Increasing number of mis-selling complaints against the life insurance companies has compelled the insurance regulator to take a tough stance. Now industry has become adolescent. Some discipline is required, J Harinarayan,Chairman,Insurance Regulatory and Development Authority said in an interview to Ritu Kant Ojha of The Indian Express. All the key issues will be dealt with in the new guidelines on the product designs,he added. Excerpts:
Industry is against the non-zero return clause in the pension products. Are you planning to scrap it?
What these insurance companies call as pension product is not exactly a pension product. Why should there not be a non-zero return clause? If tomorrow a company returns money which is lesser than even the total premium one has paid,who will be responsible? The fundamental issue is protection of capital in a pension product which they have to guarantee. The main issue of life insurers is not non-zero return clause. They are worried over the mandatory annuity clause. A pension product is meant to provide income on a regular basis. Insurers give a lump sum amount at the time of vesting and expect the consumers to go to LIC to provide annuities. This is a wrong practice whereby they take the benefit during the investment term and at the time of annuity want to pass the buck to LIC. This is not going to change. They have to provide annuity.
Are you planning to scrap the highest NAV-guarantee products? What is the real issue?
It is a dangerous product and has been banned in most of the countries. The way it is structured,it is prone to being mis-sold. While insurance companies sell it in the garb of NAV product,the fact is that it is a fixed income product. How much will go in equity and how much in debt is calculated through a universal algorithm which must be followed. The returns from the fixed income products is low but since the product has a complex structure,a consumer is not able to understand it fully. The communication which is provided to the customer is different than what the product actually is.
Industry has been complaining about the products not being approved from a long time.
The problem is that the industry is coming with such products which we (IRDA) dont like. There are about half a dozen categories of products in the market with which we are not happy. We created a sub-group to hold consultation with the industry so that they are clear about what is expected from them.
When do we see the result of these deliberations? Can we expect some guidelines in the near future?
We had written a detailed letter to the Life Insurance Council over the major issues we had with some of the products and practices. The discussions between us (industry and the regulator) are on since February. We will be finalising the guidelines within a month. It will cover most of the aspects that was mentioned in the letter.
Will it be on lines of the September,2010 ULIP guidelines?
That was the first guideline on a product design. But it addressed only the ULIP products. This will be the second guideline on product design focusing on non-ULIP products. We have already circulated a draft guideline and will soon finalise it. The customer wants a simple product with complete transparency. The focus is on bringing better disclosure norms,simplifying the products and addressing the malpractices.
There is an allegation of IRDA micro-managing the insurance sector.
Insurers are worried because they are happy without regulations. For all these years the industry was young but now it has moved towards adolescent stage and now needs to be disciplined. Till now our focus was to work as a development authority but now it has been more than a decade and it is time to act as a regulatory authority.