The Government with vested interest went for an ordinance even before SEBI could take to task IRDA in India's Supreme Court. ULIPs to be regulated by IRDA; stringent caps on charges likely.
Capping of charges 6th year onwards; negative for margins: So far, charges have been capped on door-to-door basis at 2.25% for a 10-year policy and 3% for 15-year policy. Capping of surrender charges; negative for margins: Surrender charges to be capped at 20% for premiums in the range of INR 15-20k.
ULIPs to offer guarantees: As per earlier guidelines, cost of guarantees has been excluded from the cap on charges. Hence, if no change is effected
to the guideline, it will have a positive impact on margins; but this will limit product offerings and, hence, impact volumes negatively.
Lock-in period for policies to be raised from 3 to 5 years, limiting product flexibility; to impact volumes negatively. Discourage front loading of the products; commissions to be spread over initial years rather than the 1st year.
In DTC, there is no clarification on the definition of pure insurance products. In an interview with the media, Mr. Harinarayan, Chairman - IRDA, making reference to the IT Act, described pure insurance products as those where premium is less than 5% of sum assured. If we were to go by this definition, then it will be possible for insurance companies to design ULIPs that would come under EEE status.
