The Hindu Business Line : ‘Exclude mortality charges from overall cap on ULIPs’

“We are awaiting a clarification from the Insurance Regulatory and Development Authority on whether the mortality charges will be included or excluded from the overall cap. It is not possible to have the same mortality charges for a 25-year-old and for a 50-year-old,” Mr Paresh Parasnis, Principal Officer and Executive Director, HDFC Standard Life Insurance, said at a conference organised by Credit Suisse.

The imposition of the cap will pose a challenge for the insurance industry. Most of the company’s existing 10-year regular premium products currently exceed the charge cap requirements, he added.

“Whether or not the cap on ULIP charges will impact margins of insurance companies will depend on the clarifications of the regulator,” said Mr Mayank Bathwal, Chief Financial Officer, Birla Sun Life Insurance.

IRDA recently capped the charges on ULIP that insurers levy on their customers.

The regulator said charges on the overall yield will be capped at 300 basis points for a product with a tenor of 10 years or less. For products having a tenor of more than 10 years, the cap will be 225 basis points.

Mr Gaurang Shah, Managing Director, Kotak Life Insurance, said IRDA’s move is good from the customer point of view but not from the industry point of view.

From a distribution angle, it will be a problem to convince the tied agency channel to sell products that have caps on charges, Mr Shah said.

According to a senior life insurance company official, the industry was also awaiting clarification on whether the cap will apply to policies that do not go up to maturity.

The participants also questioned the rationale of capping the fund management charges (within the overall yield) based on the tenor of the product.

In its circular, IRDA had decided to cap fund management charges at 150 bps for products having a tenure of 10 years or less and at 125 bps for products of a longer tenure.

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