The new guideline provides flexibility to insurers to change up to 10% of the approved annuity rates without any approval from IRDA.
Keeping in mind the increasing discrepancies in premium of group policies of annuity products, IRDA has scrapped the existing regulations and issued fresh guidelines on annuity products to reduce such discrepancies.
Typically, insurance companies give heavy discounts or charge hefty loadings on premiums of annuity products to corporate clients based on the group size and mortality benefit. The new regulation will put a cap on such discounts and loadings. Also, insurers will not have discretion to decide on such discounts and loadings.
In a circulation, IRDA said, “It is observed in group products that the premium approved under file and use procedure and the actual premium quoted to various groups appear different. Hence, the authority withdraws the circulars with immediate effect and issues the guidelines in accordance with the power vested with the authority under section 14 of IRDA Act, 1999.”
IRDA said that the insurance companies will have to follow file and use procedure and take approval for premium rates based on parameters like mortality benefits, objective etc. The discount and loading should not exceed 30% of the approved premiums.
Also, the regulation will provide flexibility to insurers to change annuity rates up to 10% of the approved annuity rates without taking any approval from the board. For instance, if an insurer offers an annuity rate of 10%, it can either increase it up to 11% or decrease it to 9% based on the prevailing interest rate scenario. “The change is due to changing interest rates scenario to enable the life insurance companies to change annuity rates quickly so as to have an efficient asset and liability management,” IRDA added.
These
guidelines will come into effect from October 01, 2014.