Irdai is proposing new regulations to protect policyholders by increasing payouts for early policy surrender, aiming to curb mis-selling and improve policy persistence.
This presents insurers with a dilemma—choose between lower sales or reduced profits.
The suggested rules involve setting a premium threshold for surrender charges and spreading out commissions.
If insurers cut commissions for higher payouts, it may affect sales; retaining commissions or paying more can lead to profit loss. Shares of listed private life insurers, like HDFC Life and ICICI Prudential Life, declined in response to the proposal.
The regulator, as part of Irdai's proposed insurance product regulations, suggests a premium threshold to limit surrender charges on policies closed early.
Though the specific value isn't defined, the indication is that surrender values should increase significantly after the second year.
The aim is to combat mis-selling, encourage commission distribution, and enhance policy persistency. This approach echoes past efforts by the regulator, which over a decade ago capped surrender deductions from unit-linked insurance plans, prompting insurers to shift to traditional products.
Though the specific value isn't defined, the indication is that surrender values should increase significantly after the second year.
The aim is to combat mis-selling, encourage commission distribution, and enhance policy persistency. This approach echoes past efforts by the regulator, which over a decade ago capped surrender deductions from unit-linked insurance plans, prompting insurers to shift to traditional products.
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