Cover drive

Calcutta, Dec. 17: Premiums for traditional, non-market-linked life insurance policies may come down in January.

The insurance regulator has reduced the solvency margin — the percentage of capital an insurer has to set aside to underwrite policies — for traditional products by a percentage point.

“In the light of recent developments in the financial markets, there is a need to emphasise the efficient use of capital and provide insurance products at affordable premium rates,” said R. Kannan, member (actuary) of the Insurance Regulatory and Development Authority (Irda).

“The new margin requirement will come into effect from December 31, 2008,” Irda said. It added that the revision of the solvency requirement for general annuity and pension plans, both for individual and group policies, would help insurers offer more affordable pension/annuity plans.

In March, the insurance regulator had reduced the solvency margin only for term assurance policies — these policies provide life cover but do not entail any savings. Term assurance policies are the cheapest among all life insurance plans.

A number of insurers have reduced the premium rates for term assurance policies marginally because this product category comprise less than 2 per cent of their total business portfolio.

“Now that Irda has reduced the solvency margin, insurers’ cost of capital will certainly come down,” said U.S. Roy, managing director and chief executive officer of SBI Life Insurance Company.