Life insurers up in arms over IRDA circular

The life insurance industry and the Insurance Regulatory and Development Authority (IRDA) are on a confrontation course over a recent letter written by the regulator raising questions on the product design and certain practices of insurers, according to a report in The Indian Express.

Life insurers, who see this as an exercise by the regulator to justify the huge delay in product approvals over the last two years, have formed a core group to help build consensus among all players and present a single paper to the regulator, contesting the issues raised by the regulator.

The key differences are over IRDA suggestions including making premium paying term equal to the policy term, questioning the 'heavy reliance on re-insurers for each and every product' and the risk it carries should a re-insurer default, creating barriers for insurers in launching too many funds under one product, and over the suggestion to increase equity exposure for the guaranteed NAV products.

In a strongly worded letter, the regulator said, ''Lately more complex products are being designed and filed for F&U (file and use) clearance with the IRDA ... several of the products are not in alignment with the best practices and frequently lack clarity. The efficiency of the product clearance has been constrained by such features.''

At a meeting on Tuesday, the Life Insurance Council - the forum of insurers - decided to jointly draft a response to the regulator's suggestions. Many said discouraging single- and limited-premium terms would impact their cash flow management for the companies.

They feel that paying for a short term and getting cover for much longer term provides flexibility to the customers and that it should continue. ''There are many customers who want to pay for a shorter term due to high incomes at specific periods, for example actors. Why should we kill this flexibility?'' a senior official of a life insurance company told the Express.