Several individuals familiar with the matter have indicated that life insurance firms are intending to request a three-month extension from the regulator for the enforcement of surrender value regulations. The introduction of new regulations may potentially cause a delay in the launch of new products, as they are required to be in place by September 30, 2024.
It has been reported that insurers will require additional time to address the logistical challenge of revising traditional products and renegotiating commercials with distributors on the revised products.
In June, the Insurance Regulatory and Development Authority of India (Irdai) released the ‘Master Circular on Life Insurance Products’, which implemented regulations to improve payouts for customers who prematurely terminate their policies.
Life insurance companies are now required to offer an increased special surrender value (SSV) to policyholders who surrender their policies after the first year, as long as they have paid a full year’s premium. Previously, insurers did not provide this enhanced value to customers surrendering their policies within the first year.
Furthermore, the regulations specify that the discount rate for discounting the paid-up value in order to calculate SSV may be permitted to be up to 50 basis points (bps) higher than the 10-year G-Sec yield. Overhauling all of the conventional products in line with the new surrender value regulations, and renegotiating terms with the distributors within the specified timeframe, presents a significant challenge.
Consequently, the industry is aiming to obtain an extension for the deadline to implement the new regulations, according to one source. Another source suggested that insurers are expected to request an extension beyond the end of September, as the industry will need additional time to re-price and re-file existing products. “Furthermore, the integration of these products into the platform and the training of distributors will also necessitate time. It represents a complete overhaul of the entire system,” the source remarked.
Life insurance companies will need to make adjustments to their current products and refile them in accordance with the new regulations, which include modifying offerings and commission payouts to distributors.
Numerous analysts have suggested that due to the necessity for life insurers to increase surrender value on non-linked products, customers’ internal rate of return (IRR) may decrease.
Industry experts anticipate that the introduction of the new surrender value regulations will lead to a decrease in the number of new product releases in the current quarter, particularly within the non-linked sector. They further mentioned that new non-linked products will need to adhere to the updated surrender value guidelines.
The life insurer mentioned that there is a high probability of a decrease in new product launches in the industry during this period. They also stated that more products are expected to be introduced after September, as insurers will be preoccupied with adjusting or reevaluating their current products to comply with the new regulations. This process of recalculation is anticipated to consume a significant amount of their time.
Saurabh Bhalerao, associate director at CareEdge Ratings, mentioned that the industry must adhere to the new surrender value regulations by October 1, 2024. He pointed out that there could be some constraints during this period as companies are preoccupied with repricing and replenishing their current offerings. While there may be a reevaluation of products, the introduction of new products is expected to progress at a slower pace during this timeframe.
In June, the life insurance industry had a total of 917 products, compared to 927 products in May. The number of products offered by private life insurers decreased from 875 in May to 865 in June, as reported by the Life Insurance Council.
Bikash Choudhary, the chief actuarial and governance officer at IndiaFirst Life, emphasized the industry’s dedication to introducing new products that adhere to the latest surrender value regulations, as well as making adjustments to current policies.
