The Hindu Business Line : IRDA asks insurers to promote term policies

Regulator’s concerns
Insurers have so far been pushing endowment products or ULIPs and marketing the tax saving aspect of these products.
The agency force needs to be professionalised; attrition rate at 30-50%.
Cos asked to draw up a uniform definition for lapsed policies.

Radhika Menon

Mumbai, Jan. 7 The Insurance Regulatory and Development Authority (IRDA) has asked life insurance companies to popularise the more affordable ‘term’ policies.

At a recent meeting, Mr C.S. Rao, Chairman, IRDA, told insurers to offer more than just investment-oriented products.

“Term policies offer pure life cover at a very low premium as compared to investment products. Insurers have so far been pushing either endowment products or unit-linked insurance plans and marketing the tax saving aspect of these products,” Mr Rao told Business Line.

Unit-linked insurance plans and endowment plans currently account for the bulk of the policies sold today. In the case of a term policy, the premium is low and the sum assured is payable only on the death of the insured. Endowment policies carry a higher premium and offer the sum assured and accrued bonuses after the stipulated period of the policy or death of the insured, whichever is first.

A senior official at a private life insurance company said that customers often think buying a term policy is a ‘waste of money’.

“Unfortunately, there is a public aversion to pure term policies because customers often ask ‘What benefit will I receive while I am alive?’. The way forward could be a higher commission for agents selling term policies which work as an incentive,” said the official.

Meeting with insurers

Mr Rao said that in the meeting with insurers held in December, the regulator also discussed several key issues including ‘lapsation’ ratio of policies and high attrition of agents.

“We have collected data on lapsation ratios and attrition of agents which we plan to release in the public domain. We have spoken to insurers about ‘professionalising’ the agency force,” he said.

The industry currently has a 20-lakh strong agency force, of which around 11 lakh belong to LIC alone. Sources in the industry estimate agent attrition to be in the range of 30- 50 per cent. The regulator has also sought a uniform definition on when a policy gets lapsed.

“Different companies have varying definitions for a ‘lapsed’ policy. It could be one month or even 6 months and hence we have asked companies to come up with a common definition,” Mr Rao said.

On reports of corporate property insurance premium rates crashing 80 per cent below the tarriffed rate since January 1, Mr Rao said that there may not be any truth in it. “If companies are scientifically underwriting policies, then a premium rate that is just 20 per cent of the original tariff rate would not cover either basic commission expenses or administrative costs,” he said.

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