New Delhi: India’s insurance regulator, the Insurance Regulatory and Development Authority (Irda), said on Tuesday that health and motor insurance policyholders may soon be allowed to switch providers.
Irda chairman J. Hari Narayan said the regulator is working on guidelines to allow such non-life policyholders policy portability, or the option to switch their insurance firms, without needing to change the terms and conditions of their existing policies.
Better services: J. Hari Narayan says Irda is considering mandating portability across all the products in the health space. Bharath Sai / Mint
“In the health space, we are considering mandating portability across products,” he said,
Portability has been a longstanding demand of the insurance industry, but is barred under current norms. If the new move does go through, it could provide significant relief to policyholders in terms of switching providers, depending on time and location.
“For instance, in health insurance, some companies allow claims against certain set of ailments after one year of inception of a policy, some allow it after two years, some after three years and so on. Portability will enable policyholders to avail the best of services as per their needs at a given point of time,” Hari Narayan said on the sidelines of the 13th Insurance Summit organized in Mumbai by the Confederation of Indian Industry (CII).
Globally, most countries allow portability. “In America,” Hari Narayan said, “it’s half and half. Out of the 50-odd states one half mandates portability. The other doesn’t. In order to make products better and build confidence among policy holders, (we should) mandate portability”.
There are currently 23 non-life insurers in India. During the April-July period this year, the industry underwrote a gross premium of Rs 15,942 crore, 22.3% higher than the Rs 13,035 crore in the corresponding period last year.
According to industry estimates, over 80% of the industry’s sales comes from health and motor insurance policies.
Portability will allow customers to choose a provider without having to forfeit the prominent features of an existing policy. But as a practice, portability has been problematic in other service industries, too, particularly telecom, where number portability is still not permitted in India.
Since portability allows customers to choose their providers as per both needs and market conditions, allowing it could also be useful in unit-linked insurance policies, or Ulips. Ulips are hybrid products that combine insurance with an element of equity investment.
These products are similar to mutual funds, where the returns vary depending on the markets and selection of stocks. Ulip holders will be able to switch investments from one scheme to another if portability is permitted.
Currently, portability is barred in both mutual funds and Ulips.
“In Ulips, we will have to ensure that there is not significant churn. Once you have it, the person who will be negatively impacted will be the policyholder. That is why we have stipulated a five-year lock-in in Ulips,” Hari Narayan said.
The regulator is also working on guidelines for mergers and acquisitions and Ulip-like norms for so-called universal life policies.
“We are working on the guidelines required to regulate these products and they will be put out soon,” he said.
In a universal life policy, part of the premium in such policies buys life insurance, while the rest is invested in bonds or equities. The key difference between Ulips and universal life policies is that both the premium and the cover benefits are variable in the latter.
Also, an investor in a universal life policy runs the risk of the policy lapsing if s/he is unable to meet premium payments, which can rise through the tenure of the policy.