Page 11 - Insurance Times January 2024

more opportunities and better returns
IRDAI proposes limit on surrender charges for non-
such as through investments in fund of
linked plans funds (FoF) of alternative investment
IRDAI has released a set of draft product regulations that will force insurers funds (AIFs) and REITs and InvITs. Fur-
to review their profit margins and rejig distributor commissions. In this draft ther, acknowledging the role of tech-
circular, the regulator has suggested changes in surrender value rules for nology in insurance, IRDAI has set up a
non-linked life insurance policies. dedicated insurtech mission team
which is working on technology initia-
Under the current draft IRDAI regulations on non-linked insurance products,
tives for the sector.
surrender values are determined based on a percentage of premiums paid by
the policyholder, which increases with the number of premiums paid. For
instance, surrendering the policy in the first year yields no surrender value, IRDAI diktat weigh on life
but it increases to 30% for the second year, 35% in third year and so on.
insurance stocks
The existing framework aims to provide only a percentage of surrender value
Bucking the overall positive market
based on the premiums paid. trend, life insurance stocks declined by
up to 8 per cent after the IRDAI pro-
tions for such situations," said one of According to sources, the objectives be- posed a higher surrender value for life
the persons, pointing out that insurance hind this move are to curb mis-selling by insurance companies.
companies did not have large capital forcing insurers to spread out commis-
reserves and could not price in such sions that are currently bunched in the In the last two days, the stock of Life
Insurance Corporation (LIC) slipped by
risks. As per a recent industry report, first year and to ensure that insurers do
around 498 catastrophic claims are out- their best to increase persistency. 1 per cent to finish at Rs 796.4, while
standing amounting to Rs. 1,640 crore. SBI Life Insurance dropped by 1 per cent
to settle at Rs 1452.6, and HDFC Life
Insurance sector to shift to Insurance declined by 3.6 per cent to
Surrender Value in Life In-
RBC, Ind-AS by 2025 finish at Rs 673.1.
surance to increase The insurance sector is expected to tran- ICICI Prudential Life Insurance stock also

IRDAI has proposed new rules to pro- sition to the risk-based capital (RBC) re- bore the brunt. It tumbled to Rs 519.40
tect policyholders' interests under gime and the Ind-AS accounting standard (a 4.2 per cent fall) and Max Financial
which insurance companies will have to by 2025, which will help the sector align Services ended at Rs 973.3 (a 7.9 per
substantially increase the amount they with global standards under International cent decline).
pay to customers who choose to discon- Financial Reporting Standards (IFRS),
tinue their scheme early in the term. IRDAI Chairman Debasish Panda said. The proposed increase in surrender
charges will affect the profitability and
Insurers have a tough choice to make - "Efforts are now being directed to- Value of New Business Premium (VNB)
lower sales or lower profits - to tackle wards adopting the risk-based capital margin of the companies, analysts said.
premature closure of policies. If insur- regime which will bring about efficient
ers create room for higher payouts by utilisation of capital and align with the "The IRDAI released a circular that talks
cutting commissions, it could affect global standards of accounting and re- about increasing surrender values in
sales, and if they retain commission or porting by implementing the Ind-AS the life insurance par and non-par prod-
pay higher, they will lose on profits. As which is the converged IFRS," Panda uct categories. This would affect the
a result, shares of listed private life in- said at a seminar by National Insurance VNB margins for the life insurance com-
surers fell - HDFC Life was down 1.9%, Academy (NIA). panies and that's why the stocks have
while ICICI Prudential Life dropped "Dedicated mission mode teams are not done well in the last two days,"
1.8%. working at full throttle in this direction Suresh Ganapathy, managing director
The regulator has not prescribed the and we expect we should be able to and head of financial services research
threshold value but, in an illustration, transition to the RBC regime as well as at Macquarie Capital.
indicated that the surrender value converge with IFRS by 2025," he said. IRDAI released an exposure draft that
would have to go up nearly 1.8 times The regulator is also working to "re- proposed to reduce surrender charges
than the current level in the second vamp" the framework for insurance in- on life insurance products, especially
year and 0.8 higher in the fifth year. vestments, thus paving the way for non-par savings products.

The Insurance Times January 2024 11