New Delhi: Life insurance schemes might offer better returns from next year if the recommendations of an IRDAI-constituted committee are accepted and put in practice. A committee constituted by the Irdai has suggested a host of changes in the life insurance sector, including in the investment norms to improve the returns generated by the funds. The insurance regulator had notified the IRDAI (Non- Linked Insurance Products) Regulations, 2013 and IRDAI (Linked Insurance Products) Regulations in February, 2013. It was observed that there is a need to review the regulations due to changing market and economic environment, Insurance Regulatory and Development Authority (Irdai) said. In January this year, the regulator constituted an eight-member committee to make recommendations on the amendments required in the regulations. The report, on which Irdai has sought comments till December 28, further said along with existing avenues like NPS, EPF,PPF, multiple other avenues will be required to reach the untapped working population.
Five things to know about IRDAI suggestions to life insurance sector
1. The committee has recommended that the investment norms "should undergo significant change" with a view to improve the returns generated by the funds while taking account of the risks inherent in the various asset classes.
2. Currently, the investment norms governing traditional business are quite restrictive, making it difficult, if not impossible, to provide competitive returns to the policyholders.
3. Referring to customers' "reasonable expectation", life insurance savings products are often compared to products offered by banks such as fixed deposits (FDs) and recurring deposits (RDs). The report also observed that the expectation of generating a return of at least 8 per cent per annum is a "tall order" given that at least 50 per cent of assets of the insurer are mandatorily to be backed by government securities (G-Secs), which currently yield about 6.7 per cent - 7.2 per cent annually.
Further, given the downward pressure on interest rates, the actual yields on future premiums are only expected to be lower, it said.
4. The panel has suggested to "lower the mandatory proportion of 'G-Secs' in the Life Fund and the Pension and General Annuity Funds and allow for higher exposure in alternative higher yielding assets (like equity or property) or high rated corporate bonds" to help insurers generate a high gross return on investments so that insurance savings products can compare favourably in the financial savings space.
5. Currently, the withdrawal (commutation) clause is liberal for NPS as compared to Pension plans available with life insurers. "Since this flexibility is a key consideration by a customer choosing a pension plan, the Committee recommends allowing commutation to the extent allowable under National Pension System (NPS). Currently 60 per cent of total accumulated corpus can be commuted as compared to one-third of total accumulated corpus allowed for pension plans from life insurers," the report said.
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