Life insurers: The Insurance Regulatory and Development Authority (Irdai) attempted to significantly increase the surrender value of subpar insurance products starting next year, which caused shares of the majority of life insurance companies to buck the positive trend in the market on Thursday.
Amid the domestic market’s surge following the dovish Fed policy, life insurers’ shares fell between 1% and 4%, with the exception of LIC, which surged over 1%, and SBI Life, which settled nearly flat with a slight positive bias.
Private life players’ counters saw severe losses: HDFC Life lost 1.90% to Rs685, ICICI Prudential Life lost 1.72% to Rs533, and Nippon Life AMC lost 3.6% to close at Rs443. The parent company of Max Life, Max Financial Services, fell 3.1% to close at Rs 1,024.45.
In a draft that was made public on Wednesday, the Irdai suggested raising the surrender value of subpar insurance products significantly and changing the formula used to determine surrender charges. The product will now have a premium threshold beyond which there won’t be a surrender fee.
The amount an insurer pays a policyholder who wishes to cancel their coverage before it maturity is known as the surrender value. LIC was unaffected by the proposal because it has less than 10% of subpar products, whereas private life companies have the opposite situation.
The proposed draft suggests a specific premium threshold for every product, beyond which there will be no surrender charges on the remaining premia, regardless of when the product is surrendered.
For instance, an assumed threshold limit of Rs. 25,000 is associated with a non-linked savings policy with an annualized premium of Rs. 1,00,000 and a 20-year policy term. The adjusted guaranteed surrender value is Rs. 26,250 following the payment of the third annualized premium. That is going to be Rs 2,51,250 under the new proposal. Should the proposal be approved, it will have a major effect on the margin for subpar products.
(Using inputs from PTI)
