Insurers unhappy with the introduction of minimum guaranteed surrender value.
IRDA recently circulated the second exposure draft on product design and pricing and most of the insurers are satisfied with regulator’s guidelines. According to the insurers, IRDA has looked into traditional policies closely and tried to simplify it for the customers, stopped NAV guaranteed products, introduced pricing innovation method and rationalized commissions for insurance distributors.
“In the new draft commissions have been rationalized i.e. long term policies will be paid higher commission while the short term policies will be paid lower commissions. So, most of the distributors will try to bank on long term policies,” says CEO and MD of a top insurance company.
However, insurance players are unhappy with the minimum guaranteed surrender value. “IRDA has simplified traditional products which will definitely benefit the consumers but the minimum guaranteed surrender value might affect the balance sheets of insurers,” says Nandagopal, CEO Indiafirst Life Insurance.
Currently, the minimum guaranteed surrender value is 30 percent of the total premium paid, minus the first year premium. But according to the exposure draft following slab is recommended:
For second and third year, it will be 50% of the total premium paid. For fourth year, it will be 75% of the total premium paid. For fifth and sixth year it will be 90% of the total premium paid, and from seventh year onwards, it will be 100% of the total premium paid.
According to the industry officials, it will hurt their earnings. They are planning to approach the regulator to discuss the matter.
Ashvin Parekh, Partner, Ernst & Young said that insurers recover the cost of intermediation and also the overheads out of the premium collected. Therefore, to disturb the structure might affect the company’s earnings.