New Delhi: In a bid to ensure higher transparency, firms selling unit-linked insurance policies (Ulips) will from July use a uniform method to calculate charges.
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Ulips provide life cover and invest part of the premium in stocks and bonds. In most cases, the sum assured in the policy varies according to the value of its underlying assets.
Currently, life insurance firms do not follow a standard method to calculate various charges included in the Ulips they sell. This has led to concerns that customers may be kept in the dark about the actual cost of Ulips.
India’s Life Insurance Council, which has as members all local life insurers, is scheduled to meet later this month to discuss the proposed fee structure, which is likely to have six types of charges and a standard method of calculating each of them.
“We are going to discuss it this month in our next meeting,” said S.B. Mathur, secretary general of the council. “After approval from all members, we are going to adopt it from July.”
“The council has been talking about it and as a member of the council we are supportive of the move,” said Rajesh Sud, managing director of Max New York Life Insurance Co. Ltd, a joint venture of Max India Ltd and New York Life Insurance Co. “It will bring more clarity for policyholders.”
The six types of charges proposed under the new structure includes premium-related charges such as agent’s commission, withdrawal fees, insurance charges such as mortality and riders, fund-related charges including management fees, policy administration charges, and specific service charges.
The proposal also suggests a standard method of calculating these charges. For instance, premium-related charges would be based on a percentage of the premium paid, withdrawal fees on a percentage of the first-year premium or percentage of the amount withdrawn, fund-related charges on a percentage of the unit-linked fund, policy charges either as a fixed rupee charge or based on a percentage of the first-year premium or sum assured, and specific service charges based on transaction cost.
Ulips account for 80-90% of total new business premium collected by private life insurers. For Life Insurance Corp. of India, or LIC, the country’s largest life insurer, they constitute around 65% of new business premium.
Progressive move:Rajesh Sud, managing director, Max New York Life Insurance, has said the move will clarify matters for policyholders. Ramesh Pathania / Mint
“It’s a progressive move that the council is making and does not need regulatory approval. Generally, regulators are present in these meeting and they are always supportive of these reforms,” Sud said.
The life insurance industry registered a 10% fall in new premium income in the fiscal year ended 31 March compared with the preceding fiscal, led by a slump in demand for Ulips.
LIC’s new premium income fell 23% from the previous year to Rs18,070 crore. Life insurers collected a combined Rs44,688 crore in new premium income in the fiscal year gone by.
It was the first time since the insurance sector was opened up to private firms in 2001 that the industry closed a year with a fall in new premium income.