IRDA slashes solvency margins on term products
Life insurance companies offering pure term products that provide a simple life cover will have more money at their disposal.
By TNN |
HYDERABAD/MUMBAI : Life insurance companies offering pure term products that provide a simple life cover will have more money at their disposal. The Insurance Regulatory and Development Authority (IRDA) on Monday slashed solvency margins by two-thirds for companies offering these products either on a group basis or on an individual basis. Solvency margin refers to the ability of an insurance company to pay claims.
The move will reduce the cost of capital and enable companies to offer such products at affordable premiums to policy holders. It will also ensure a higher insurance penetration in the country and higher creditor protection products,��� said IRDA member-actuary R Kannan. Solvency margin requirements are the prudential norms on capital requirement for insurance companies. They are the equivalent of capital adequacy ratios for the banking industry.
���This will spur companies to sell more term insurance,��� said ICICI Prudential Life Insurance managing director Shikha Sharma. At present, term insurance forms a very small percentage of total sales. Most of the premium goes into
investment-linked policies where the objective is to have a savings fund for retirement.
Earlier, for a sum assured of Rs 10,000, policy holders in the age group of 25-30 years were charged a premium of around Rs 25. But insurance companies had to allocate Rs 32 towards the solvency margin requirements, thus making pure risk products unviable.
With the cut in solvency margin requirements, life insurance companies will have to allocate only Rs 12. This would lead to a drop in the premiums for policy holders, although the exact quantum would depend on a host of factors, including policy administration charges, commission, claim payment and so on.
The move will reduce the cost of capital and enable companies to offer such products at affordable premiums to policy holders. It will also ensure a higher insurance penetration in the country and higher creditor protection products,��� said IRDA member-actuary R Kannan. Solvency margin requirements are the prudential norms on capital requirement for insurance companies. They are the equivalent of capital adequacy ratios for the banking industry.
���This will spur companies to sell more term insurance,��� said ICICI Prudential Life Insurance managing director Shikha Sharma. At present, term insurance forms a very small percentage of total sales. Most of the premium goes into
investment-linked policies where the objective is to have a savings fund for retirement.
Earlier, for a sum assured of Rs 10,000, policy holders in the age group of 25-30 years were charged a premium of around Rs 25. But insurance companies had to allocate Rs 32 towards the solvency margin requirements, thus making pure risk products unviable.
With the cut in solvency margin requirements, life insurance companies will have to allocate only Rs 12. This would lead to a drop in the premiums for policy holders, although the exact quantum would depend on a host of factors, including policy administration charges, commission, claim payment and so on.
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However, some insurers felt that the regulator should also look at further easing capital requirements. At present, the regulator asks insurers to maintain solvency margins at 150% of the statutory requirement. Insurers say that given the size of the industry, the regulator should look at bringing down the requirement to statutory levels. Others feel that capital requirement on ULIPs should be eased, given that most of the investment risks in this product are borne by investors.Download
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