

Key Highlights

The key highlights proposed by the Draft Regulations are as follows:

IRDA (Linked Insurance Products) Regulations 2013

  • The minimum sum assured for death benefit has been made seven times the annualized premium for regular premium products and 1.25 percent of the single premium for single premium products for all ages;
  • With respect to pension products, on surrender or vesting, the policyholder shall have an option to commute up to 60% of the proceeds of the policy;
  • Linked pension products will offer a facility for partial withdrawal up to 25% of the fund value at the time of partial withdrawal, subject to the conditions stipulated therein;
  • Open market option shall be allowed in respect of annuities;
  • Settlement option period shall be extended to ten years or the original policy term whichever is lower;
  • Switches are now to be allowed during the settlement period in order to help policyholders to manage their funds better in a volatile market situation;
  • Provisions governing group products have been modified to allow a wider range of products to better suit customer requirements;
  • The category of linked variable insurance products has been removed as the linked product structure addresses the requirements in a better manner.

IRDA (Non-Linked Insurance Products) Regulations 2013

  • The minimum death benefit has been made seven times the annualized premium for regular premium products and 1.25 times the single premium for single premium products for all ages;
  • Non-linked policies shall acquire a guaranteed surrender value after 2 years;
  • The revival period for non-linked products has been extended to 5 years from the current 2 year period;
  • Pension products, on surrender or vesting, the policyholder shall have an option for commutation up to 60% of the proceeds of the policy;
  • Open market option shall be allowed in respect of annuities;
  • Insurers can now design individual term, group term, credit and micro insurance products which offer a range of policy terms;
  • The provisions relating to non-linked variable insurance products are simplified;
  • Provisions for 'With Profit Management Committee' have been revised, to include more details on its working. Eligibility criteria for the independent actuary has also been introduced.

In addition, the provisions dealing with operational aspects have now been removed from the IRDA (Linked Insurance Products) Regulations 2013 and IRDAI (Non-Linked Products) Regulations 2013 in order that separate instructions can be issued from time to time by the IRDAI, keeping in view the emerging requirements.

Concluding Remarks

The IRDAI has sought comments and suggestions on the Draft Regulations from all stakeholders. It will be interesting to see how the Draft Regulations are received by Life Insurers in the market. It also remains to be seen if the Draft Regulations will be finalised and issued by the IRDAI in their present form or if any amendments will be made to the Draft Regulations in light of the comments received from various stakeholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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