The Hindu Business Line : Pure term insurance products may cost less

Hyderabad, March 26 Policy holders of pure term insurance products can look forward to more affordable premiums as the Insurance Regulatory and Development Authority (IRDA) cuts the mandatory solvency margins by two-thirds for companies offering these products.

The pure term products, which account for a little share in total insurance market, provide simple life cover and companies could design products which could reach various segments of the population so as to meet their insurance requirements.

“To improve the insurance penetration, the regulator had considered various factors including the impact of life-insurers’ capital requirement under the solvency margin regulation and the need for reviewing the solvency margin required for pure term products,” IRDA said in a circular hosted on its Web Site.

‘Significant relief’

“The proposed required solvency margin at a lower level for pure term products would provide significant relief to life insurers, both under individual and group products. This measure, it is hoped, would pave the way for enhancing the interest among insurers to launch pure term products for a sufficiently long period and at affordable rates, which would ultimately result in increased insurance coverage,” the circular said.

In working out the required solvency margin, there are two factors — the first factor which is applicable to the mathematical reserve under each policy and the second factor, which is applicable to the sum at risk, which is the difference between sum assured and mathematical reserve under that policy.

The Authority had modified the first factor and second factor, with respect to non-linked business, in working out the required solvency margin in such a way that it would be brought down by about two-thirds. These new factors shall come into effect for the business as on March 31, 2008 and onwards.

Minimal impact

It did not however, change the factors pertaining to linked and health business. Even under non-linked business, the factors remain the same for general annuity and pension business, the circular said.

According to Mr U.S. Roy, Managing Director, SBI Life, the reduction in solvency margin would result in some reduction in premiums being paid by the policy holders of the pure term products. “We are still working on the actual implications. As pure term products account for very little share in the market, the change may not have a big impact,” he felt.

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