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Irdai’s plan to permit portability in life insurance will allow customers to move to another insurer without having to let their policies lapse .
Insurance Regulatory and Development Authority of India’s (Irdai) plan to permit portability in life insurance will allow customers to move to another insurer without having to let their policies lapse. But will it work?
K.S. Gopalakrishnan, managing director and chief executive officer, Aegon Life Insurance
Portability is possible only when product features are standardized. A term insurance policy should be easy to port as the new insurer will be able to easily administer the policy. A simple pension plan and a Ulip too should be easy. Other products—such as endowment plans and money back plans—could be complicated as the new insurer may not have a product with same features.
Also, life insurance policies are of longer term and cover certain insurance risks. The new insurer would expect to receive an amount from the existing insurer to meet future liabilities. In a mutual fund type product, the amount is relatively straight forward as the fund value will be transferred, with some adjustments for certain costs. In life insurance, the transfer amount is an estimate arrived at on the basis of assumptions about the future. The receiving insurer and the current insurer may not come to same conclusion in estimating this amount. Also, the receiving insurer could have a different view of certain risks and hence could ask for a different premium to be paid.
In terms of reducing the lapse rate through portability, if a customer is not satisfied with the services, then portability will reduce lapses. But, most of the lapses happen at early durations and it is likely that these customers perhaps bought unsuitable products for them. Portability will not solve this problem.
Kshitij Jain, managing director and chief executive officer, Exide Life Insurance
Life insurance portability is a provision to protect customer interests and can promote a fair and competitive market. If implemented, insurers will redouble efforts to retain existing customers with improved service quality and claims settlement. It could even result in the launch of simple and competitive products.
Portability is however possible only in products with a match in timing between receipt of premium and payments of benefits. Due to the short-term nature of the contract, portability works well in general insurance, short-term health insurance and group life insurance (protection products) where the policy may be ported to another insurer every year. Individual members under the group insurance policy can port the coverage to an individual policy as well.
In the case of longer term individual protection policies such as term, there is a mismatch between expenses incurred and premiums earned by the insurer. If portability is allowed, due to unevenness of risk and expense, one insurer could make an undue profit. This could lead to a distortion in market dynamics with distributors encouraging churn of policies without necessarily adding value to the customers. Finally, in case of savings life insurance plans, the savings component and initial high acquisition expenses make the portability feature virtually impossible to implement.
Shashwat Sharma, partner and head of insurance, KPMG India
Irdai has initiated a discussion on portability in life insurance with the objective of improving customer choice. Portability encourages transparency and competition as customers can easily switch from one insurer to another with ease. This also provides an opportunity to customers to test products from a wider set of insurers as they can always port out to a different insurer if required. Further, from a supply side, insurers can also market their products directly to customers and enable them to make a choice to switch, if they wish to.
But given the long-term nature of life insurance, porting shall require more than just fresh underwriting. Since a life insurance policy has constant pricing throughout the policy term, portability would require some standardization of underwriting and policy pricing at an industry level. Also, since the profits generated are different each year, portability might require a compensatory mechanism between the port out and port in insurer.
Also, since portability will be limited to products having similar features and pricing, it may not necessarily have customers shift to different life insurance savings and investment product categories more suited to their needs. However, portability would definitely lead to an improvement in service levels from the insurers and make their focus sharper on servicing and customer retention.
Rajesh Sud, executive vice chairman and managing director, Max Life Insurance
The objective of portability could be to ensure that life insurance—despite its many technical arguments and construct as a long-term product—does not hold a policyholder ‘hostage’ to a contract. Life Insurance product designs can be classified into four types: protection, Ulips, bundled savings and annuities. With pure protection products, it could be feasible to port from one company to another as these contracts are closer to annual contracts in design. Group term life and funds businesses, Pradhan Mantri Jeevan Jyoti Bima Yojana, and vanilla term plans could consider portability.
