Shares of most life insurance companies bucked a rallying market trend on Thursday after the Insurance Regulatory and Development Authority (Irdai) sought to massively hike the surrender value on non-par insurance products from the next year.
Despite the rally in the domestic market after the dovish Fed policy, shares of life insurers, barring LIC, which rallied more than 1%, and SBI Life, which settled almost flat with a minor positive bias, declined between 1% and 4%.
According to a draft released on Wednesday, the Irdai has proposed a much higher surrender value on non-par insurance products and made a few changes in the way surrender charges are calculated. Now, there will be a premium threshold for the product where no surrender charge will be imposed.
Surrender value is the amount that an insurer pays to the policyholder if she decides to terminate the cover before its maturity. The proposal had no impact on LIC as it has less than 10% of non-par products, while private life companies have it in the opposite.
The draft proposes a defined premium threshold for each product, wherein there shall not be any surrender charges imposed on the balance of the premia beyond such thresholds, irrespective of the timing of the surrender.
For example, a non-linked savings policy with an annualised premium of Rs1,00,000 and a policy term of 20 years has an assumed threshold limit ofRs25,000, and the adjusted guaranteed surrender value after payment of the third annualised premium is Rs26,250. Under the new proposal, it will be Rs2,51,250. The proposal, if accepted, will significantly impact the margin of non-par products.(With PTI inputs)
