Posts Tagged ‘IRDA’

IRDA Allows Banks to Sell Insurance Products of Multiple Companies

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The Insurance Regulatory & Development Authority (IRDA) is likely to permit banks to sell insurance products of more than one company.

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The move will allow banks to retail insurance products and not just be distributor for one insurer.

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A panel, set up by the IRDA to look into bancassurance, is finalizing its report, an IRDA official said.

From 2002, IRDA had allowed bancassurance.

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A bank was allowed to act as an agent for only one life and one general insurer according to the norms.

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Bancassurance is a delivery channel in which an insurance company uses a bank”s sales channel to sell its products.

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At present, bancassurance garners more than a quarter of the entire premium collected by the insurance industry.

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Combining scheduled commercial banks, co-operative banks and regional rural development banks, India has close to 1,70,000 bank branches.

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IRDA has been concerned about tie-ups between banks and insurance companies and is considering a regulatory framework for an open architecture for such arrangements

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ULIPs to be Commission Free after April 1, 2011 :)

ULIPs to be Commission Free after April 1, 2011

ULIPs to be Commission Free after April 1, 2011

Those investing in Unit Linked Insurance Plans (ULIPs) are set to be secured of this burden of paying commission after April 2011 even though consumers buying pure-life insurance products will have to go on paying commission to sellers of these policies.

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However this is said :

– to help improve returns to investors in ULIPs,

-curb mis-selling and

– help raise insurance penetration by having a modest commission on pure insurance products in turn creating incentives for sellers.

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Further, it will also pave the way for a load-free regime on most financial products after April 1, 2011.


Moreover, the suggestion to cut commissions from the policy-holders” premium is against the insurance regulator IRDA‘s demand to keep the existing structure intact
while agents are entitled to get a commission of upto :

– 40% of the premium in the first year,

– 7.5% in the second year and

– 5% in the third year and thereafter.

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Further, if the panel”s proposal passes muster with the HLCC, upfront commissions embedded in the ULIP premium will be cut to 15% by April and 7% by October next year.

While, ULIPs will be load-free by April 1, 2011 just like mutual
funds and pension products under the new pension scheme
and insurance companies will help their agent”s transit to a
fee-based model instead of a commission based model.

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Additionally, sellers of term insurance products with pure lifecover sans investment will have to reconcile to lower commissions which will be cut to 5% of the premium after April1, 2011 and will continue till penetration reaches the targets set by the government.

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ULIP service charges to reduce from October :)

ULIP service charges to reduce from October

ULIP service charges to reduce from October

Unit-linked insurance plan (ULIP) holders are expected to be bombarded with communication from insurers on reduction in ULIP charges due to IRDA’s strictures on capping ULIP charges on new launches, coming into force from October 1.

However, in July, the insurance regulator had issued a order to life insurers on putting a ceiling on their ULIP charges, except mortality/morbidity charges.

As well as per the notice, the difference between the gross return and net return for policies with tenure of up to 10 years should not exceed 300 basis points, while this gap is to be restricted to 225 basis points for those over 10 years and the fund management charge for policies across maturities is capped at 135 basis points.

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Hence, if an individual plans to buy a ULIP before December 31, he/she needs to examine the product’s benefit along these lines to ensure if it is a new product launched under the new regime or an existing product that is yet to be restructured, in accordance with the guidelines.

Additionally, the yields will increase slightly and so will the minimum premiums while charging structures may also change to reduce the burden on small premiums.

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IRDA Shot-Downs FINWEB Proposal :)

Irda has rejected FINWEB's proposal :)

Irda has rejected FINWEB's proposal 🙂

IRDA, the insurance regulator has rejected a proposal to register all financial advisors with the Financial Well-Being Board of India (FINWEB).

FINWEB is an agency to write rules on the common minimum standards for over 3 million sellers of insurance, pension and mutual fund products.

The proposal was aimed to protect interests of 188 million investors in the country.

