The Insurance Regulatory & Development Authority (IRDA), balancing the interests of policyholders and insurance companies accused of taking a big cut of the premium pie as charges from customers, is planning to walk the wedge between the two by partially easing its norms concerning mortality charges.
Last month the regulator had mandated an overall ceiling on all charges put together for Unit Linked Insurance Plans(Ulips) in which life cover is mixed with returns from investments in instruments like mutual funds.
The new norms stated that for policies involving a tenure of up to 10 years, the difference between gross and net returns (after deduction of charges) shall not exceed 300 basis points (3 percentage points) of which fund management charges shall not exceed 150 basis points.
For policies whose tenure is more than 10 years, the difference between gross and net yields shall not exceed 225 basis points, of which the fund management charges shall not exceed 125 basis points.
Typically, in case of a 10-year policy, if there is a return of 15 per cent, policyholders should get at least 12 per cent and the insurer not more than 3 per cent.
However, IRDA now plans to waive this 3 per cent cap in specific cases. The mandatory minimum cover under law is five times the annual premium. The regulator now plans to lift the cap in those cases that go beyond the minimum cover.
“For mortality charges, given the liability of insurance companies, we are considering several options. One of the options is to keep the cap applicable for the minimum sum assured and beyond the minimum cover, the insurance company can decide mortality charge depending on the risk,” said the IRDA official.