A panel formed by the Insurance Regulatory and Development Authority of India (IRDAI) has suggested major changes in the investment norms for the life insurance sector, among a host of other measures.

The committee, constituted by the regulator in January this year, opined that current investment norms applicable to traditional business were quite ‘restrictive’ and making it difficult to offer competitive returns to the policyholders.

The current investment regulations mandating investment in certain asset classes limit the returns that may be generated to enable better return for the policyholders.

The norms “should undergo significant change” to improve the returns generated by the funds while taking account of the risks inherent in the various asset classes, it said.

There is a need to review the IRDAI (Non- Linked Insurance Products) Regulations, 2013 and IRDAI (Linked Insurance Products) Regulations in February, 2013 due to changing economic environment.

The panel recommendations, which were released by the Authority, pointed out that the expectation of generating a return of at least 8 per cent per annum is a “tall order” given that at least 50 per cent of assets of the insurer are mandatory to be backed by government securities (G-Secs), which currently yield about 6.7 per cent to 7.2 per cent annually.

Further, given the downward pressure on interest rates, the actual yields on future premiums are only expected to be lower, it said adding lowering of the mandatory proportion of ‘G-Secs’ in the Life Fund and the Pension and General Annuity Funds might be of help.

The panel further said along with existing avenues like NPS, EPF,PPF, multiple other avenues will be required to reach the untapped working population.

According to IRDAI data, life insurance penetration surged from 2.15 per cent in 2001 to 4.60 per cent in 2009. Since then, it has exhibited a declining trend reaching 2.6 per cent in 2014, marginally increasing to 2.72 per cent in 2016.

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