Mumbai: Public sector behemoth Life Insurance Corporation of India (LIC) is about to close over two dozen individual insurance products, eight group insurance plans and seven-eight riders on November 30. Among the retail products that would be closed are some of LIC’s best sellers such as Jeevan Anand, Jeevan Umang, Jeevan Lakshya and Jeevan Labh.
These plans will be revised and relaunched in line with the insurance regulator’s revised customer-centric product guidelines in the course of the next few months. However, the newer products would have lower bonus rates and higher premium rates.
According to top industry sources, around 75-80 life insurance products of the entire industry would go off the shelf after November 30 as they remain non-compliant to the new non-linked and linked insurance product regulations issued on July 8 2019.
LIC’s insurance agents are pushing the existing products hard asking customers to buy them before they close on November 30.
A senior official from the Insurance Regulatory and Development Authority of India (Irdai) told Financial Chronicle, “We don’t see any disruption in the market. The insurers are on the job. Around 75-80 products may have been withdrawn by November 30 as they are not compliant. However, a significantly large number of products are compliant and would continue to be sold from December 1 with a tweak in pricing. Insurers will have to reprice the products within the bandwidth to manage their risk. In certain cases the premium rates can fall also.
“However please note that a ‘product withdrawn’ only means that it may not be ready to go to the market immediately but insurers can work on improving the withdrawn product in line with the (regulatory guidelines) and launch them back again. Also we have allowed companies to offer products under the “Use and File” category where they can sell the products to customers and later file it with us for verification and approval.”
The official added that the guidelines make insurance products “more customer-centric and curb mis-selling.”
M. R. Kumar, Chairman, LIC, told FC, “We will be closing some products, modifying them as per the new norms and then relaunching them in the coming months.”
Another LIC official said, “The Irdai has been liberal and offered insurers another extension of up to February to revise the remaining products. Our term plans and annuity plans are already compliant. However, around 25 individual plans, eight group products and seven to eight riders need to be closed and then revised and relaunched. It is a massive exercise as we will have to modify the product, prepare the policy documents, revise the benefit illustrations, change the software, train the agents to sell them. Time is a challenge, logistics and implementation will also be a challenge.
“The point is if you give customers a higher exit value, it would be at the expense of those who choose to continue their policies for longer term. If people are allowed to exit early, it will impact their maturity value. As per the existing norms, a policyholder can exit after three years but the new products have to pay surrender value from the 2nd year onwards. So while this will provide liquidity to policyholders, it will impact cashflows and bonus distribution. Also, interest rates are falling and any uncertainty (in the economy) could impact bonus rates.”
To discourage policyholders from surrendering policies early, the Irdai has increased the penalties for regular premium policies with an annualised premium between Rs 25,000 and Rs 50,000 and for single premium policies with premiums greater than Rs 25,000.
