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Insurers must spell out fairy-tale promises on paper

New Delhi, Nov. 21: All those who have been conned into buying an insurance policy by that smooth-talking agent only to find that it did not actually guarantee the sort of wild, airy-fairy promises he made, here’s some good news.

The rip-off will stop soon.

The Actuarial Society of India — a cabal of professionals who crunch a mind-boggling set of numbers to determine how much premium you should pay on your policy — has come up with guidelines that require insurers to give written illustrations spelling out the returns they provide on the policies they sell to their befuddled customers.

Starting from January 1 next year, all life insurers will have to provide official illustrations to their customers either directly or through their intermediaries.

These illustrations will have to contain two views on the rate of return on investment of funds that are illustrated — a higher and a lower rate. The rates used will be set by the life insurance council from time to time.

The guidance note five, titled “appointed actuary and principles of life insurance policy illustrations”, has been issued in consultation with the Insurance Regulatory and Development Authority (IRDA).

The ASI has resolved to strengthen the position of appointed actuaries in order to fulfil their responsibilities.

The guidance note also calls for the illustration to be prepared in consultation with the appointed actuary and authorised for use by the management of the company.

It should, however, be reasonable and fair to enable a customer to make an informed decision. These illustrations will have to be reviewed at least once a year in the month of April.

ASI president Liyaquat Khan told The Telegraph: “The appointed actuary should ensure that new policyholders are not misled with regard to their expectations. This enforcement will ensure that at the point of sales, written illustrations are given with clarity before a policyholder decides to buy a policy.”

The main objective of these illustrations will be to educate the potential customer about the insurance product and the flow of benefits in different circumstances along with some level of quantification. It will also account for complete information, including the likely conditions upon which the illustrations will not be valid. In addition, guaranteed benefits will have to be clearly distinguished from non-guaranteed benefits.

The illustrations of non-guaranteed or variable benefits will be based on assumptions about future experience such as investment returns, taxation, mortality, morbidity, charges, expenses and terminations by lapse or surrender and discontinuance of premium.

However, the appointed actuary is entitled to make a practical decision as to whether additional information will serve to inform or confuse the target market. For certain markets, such as rural and direct marketing, actuaries may use a different form of illustration provided it is filed with the IRDA.

The insurer is expected to ensure that the intermediaries and employees responsible for selling life insurance products receive appropriate training. They will have to be supervised and constantly monitored with regard to the use of policy illustrations.

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