IRDAI Retains Provisions for Higher Special Surrender Value for Endowment Policies, Despite Insurers’ Concerns
The Insurance Regulatory and Development Authority of India (IRDAI) has decided to retain most of the provisions related to higher special surrender value (SSV) for endowment policies, despite concerns raised by life insurers. This move is aimed at benefiting policyholders who choose to exit their policies prematurely.
SSVs are the payouts made to policyholders for early exits, and with the new regulations in place, these payouts will now be higher. According to a report by Moneycontrol, the decision to increase the SSV has been met with mixed reactions from the industry.
HDFC Life, one of the leading Life insurance companies, expressed confidence in their ability to mitigate the impact of higher surrender values on their new business margins. A spokesperson for the company stated, “While we anticipate a gross impact of approximately 100 bps on the company’s new business margin due to higher surrender value on early exits, we are confident in our ability to largely mitigate this impact without compromising the value proposition for our customers. We expect these measures to positively impact the long-term growth prospects for the industry.”
An anonymous source at a private Life insurance company also highlighted the benefits of the increased surrender value for policyholders, especially those who surrender their policies in the early years. The regulation will also apply to surrenders in later years, albeit with a comparatively lower increase in payout.
IRDAI has mandated that the SSV should be equivalent to at least the present value of the paid-up sum assured and paid-up future benefits. However, life insurers had initially opposed the move, arguing that these products are designed for long-term goals rather than liquidity.
The CEO of a large private Life insurance company raised concerns about the impact of the new regulations on reserving and capital requirements. The CEO suggested an alternative solution of allowing complete refunds of premiums in cases of mis-selling, rather than offering higher surrender values.
In addition to the changes in surrender values, IRDAI has also made it mandatory for life insurers to issue a Customer Information Sheet (CIS) to customers, providing information on clauses, policy benefits, premiums, and terms and conditions in simple language. The regulator has also introduced penalties for insurers for customer grievances and allowed the design of new products including index-linked plans and variable annuity payout options.
Overall, the decision to increase the special surrender payouts for endowment policies is expected to have a significant impact on the insurance industry. While some concerns have been raised by insurers, the move is seen as a positive step towards enhancing the value proposition for policyholders.