The insurance regulator has taken a "very balanced approach" while announcing the new surrender-value regulations, according to Tarun Chugh, chief executive officer of Bajaj Allianz Life Insurance Co.
The Insurance Regulatory and Development Authority of India has notified the final regulations surrounding the surrender value of life insurance policies, and they are a watered-down version of the December draft. The new regulations will come into effect on April 1. Surrender value is the amount received by the policyholder on surrender of the policy without completing its full tenure.
"The new regulations are largely neutral for companies," Chugh told NDTV Profit in an interview.
The revised regulations have led to changes in special surrender values, and the modification could impact non-participating plans, according to Chugh. While there may be a slight impact on the value of new business margins for insurance companies, it will be far less than the threshold concept proposed in the December draft.
Balanced Guidelines
The draft proposed by the regulator in December allowed immediate surrender of life insurance policies, versus the current situation where surrender value is to be paid from the second year onwards.
Most insurance plans invest 20–25% of the amount in equity, Chugh explained. Immediate surrender would require insurers to maintain more liquidity and also impact the internal rate of return that a customer would earn on his policy on maturity.
"All in all, balanced guidelines for both customers and insurers," he said.
New Products
For the special surrender-value concept, Chugh said a special segment of products allowing more liquidity would be launched.
This second category of highly liquid life insurance plans would provide slightly lower returns. This is because the insurer would invest very little in equity to maintain liquidity for surrender. Also, premiums for the new category of products would be higher.
While such plans are not in existence yet, Chugh said they would be introduced by creating new versions of existing products. "It wouldn't take too long" to launch these products, he said.
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