The insurance sector regulator IRDA on Monday said profitability of insurance companies will be impacted with its new guidelines for unit-linked plans, which invest part of funds in equities.
The regulator advised the insurance companies to reduce their expenses to maintain the bottom line in the long run.
"I do hope there will be an impact (on profitability). Ultimately the idea of guidelines is to have impact. My concern for the insurance industry is not what is going to happen in 2010-11. The concern is that the industry must remain healthy, be able to grow and be sustainable," IRDA Chairman J. Harinarayan said here.
He was speaking on the sidelines of the inauguration of NSE.IT, a subsidiary of the National Stock Exchange, for online testing for insurance agents. He said that the
insurance companies must take a look at long-term achievements and should bear with the initial hiccups.
"Insurance is always a long-term industry. What might happen in six months and one year is not important. There may be some hiccups. What is going to happen in mid- and long-term is significant. So what might happen in the given year is not important," he said, brushing aside the apprehensions.
Insurance companies are of the opinion that the capping of surrender charges and the even distribution of charges over the lock-in period of five years will adversely impact the profitability of companies.
ULIP sales will also be adversely affected as agents may be unwilling to sell products at lower commissions.
Commenting on the cashless insurance schemes being refused in corporate hospitals, the IRDA chief said as on July 1 there were are about 320 hospitals in the network for cashless facility in four metros which later decided to withdraw the cashless facility in view of high charges.