In an effort to reduce the clutter and confusion and help
a prospective policyholder to choose a life insurance
policy that suits him, the Actuarial Society of India
(ASI) has issued a guidance note on how sales illustrations
are to be prepared by the insurers.
guidance note, Version 1.00, has the statutory seal and
will come into operation from 1 January 2004 onwards.
With the Insurance Regulatory and Development Authority
(IRDA) allowing the 'file and use' procedure for a new
product, sales illustrations are being made a part of
the papers that are to be filed before a product is introduced
in the market.
to the note, the sales illustrations are to be authorised
by the appointed actuary and approved by the management
before the same could be sent for field use. Life insurers
have to review the illustration every April and remove
those assumptions that are not valid any more.
to the guidance note, illustrations referring to the past
performance shall be appropriate to the product that is
illustrated. A rider should also be stated in the illustration
that past performance does not guarantee future performance.
Similarly, the sales illustration should differentiate
between the benefits that are guaranteed and those that
are not. Surrender values should also be clearly stated.
regard to the assumption of rate of return for the purpose
of illustration, the Life Insurance Council has specified
two rates 6 per cent and 10 per cent. However, insurers
are free to use a lower rate but not a higher rate than
the move as a bold and progressive initiative, an actuary
says: "The guidance note maintains a very fine balance
between how much to disclose and how much is really relevant."
he is unhappy with the 6 per cent and 10 per cent standardisation
of rates of return as investment boundaries. "This
creates a situation where a good-performing company and
a poor-performing company are forced to show the same
the note is vague on whether this applies for individual
business only or also for the group business. "The
note could have been clear on what maximum rates to use
for different funds with difference asset allocations,"
has more to say. "While the guidance note sets out
the scope for unit-linked products very clearly and explicitly,
I am not sure if the same principle has been applied to
traditional with-profit products. In the case of traditional
with-profit products, it standardises only the investment
return assumption but leaves other critical assumptions
to an individual actuarial judgement."