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In addition, it features in a consultation paper of a panel set up by the High Level Committee on Financial Matters (HLCCFM), an apex forum for financial sector regulators.

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The IRDA has powers at present to license insurance agents and brokers.

The proposal is being interpreted as a back-door entry for FINWEB to take over this function.

Besides, FINWEB will also have a self-regulatory arm to bring all financial advisors under one common standard going by the consultation paper on ‘minimum common standards for financial intermediaries and financial education’.

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But the IRDA has opposed any new arrangement to create a new architecture for financial sector advisors.

IRDA Chairman was quoted as “The mandate of the insurance regulator is to find the fine balance between the duty to regulate, promote and ensure the orderly growth of the insurance business, re-insurance business and protect the interests of policy-holders.
The insurance regulations have achieved this balance”.

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ULIPs Lock-In Period Raised from 3 to 5 Years !

Lock-in-period

Insurance regulator IRDA stated that it would raise the lock-in period from 3 to 5 years, in a bid to check mis-selling of Unit Linked Insurance Policies (ULIPs) where ULIPs are investment cum insurance products, which invest in equity and debt market depending on the choice of the policyholders.

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However, the circular in this matter is expected to be issued in the next 10 days while the new norm would be applicable to all the ULIPs filed on or after October 1.

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Moreover, at present, the minimum tenure for ULIPs is 5 years while partial withdrawal is allowed after 3 years.

A longer lock in period for ULIPs, one of the hottest investment products, is meant to promote long term investments.

The move would reduce early lapsation and would benefit the companies since administrative and marketing cost will be recovered.

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But insurers apprehend that retail investors could divert their money into mutual funds.

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In addition, last month, the regulator had directed all life insurance companies not to impose surrender charge for policies surrendered from the fifth policy year.

A few weeks back, IRDA had put a cap on charges for Ulip plans.



Insurers Ought to Maintain Records for 10 Years: IRDA

IRDA-new-Amendment

Insurers need to keep records of cash transaction reports (CTRs) and Suspicious Transaction Reports (STRs) for a period of 10 years.

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Consequently, money laundering through insurance may be tougher from now.

In view of the Amendment to the Prevention of Money Laundering Act, 2002 which came into force on June 1, the CTRs and STRs should be maintained for a period of 10 years from the date of the transaction between the clients and the insurance company, Mr C. R. Muralidharan, Member, Insurance Regulatory and Development Authority (IRDA), said in a circular.

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The amendments to the Act were aimed to support the legal framework for anti-money laundering and combating the financing of terror (AML/CFT).

The list of offences in Part A (offences without threshold value) of the Schedule to the Act and Part B (offences with threshold value) has been significantly expanded.

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There would be no further change in Anti-Money Laundering guidelines of IRDA.

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Private Sector Life Insurers Sailing in Choppy Waters :(

Private insurers sailing in choppy waters

Even after 8 years in operations, most of the companies seem to be sailing in choppy waters while the latest profit/loss numbers reveals that almost all of the 22 companies are still making losses.

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Net losses of the private sector life insurers have risen to a whopping Rs 4850 crore during the last fiscal from 2001-2002, showing a uncanny rise of over 2000%.

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However, Reliance Life has suffered the highest loss of Rs 1085 crore and its pool of the policy holders fund is a meager Rs 50 crore.

Moreover, ICICI Prudential Life is sitting on a net loss of Rs 780 crore while the cushion for policy holders is Rs 200 crore.

As for Birla Sunlife, the loss amounts to Rs 700 crore with a 130 crore surplus for the policy holders fund while HDFC Standard Life has netted losses of Rs 500 crore with a policy holders fund of 160 crore.

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Additionally, IRDA is looking at the numbers very closely now and is also doing a check on the risk profile of individual companies and trying to build in a system of early warning given the fact that life insurance is a long gestation business.

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Meanwhile, it is the speedy expansion in business that has cost the companies dear and the coming days will see a change in strategy.

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At the same it is said that such multi million losses may hit valuations of private life insurers especially if the companies are keen to list on the stock exchanges.

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