IRDA moots norms for uniformity in unit-linked products 

Insurance Regulatory and Development Authority on Tuesday proposed a slew of regulations for life insurers aimed at bringing about better uniformity in their approach towards certain key parameters for unit linked insurance products such as revival, lapse and surrender of the policies to further protect the interests of the policy holders.

While describing the overall practices relating to ULIPs followed by Indian life insurers as “international best practices in vogue in the global market,” the insurance regulator, however, feels that there should be better uniformity in the approach on these key parameters. The cardinal objectives of the draft regulations are standardising the approach to be followed on lapse, revival and surrender of the linked policies by the insurers so that the interest of the policy holders are protected and providing for a ceiling on surrender charges instead of leaving it to the discretion of the insurers.

This initiative by IRDA assumes significance in the light of the spat between the insurance regulator and stock market regulator SEBI on ULIP practices. In 2009-10, the share of unit linked insurance business increased to 54.8 per cent from 50.95 per cent in the previous year. The authority has proposed that in case of policy lapse, the policy holder is entitled to either revive the policy, continue only to the extent of risk cover/ and as part of the fund or to withdraw completely from the fund without any risk cover. It wants insurers to issue notice to such a policy holder, asking him to exercise one of these options within 30 days.

Further, it has proposed that policy holders should be given an option to revive or reinstate the policy within a period of five years from the date on which the premium fell due.

On surrender charges, IRDA has observed that insurers are applying different charges while paying the surrender value to the insured. It has proposed that surrender charges (as percentage of fund value) should not exceed the new specified limits — first year: 12.50 per cent for policy period less than 10 years and 15 per cent for more than 10 years, second year: 10 per cent and 12.50 per cent, third year: 7.50 per cent and 10 per cent, fifth year 2.5 per cent and five per cent respectively.

Ref :- http://www.blonnet.com/2010/05/19/stories/2010051952791100.htm