A leading Mumbai business daily recently reported that the IRDA (Insurance Regulatory and Development Authority) plans to standardise life insurance policies. Amongst the various issues that the regulatory authority would like to tackle/standardise is the product literature and the proposal forms. Given the number of life insurance companies in the fray and the plethora of insurance plans on offer, this has come as a welcome move for individuals.
The IRDA's primary aim behind this move is to make life simpler for individuals interested in buying life insurance. As things stand today, the product literature for life insurance products differs across companies. This makes it difficult for individuals to compare insurance plans offered by various companies. It also queers the pitch for individuals wanting to analyse insurance plans given the fact that all the insurance companies proclaim their product to be the best offering maximum value and maximum returns in their category. Often this claim is made on the basis of partial information. Standardising the product literature for insurance products will go a long way in helping individuals arrive at an informed decision by being able to compare products across a standard set of parameters.
That apart, the IRDA has also made it clear that though it cannot stop insurance agents from mis-selling life insurance, should there be a complaint, it will hold the insurance company responsible for mis-selling done by its agents. This will certainly be in the interests of individuals in case of any mis-selling related issues. In addition, this will also prove to be a deterrent for the insurance company, which will take extra precaution in educating its agents and the end-users of the product.
However, although the IRDA is doing its bit to simplify insurance products for individuals, we also feel that it can take up a few other issues as well which are crying for attention. The first issue concerns ULIPs (unit linked insurance plans) portfolios. Some life insurance companies do not declare their ULIP portfolios at all i.e. the portfolios are not available for free viewing. ULIPs primarily function like an investment with a life cover thrown in. It therefore becomes important that individuals know where their monies are being invested. For instance, most mutual funds declare their portfolio at least once a month. The same is also made available on the company websites. Though some insurance companies diligently declare their ULIP holdings on their websites (e.g. ICICI Prudential, HDFC Standard Life, Kotak Mahindra Old Mutual), many refrain from doing so. The IRDA should look into this matter and frame suitable guidelines for ULIP portfolio disclosure norms.
Another relevant issue in our view is the simplification/standardisation of ULIP expenses. As an example, a certain life insurance company incurs 27% as expenses in each of its first two years of operation, while it falls to 1% after that. Monthly administration expenses of Rs 15 are incurred in addition to the annual expenses. Compare this with another life insurance company whose charges are 19% in the first year, 4% from years 2 to 5, 2% from years 6 to 10 and 1% thereafter. Monthly administration expenses of Rs 60 are levied in addition to the abovementioned charges. And the differences continue as we compare expenses across insurance companies.
What the individual would really be interested in knowing is what are my ULIP expenses per annum on an average in a particular ULIP policy? While the expenses may differ across companies, what we are more concerned about is whether individuals will be able to compare charges across companies. In their current avatar, it really would need an expert to demystify ULIP expenses from across companies. The IRDA should look into this matter and simplify things from where they stand today.
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