Mumbai, April 8
THE Insurance Regulatory Development Authority (IRDA) will be announcing guidelines for unit-linked policies (ULIPs) shortly.
Mr C.S. Rao Chairman, IRDA said that there were concerns about the lack of proper communication to customers in terms of transfer of risk in the case of ULIPs.
ULIPs have enjoyed tremendous popularity evidenced in the fact that the majority of the business of the private insurers comes from this segment.
Birla Sun Life, which introduced the product first, has more than 95 per cent of its business coming from ULIPs. As opposed to traditional policies like endowment and term insurance plans, with ULIPs the investor bears most of the risk. Insurance companies usually offer a choice in terms of the fund-equity, bonds or balanced and in terms of the risk.
Talking to presspersons on the sidelines of a seminar on Insurance Industry, organised by Indian Merchant Chamber here today, Mr Rao said there has to be adequate insurance coverage that should be built into unit-linked products. There should be complete transparency with clear-cut disclosure norms.
"There should be a correspondence between the premium and the sum assured. In the case of the existing policies, we are still working out the modalities of the introduction of the safeguards," he said.
Referring to the Industry's outlook for the year, Mr Rao said that the life insurance sector would grow by 15 per cent this year.
The insurance industry's share in the Gross Domestic Product has increased from 2.32 per cent in 2003-04 to 3.22 per cent in 2004-05.
Raising Foreign Direct Investment limit would increase the commitment of the foreign players to the Indian market, he said.
In his address, the IRDA Chairman said that the stringent norms for solvency margins was justified as the insurance industry was still in a nascent stage. In the initial stages, vigorous norms were needed so that the reform process does not suffer a setback.