Protecting policyholders' interests has been one of the functions of the insurance regulator - Insurance Regulatory and Development Authority (IRDA) along with its role of developing the insurance industry. But at a time when policyholders are being lured to buy insurance products due to false promises or marketing gimmicks undertaken by the insurer; the insurance regulator - IRDA has expressed its discomfiture and brought out a number of changes to protect the interests' of the policyholders.

Let us look at the sweeping changes IRDA has brought about to protect the interests' of the policyholders.

In the last eight months the IRDA had informally expressed its uneasiness with the ‘highest NAV guaranteed products' at several forums. The regulator's argument was that such products lead to systemic risks with the way funds were managed, and also pose a risk of a heavy sell-off in equities when stock markets fall. Thus, in order to protect policyholders' interest, IRDA has asked life insurers to stop selling highest net asset value (NAV)-guaranteed products.

Highest NAV-guaranteed products are those that promise to pay the highest value the fund achieves during a certain period, say, five or seven years. However, to maintain that NAV consistently, insurers have to take risks by investing in stocks aggressively, which could lead to undue risks, as per the IRDA. It is noteworthy that, these products had become the largest selling Unit-Linked Life Insurance Policies (ULIPs), after the new guidelines on ULIPs came in September 2010.

Some of the other actions undertaken by IRDA to uphold policyholders' interests' are:
 

• Single premium policies to be issued only under special categories
   
• A minimum death benefit of at least 10 times of the annualised premiums in case of traditional products
   
• New guidelines for traditional insurance products
   
• Approval of new insurance products to be restricted to those following the framework suggested for new product design
   

Impact of such an initiative on policyholders...
On account of the above steps undertaken by the IRDA, policyholders are set to benefit in a number of ways. With the ‘highest NAV guaranteed products' being squashed by the IRDA, there would be less mis-selling under the guise of highest NAV guarantee. Increasing the minimum life cover will help policyholders as in case of any unforeseen eventuality the policyholder's family receives a sizeable death benefit.

Our view:

We believe that though the IRDA is taking stern actions in order to safeguard the policyholders' interest, it should have adopted a proper clearance process, thereby discarding at the very first stage itself, by providing sufficient explanation in the public domain, thus making policyholders' aware as well. It would be wise for the IRDA to be proactive rather than reacting with policy changes in its role of protecting the interests' of the policyholders who have already been saddled by mis-selling.

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tcooper@utcdayton.com Jun 17, 2012 Cash unless you need your money for something more important. With cash you pay the actual price with no interest. Another question you should ask is if you think your mutual funds are going to go up in price in the soon future.

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