With many life insurers not able to retain customers due to mis-selling, the regulator ,Irda has proposed that licence of an agent be cancelled if 50 per cent of the policies sold by him/her are not renewed annually.
“Where average annual persistency ratio is less than 50 per cent, the agency licence would not be renewed,” Insurance Regulatory and Development Authority (Irda) said in a draft. Mis-selling refers to sale of a financial instrument without fully disclosing the pros and cons of it to an investor.
In its proposal on persistency of life policies, Irda says the minimum first-year premium income to be procured by an agent will be Rs 1,50,000 per annum and the minimum number of policies per agent shall be 20 per annum. In case an agent fails to meet one of these two conditions, he will have to achieve proportionately more in the other norm to make up for the shortfall, it added. It also does not want spouses and close relatives of employees of insurers as agents.
In the last five years, persistency in the life insurance business has been on the decline, it says and has attributed this mainly to mis-selling. Persistency is the percentage of business retained without lapsing or being surrendered. “There are several causes for the decline in persistency that are linked to agents. The primary one is mis-selling,” Irda says.
Irda says if policyholders buy policies on the basis of good and proper advice, they would not normally give them up unless there are unforeseen circumstances. “But where a policy has been sold without proper advice, for instance on the actual cost or installments to be paid, they may have no option but to cease or reduce the premium,” Irda says.
Irda suggests that insurers would have to ensure that intermediaries are trained well to ensure proper servicing of policyholders. It also wants a part of an agent’s first-year commission be withheld to be paid later on good persistency.
It says the corporate agents route, excluding banking medium, has shown the poorest persistency rates in the first three policy years. “This indicates a scope to improve the quality of sales. However, again, to observe stable trends we would need data of a few more years,” it adds.
Another cause of lapse linked to agents is high attrition. “Where agents are groomed to become professionals and build a long-term career,attrition will be less and persistency would certainly be better.It is necessary to have an environment where agents take their career seriously,” says the paper.
Irda has asked various stakeholders and general public to submit their comments on these proposals by July 31.
It says these proposals would help protect the interests of policyholders.”Due to selective withdrawals, lapses,average mortality of remaining policyholders will make premiums insufficient to cover the risk,” it said.
I. Distribution channel related changes:
1. IRDA has amended the IRDA (Insurance Advertisements and Disclosure) Regulations to remove any scope for the involvement of unlicensed personnel/entities in the sale of insurance products.
2. IRDA has amended the IRDA ( Licensing of Corporate Agents) Regulations to further tighten the Code of Conduct of corporate agents to ensure that the prospect does not deal with any unlicensed person. The Regulations have also been amended to ensure that there is no scope for any kind of remuneration other than commission where sale has been effected. This measure will reduce the expenses of the insurer, thereby lowering premiums to be paid by the policyholder.
3. Regulations for referrals: IRDA has also addressed the issue of Referrals by bringing out separate Regulations leaving no scope for misuse of the system. Companies which wish to share their database of customers with insurers would need to get approval from IRDA after having conformed to the requirements as laid down in the Regulations. Further, there are restrictions on the business activities of the referral company to ensure that there is no misuse of the system. For instance, the referral company shall not be in any business of extending loans and advances or accepting deposits etc though there are exceptions such as for Regional Rural Banks, Co-operative banks etc. The Regulations cast obligations on the referral company as well as the insurer including submission of data as and when called for by the Authority.
II. ULIP STRUCTURE RELATED CHANGES:
(1) Lock in period increased to five years: IRDA has increased the lock-in period for all Unit Linked Products from three years to five years, including top-up premiums, thereby making them long term financial instruments which basically provide risk protection.
(2) Level Paying Premiums:Further, all regular premium /limited premium ULIPs shall have uniform/level paying premiums. Any additional payments shall be treated as single premium for the purpose of insurance cover.
(3). Even Distribution of Charges:Charges on ULIPs are mandated to be evenly distributed during the lock in period, to ensure that high front ending of expenses is eliminated.
(4). Minimum Premium Paying Term Of Five Years: All limited premium unit linked insurance products, other than single premium products shall have premium paying term of at least five years.
5). Increase In Risk Component:Further, all unit linked products, other than pension and annuity products shall provide a mortality cover or a health cover thereby increasing the risk cover component in such products.
(i) The minimum mortality cover should be as follows:
Minimum Sum assured for age at entry of below 45 years
Minimum Sum assured for age at entry of 45 years and above
Single Premium (SP) contracts: 125 percent of single premium.
Regular Premium (RP) including limited premium paying (LPP) contracts: 10 times the annualized premiums or (0.5 X T X annualized premium) whichever is higher. At no time the death benefit shall be less than 105 percent of the total premiums (including top-ups) paid.
Single Premium (SP) contracts: 110 percent of single premium
Regular Premium (RP) including limited premium paying (LPP) contracts: 7 times the annualized premiums or (0.25 X T X annualized premium) whichever is higher. At no time the death benefit shall be less than 105 percent of the total premiums (including top-ups) paid.
(In case of whole life contracts, term (T) shall be taken as 70 minus age at entry)
(ii)The minimum health cover per annum should be as follows:
Minimum annual health cover for age at entry of below 45 years
Minimum annual health cover for age at entry of 45 years and above
Regular Premium (RP) contracts: 5 times the annualized premiums or Rs. 100,000 per annum whichever is higher,
At no time the annual health cover shall be less than 105 percent of the total premiums paid.
Regular Premium (RP) contracts: 5times the annualized premiums or Rs. 75,000 per annum whichever is higher.At no time the annual health cover shall be less than 105 percent of the total premiums paid
(6). MINIMUM GUARANTEED RETURN FOR PENSION PRODUCTS:
As regards pension products, all ULIP pension/annuity products shall offer a minimum guaranteed return of 4.5% per annum or as specified by IRDA from time to time. This will protect the life time savings for the pensioners, from any adverse fluctuations at the time of maturity.
(7). RATIONALISATION OF CAP ON CHARGES:
With a view to smoothening the cap on charges, the capping been rationalized to ensure that the difference in yield is capped from the 5th year onwards. This will not only reduce the overall charges on these products, but also smoothen the charge structure for the policyholder.
III. DISCONTINUANCE OF CHARGES:
IRDA has also addressed the issue of discontinuance of charges for surrender of ULIPs. The IRDA (Treatment of Discontinued Linked Insurance Policies) Regulations brought out by IRDA in this regard ensure that policyholders do not get overcharged when they wish to discontinue their policies for any emergency cash requirement. The Regulations stipulate that an insurer shall recover only the incurred acquisition costs in the event of discontinuance of policy and that these charges are not excessive. The discontinuance charges have been capped both as percentage of fund value and premium and also in absolute value. The Regulations also clearly define the Grace Period for different modes of premium payment. Upon discontinuance of a policy, a policyholder shall be entitled to exercise an option of either reviving the policy or completely withdrawing from the policy without any risk cover. Further, the regulations also enable IRDA to order refund of discontinuance charges in case they are found excessive on enquiry.
1 Comment
If it is missold policy and premium is not paid after 1 year. what will happen. Will the insurance company have to refund the full money or will IRDA force the insurance company to do so.