With Ulips and bundled saving plans, portability may not offer superior value to customers. When it comes to Ulips, regulations such as ceiling on the net reduction in yield, lock-in period of 5 years with reasonable returns even if discontinued, and minimal specified surrender charges offer flexibility to consumers to maximize returns even if they have to exit a Ulip before the full term. In bundled saving plans, both regulatory interventions and efforts by life insurers have ensured that surrender values have gone up.
The internationally accepted Treating Customer Fairly (TCF) framework has helped provide better surrender values to Indian customers. This has ensured that value is delivered to customers to stay beyond a reasonable period of time.
As an entrepreneur, you are used to taking risks. You’ve rejected the steady paycheck of an employer to become the employer. You’ve turned personal finances into company finances. You’re even prepared to go down with the ship, although you would really like to make sure that doesn’t happen.
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With the right planning, you can
The latest plan which provides cover up to age 100 offers a combination of income and protection
After showing a 27.22 per cent increase in new premium collection at Rs 1,24,396 crore in fiscal 2016-17, Life Insurance Corporation is raring to go with new plans. The insurance behemoth has launched its second product — the first being two endowment assurance plans for individuals having Aadhaar card last month — in quick succession after a long break. At a time when interest rates in the country are going downward, LIC has for the first time come out with a 100-year plan ‘Jeevan Umang’ with an assured return of 8 per cent.
Exuding optimism, LIC chairman VK Sharma said good days are ahead for the industry. “Next three to five years is the period of insurance business… as an industry we have shown double digit growth and LIC has been ahead of the industry. We expect that we will be in the double digit growth in the current fiscal also,” Sharma said.
The latest 100-year plan which provides cover up to age 100 offers a combination of income and protection. The product placement is such that this plan is available from age 90 days to 55 years. There is no upper limit to the Basic Sum Assured but it will be in multiples of Rs 25,000 with premium paying terms having option of 15, 20, 25 and 30 years. This plan provides for annual survival benefits from the end of the premium paying term till age 99 and a lump sum payment at the time of maturity or on death of the policyholder during the policy term.
“India’s opening up to globalisation has ushered in many changes in the demographics of employed and employable personnel. There has been a meteoric rise in the career and finances of personnel which has most of the times been followed by steep plummeting at jet speed too, or worse being handed over a pink slip, when the economic scenario changes. This volatility leaves this generation of executives vulnerable,” Sharma said.
“I see a huge opportunity for LIC to tap into this segment providing long term income and protection. LIC should be a major part of their investments and savings portfolio, because it does have products which can insulate them from such stark contrasts in life,” Sharma said.
The uniqueness of the is that Guaranteed Survival Benefit is payable on the life assured surviving to the end of the premium paying term, provided all due premiums have been paid or the paid up value in Rs 2 lakh or more. “The survival benefit will be equal to 8 per cent per annum of Basic Sum Assured and paid-up Sum Assured respectively. The first survival benefit payment is payable at the end of premium paying term and thereafter on completion of each subsequent year till the Life assured survives or till the policy anniversary prior to the date of maturity, whichever is earlier,” Sharma said.
When asked whether 8 per cent return is sustainable, Sharma said, “we are getting good returns on our investments… which is sufficient to pay the policy holders.” The death benefit will not be less than 105 per cent of all the premiums paid as on date of death. “The first survival benefit payment is payable at the end of premium paying term and thereafter on completion of each subsequent year till the life assured survives or till the policy anniversary prior to the date of maturity, whichever is earlier,” Sharma said.
In April, it launched two Aadhaar-based plans. While the Aadhaar Shila is a plan exclusively designed for women, the other scheme Aadhaar Stambh is meant for men. Absolute amount assured on death under Aadhaar Stambh is 100 per cent, whereas for Aadhaar Shila it is 110 per cent of basic sum assured.
LIC which currently has around 26-27 products plans to come out with another 55-60 products in the next one or two years across the segment. The corporation’s total assets rose 12.81 per cent to Rs 24.42 lakh crore as of December 2016, from Rs 21.65 lakh crore in the year-ago period. Its gross total income increased 15.76 per cent to Rs 3.37 lakh crore till December from Rs 2.91 lakh crore, driven by the new business premium.