IRDA to put an end to high NAV guaranteed products
IRDA chairman said the new product regime, as and when they come into force with different dates to stagger the implementation, gives time to insurance companies to readjust their processes.
The Insurance Regulatory and Development Authority chairman J. Hari Narayan said such products were in fact discouraged in several markets across the globe in view of their easy miscommunication. He was talking to reporters in Hyderabad on Monday on the sidelines of a program of ICICI Lombard General Insurance and Institute of Insurance and Risk Management.
Hari Narayan said the highest NAV guaranteed product is easy to mislead a consumer into what he is buying with a communication problem inherent in the nature of that product. "What is deemed to be highest NAV should not be confused with what is the highest index or how the market is performing. Highest NAV products tend to become debt products in order to maintain the guarantee, whereas when the marketing of such products takes place the consumer is left with the feeling that it grows along with the value of the market itself."
An analyst with a Mumbai-based brokerage, who did not want to be named, said the life insurance sector had shifted its focus to NAV guaranteed products after IRDA restricted sale of unit-linked insurance plans (Ulip) in September 2010. "The NAV guaranteed products now account for nearly 20% of life insurance sector's new premium income and the IRDA move to ban them could impact the industry's volume growth," he said.
The IRDA chairman said the new product regime, as and when they come into force with different dates to stagger the implementation, gives time to insurance companies to readjust their processes.
"In the new product regime, we don't envisage clearing highest NAV products. But existing products of that nature can continue to be serviced to give whatever benefits the scheme had promised till the end of the policy tenure," said Hari Narayan.
A senior executive with a leading life insurance company said the IRDA decision was expected as the regulator has been discouraging clearing such high NAV products over the last 18-24 months though there was no official ban.
The IRDA chairman said the new product guidelines were considered by the advisory committee in its last meeting and the Authority is set to meet on February 8 after which they will be gazetted. On views of a section of the life insurance sector seeking to postpone new guidelines in view of subdued market conditions, Hari Narayan said, "I think it is a good idea to bring out new models when the industry is down."
On the outlook for the Indian insurance industry during the current fiscal, the regulator said while the life insurance sector could see flat growth, the general insurance sector would exceed expectations and see a growth of at least 18%. For the nine months period ended December, the life sector saw a marginal overall decrease in total premium.