At long last, the Insurance Regulatory and Development Authority (IRDA) seems to have started a crackdown on the high charges that insurance companies extract from policyholders. Along with lower costs, IRDA has also brought in new standards that should lead to more transparency in the statements that policyholders receive from insurers.
While the actual benefits delivered to the public will obviously depend on what loopholes and workarounds India’s insurance companies manage to find in the new rules, here’s a summary of the changes that were announced by the IRDA on Wednesday:
1. The difference between the ‘gross yield’ and the ‘net yield’ of unit-linked insurance plans (ULIP) shall not exceed 3 per cent for policies less than 10 years and 2.25 per cent for longer policies. Roughly speaking, gross yield is what the fund’s investment returns are and net yield is what gets delivered to the policyholder.
Out of these percentages, the fund management charges are limited to 1.5 per cent for the shorter policies and 1.25 per cent for the longer policies.
2. The expenses will include only the basic policy, cost of riders, service tax and ‘explicit cost of investment guarantee’ will be charged from the policyholders over and above these percentages.
3. At the time of sale, the insurer will give a ‘benefit illustration’ which explicates these charges.
4. At the maturity, the insurer will issue the policyholder a certificate showing year-wise contributions, charges deducted, fund value and final payment. This certificate will also show the actual gross yield and net yield taking into account the actual charges deducted.