The Hindu Business Line : ULIPs likely to be cheaper by 10-15 pc

Hyderabad, Jan 1 Unit-linked Insurance Products (ULIPs) are likely to be cheaper by 10-15 per cent soon as the Insurance Regulatory and Development Authority (IRDA) has reduced the required solvency margin by 20 basis points for the linked business plans.

“The objective behind reducing the solvency margin for ULIPs is to bring them on par with the norms for traditional products. Further, there is also a need for optimum utilisation of capital in the current macro economic environment and risk parameters,” Dr R Kannan, Member (Actuary), IRDA told Business Line.

From a customer point of view this could be beneficial as over 80 per cent business in the insurance industry is driven by ULIPs, he said adding: “Over next six months, the ULIPS are likely to be more cheaper and popular.”

He observed that when the IRDA reduced the solvency margin of pure term products last year policy rates came down by 10 to 15 per cent over a six month period.

On the safety perception of the ULIPs in the present market conditions, Mr Kannan said as ULIPs are generally of long duration (12-20 years) the ups and downs in markets are natural.

“There is some negative impact in the last six months. But, while this may not be a good time to redeem the money from units, some are seeing this as a good period to enter,” he said.

The solvency position of the insurers is broadly satisfactory. “There will be no immediate measures on solvency regulations now. We have addressed the entire gamut of issues on solvency and completed what we wanted to do,” Mr Kannan said.

IRDA is also working on a mechanism to gauge the financial health of companies. “We are developing a framework (similar to rating) to evaluate the financial soundness. A full-pledged study on the expenses pattern of insurers is being undertaken,” he said.

Besides, the Authority is also formulating prompt corrective action plan in case something is found alarming, he said. The general parameters to test the financial health of an insurance company include solvency, expenses, lapse rate, variable expenses, claim rate and investment yield, among others. These efforts are likely to give tangible results over next two months, he added.

Investment norms eased

Meanwhile, to address to the problems of the core sector reeling under liquidity pressure, IRDA has relaxed debt and equity investment norm limits for insurers. .

Insurance firms can now invest up to 20 per cent of their funds in infrastructure and housing sector with an additional 5 per cent debt investment if it is investing in one company.

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