Life insurers are working hard to modify their unit-linked insurance plans (ULIPs) to cut fund management charges as demanded by the industry regulator. Ulips are instruments in which a part of the premium payments are invested in securities.
According to industry estimates, around two-thirds of the current Ulips being sold by insurers would have to be revised and re-filed with the regulator. Insurers will have to cut costs or slash commissions paid to agents to balance the decreased charges. Existing products must conform to new rules by December 31.
The Insurance Regulatory & Development Authority (IRDA) said an insurers cannot deduct as charges (excluding mortality charges for life insurance) at more than 3 per cent of the total returns earned by a policyholder for insurance contracts up to 10 years and 2.25 per cent for those above. Within these charges, the FMC should not be more than 1.35 per cent for all funds.
Birla Sun Life Insurance has reduced the fund management charges (FMC) for its existing pure equity funds from 1.5 per cent to 1.35 per cent in addition to bringing down the FMC for all its new funds.
Paresh Parasnis, principal officer and executive director, HDFC Standard Life Insurance said roughly 90 per cent of the products would need modifications. That means, 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 excluding mortality charges.
Rajesh Sud, CEO of Max New York Life Insurance said, “Five to six products will have to be revamped out of the total 11 Ulip products we have.”