After the Securities Exchange Board of India (Sebi) scrapped the entry load for mutual funds, the Insurance Regulatory and Development Authority (Irda) is considering putting a cap on the overall charges levied on the unit-linked products of life insurance companies.
Irda officials said the overall charges could be capped at 25 per cent on Ulips with a life of 20 years. The current charges vary from 27 to 29 per cent.
This, it is felt, will make the product even more attractive to the policyholders. Insurers now levy a host of charges — policy administration, fund management, premium allocation, mortality and rider - on Ulips.
However, some insurance companies said if charges were capped, they would have to increase the premium to manage distribution expenses.
Ulips account for 90 per cent of the total premium collected by private insurance companies. The state-owned Life Insurance Corporation of India has collected 65-70 per cent of its total premium income from such products in 2008-09.
“We are working on capping the overall charges, which will increase transparency. At the same time, it will help customers take an informed decision about his investments,” R Kannan, member (actuary), Irda, said, adding the regulator would issue guidelines on this in 15 days.
The regulator may keep fund management and mortality charges outside the cap on overall charges. This is because of the industry’s feedback that fund management charges are not based on premium, but on the performance of the fund and assets under management.
Life Insurance Council, the representative body of the life insurance companies, is working on the standardisation of the nomenclature of charges and has presented the draft document to the regulator.
“Charges in the first year are very high. There is a lack of disclosures on the charges by the insurance companies to the policyholders. Irda should look at capping the premium in the first three years of the policies,” said Kamesh Goyal, country manager, Allianz.
The regulator, sources said, is not looking at micro-management - like whether the charges should be front-loaded or back-ended.
“The charges levied on Ulips have come down compared to five years ago. The cap should be reasonable and should cover the distribution expense of any insurer. Competition anyway brings down the charges,” Aegon Religare Life Insurance CEO Rajiv Jamkhedkar said.
The regulator is also looking into the guarantees offered by insurers. Sources familiar with the developments said since only five per cent of the policies were guaranteed, the entire industry should not be penalised.
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