Insurance regulator Insurance Regulatory and Development Authority of India has notified a host of regulations, including on surrender charges wherein insurers have to disclose such charges upfront.
IRDAI (Insurance Products) Regulations, 2024 merge six regulations into a unified framework aimed at enabling insurers to swiftly respond to evolving market demands, enhancing the ease of conducting business, and boosting insurance penetration.
Impact On Insurance Holders
These regulations, which will be effective April 1, 2024, stipulate that the surrender value is expected to remain the same or even lower if policies are surrendered within three years of the purchase.
For policies that have been surrendered from the fourth to the seventh year, the surrender value may see a minor increase, it said.
For non-single premium life insurance policies, a guaranteed surrender value will be provided upon payment of premiums for at least two consecutive years.
A surrender value in insurance refers to the amount paid by the insurers to the policyholder upon terminating the policy before its maturity date. If the policyholder surrenders during the policy tenure, the earnings and savings portion will be paid to him or her.
Tarun Chugh, the CEO of Bajaj Allianz Life, has voiced backing for IRDAI’s well-balanced approach, emphasising that the finalised surrender value regulations are anticipated to have minimal impact on life insurers.
While talking to CNBC-TV18, Chugh mentioned that elevated surrender values would have primarily disadvantaged customers, resulting in decreased Internal Rate of Returns (IRRs).
Chugh also noted that limitations on altering premiums in savings and critical illness plans would have diverse effects, with the latter possibly presenting greater challenges.
Why IRDAI Introduced Changes?
According to IRDAI, these regulations promote good governance in product design and pricing, including strengthening the principles governing guaranteed surrender value & special surrender value along with disclosures thereof.
It also ensures that the insurers adopt sound management practices for effective oversight and due diligence.
The IRDAI at its meeting held on March 19 approved eight principle-based consolidated regulations, following the comprehensive review of the regulatory framework for the insurance sector.
These regulations encompass pivotal domains such as safeguarding policyholders’ interests, rural and social sector responsibilities, electronic insurance marketplace, insurance products and operation of foreign reinsurance branches, as well as aspects of registration, actuarial, finance, investment and corporate governance.
This comes after the notification of the first consolidated regulation on Expenses of Management of insurers in January 2024.
“It marks a significant milestone in regulatory governance which has replaced 34 regulations with six regulations and introduction of two new regulations enhancing clarity and coherence in the regulatory landscape,” the IRDAI said in a statement.
The process involved extensive consultations with diverse stakeholders, including insurance industry, experts, and public at large ensuring a comprehensive consideration of varied perspectives in shaping the revised framework, it said.
Rural, Social Sector
The IRDAI (Rural, Social Sector, and Motor Third Party Obligations) Regulations, 2024 consolidate 2 erstwhile regulations about minimum business obligations in the rural, social sector and motor third party business for insurers, as mandated under the Insurance Act, 1938, it said.
Compliance and measurement of these statutory obligations have been revised where the unit of measurement under the rural obligations will now be Gram Panchayat, the scope of social sector has been extended to cover cardholders and beneficiaries under various schemes, it said.
Motor Norms
Under the Motor Third Party Obligations, the unit of measurement will be the renewal of insurance coverage to goods-carrying vehicles, passenger-carrying vehicles and tractors, it said.
Besides, the IRDAI (Registration and Operations of Foreign Reinsurers Branches & Lloyd’s India) Regulations, 2024 consolidate two regulations and aims to foster the systematic development of the reinsurance sector in India by promoting orderly growth and harmonising the existing legal and regulatory framework.
These regulations seek to streamline the operations of entities engaged in reinsurance operations, it said.
These regulations aim to create a conducive environment for the growth and expansion of the reinsurance sector, ultimately benefiting both insurers and policyholders in India, it said.
At the same time, the IRDAI (Protection of Policyholders’ Interests and Allied Matters of Insurers) Regulations, 2024 consolidate eight regulations into a unified structure, focusing on several key objectives aimed at ensuring fair treatment of prospects during solicitation and sale of insurance policies and protecting the interests of policyholders throughout their engagement with insurers and distribution channels.
These regulations emphasise the adoption of standard procedures and best practices by insurers and distribution channels to fulfill their obligations towards policyholders, including grievance redressal and policyholder-centric governance, it said.
Additionally, it said, the regulations aim to promote prudent practices in risk management related to outsourcing activities by insurers.
Furthermore, it said, the regulations ensure that the opening or closing of places of business by insurers, both domestically and internationally, is conducted in a manner that prioritises the interests of policyholders.
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