All set for new, improved cover

As the calendar flips over to January 2011, you, as an insurance consumer, will be walking into a new world of life cover. Strong and definitive regulatory measures by the Insurance Regulatory and Development Authority (Irda), spread over 2010, promise to leave an imprint on the industry. Now, insurance firms have been forced to shift focus from their bottom lines to the consumer.

Protection products, lower charges, higher returns on marketlinked plans, a less burdensome exit and curbs on mis-selling will determine the altered life insurance landscape. The new norms on unitlinked products came into force on 1 September 2010. Insurers feel that premium rates might come down as competition becomes tougher, resulting in companies resorting to cutting charges and an improvement in the mortality scenario in the country.

Rs 54,376 cr was the Ulip premium accumulated from new business between January and September 2010. Rs 40,665 cr was the renewable premium for Ulips between January and September last year.

The avalanche of changes came hurtling down in April after the capital market regulator, Securities and Exchange Board of India (Sebi), challenged the authority of its insurance counterpart over unitlinked insurance plans (Ulips). Sebi sought regulatory control of Ulips because of its strong investment component, which made it similar to mutual fund schemes.

The dispute was resolved through intervention by the government. What followed was a series of regulatory changes by the Irda. The overhaul of its Ulip regulations in July was the one that changed the way life insurers conducted business. The new guidelines also put a cap on charges, decided on a minimum mortality cover and increased the lock-in period.

Incidentally, Ulips constituted nearly 50 per cent of the business conducted by life insurers in 2009-10, while it was much higher for some companies. In previous years, premiums from Ulips had been as high as 75 per cent of the total industry premium. Towards the end of the year, norms were laid down for variable insurance products (VIPs) as well, tilting the balance towards the consumer.

Meanwhile, stringent guidelines were framed on redressing consumer grievances and a ban was placed on outsourcing of core functions, such as investment, product design and client servicing. The regulator felt outsourcing went against the guidelines on protection of policyholders.

While the consumer has emerged the winner in the tussle, the insurance industry, despite its disagreement with the regulator on Ulips and VIPs, is not complaining. In fact, there appears to be a muted admiration for the regulator in certain quarters for having taken on the might of the industry.

The new norms will make it easier for customers to buy insurance products from an investment perspective Deepak Sood CEO & MD, Future Generali Life Insurance

Says T.R. Ramachandran, CEO and managing director, Aviva Life Insurance: "Consumers can look forward to a new suite of products, which will be friendlier and without jargon. Charges have become very reasonable. The insurance regulator has tried to demystify Ulips and has made them more transparent from the customer's perspective. "So products have become more standardised because the quantum and nomenclature of charges are now common. Consequently, from a consumer's point of view, comparing products has become a lot easier. Charges are practically on a level playing field."

Lower charges, which would mean a higher allocation from the premium towards investment, will improve yields for policyholders. "Yields might improve by as much 4 per cent," says Ramachandran. Rajesh Sud, CEO and managing director, Max New York Life Insurance, says that consumers will definitely have a better deal going forward. "The industry is headed towards serving customers with a stronger value proposition, higher transparency and by differentiating life insurance as a unique product. In the past, it was confused with mutual funds and investments," says Sud.