Makeover time

The life insurance industry is going in for a major makeover with the old order making way for streamlined policies and sharper premium rates. And none other than the Life Insurance Corporation, the dominant player, is taking the lead in this shift.

The LIC has proposed to pull out a host of products by December 31 this year. The insurance company has identified more than 30 policies that will cease to exist in their current state, adding to the 14-odd products that it had earlier listed for withdrawal.

The recent lot features familiar names such as Jeevan Anand, Jeevan Surabhi, Komal Jeevan and Jeevan Saral. These products, all of them individual in nature, have failed to conform to new insurance regulations.

Some of the listed policies are fairly popular with customers. A few, such as the ones aimed at children, seek to meet specific financial planning requirements.

Komal Jeevan, for instance, is positioned as a children’s money back plan which may be purchased for kids up to 10 years.

The others are more general in nature. For example, Jeevan Mitra (triple cover endowment) is an endowment assurance plan that offers financial protection throughout the term of the plan. It simply pays the maturity amount on survival.

Some others such as Bima Bachat are presented as money-back policies that provide financial assurance to the policyholder and his family. While Bima Bachat requires the policyholder to pay only one premium, the amount depends on the duration for which the policy is taken. The cover is available till the date of maturity.

The earlier list (of products that were sold only till November) featured Jeevan Mitra, New Jeevan Nidhi, Anmol Jeevan - 1 and Bima Account - 1 & 2. Besides, Children’s Deferred Endowment Assurance — with vesting ages 18 and 21 years — were included.

In both cases, the last dates for the sale of the plans have been specifically mentioned by the insurance giant. Jeevan Tarang, for instance, may be sold till December 31, 2013; it will stand withdrawn from the first day of the new year.

What does this mean for the individual consumer?

Consumers need to be aware that the IRDA, the insurance regulator, has maintained a strict stance on compliance with norms by insurance products. This has led to the rationalisation drive, impacting the product basket of insurers. As a result, policies that are not in tune with the IRDA regulations would be withdrawn.

In this situation, the consumer may probably expect the following:

A series of new-look plans may be introduced by the LIC and other insurers in the days to come

A section of these products may be modified or emerge as friendlier versions of the ones that have been rolled back

New pricing strategies, marked by compelling premium rates, may be introduced in keeping with the emerging trend.

The regulator’s recent measures reflect its strong views. For instance, insurance products with a highest NAV guarantee — which had found favour with some insurance companies — have been dealt with quite firmly. Products where benefits are linked to external indices have been similarly handled as well.

The life insurance industry had earlier approached the IRDA to seek extension of time for implementing the new regulations on linked- and non-linked products.

Such an extension was considered essential so as to enable the industry to cope with the new regime and address issues such as training its field agents.

As the latest proposal implies, the average consumer would henceforth have a more streamlined suite of products to choose from.

Group policies

Group schemes aim to provide protection for certain well-defined sets of people. As such, these are important for employers and associations. The idea is to offer group benefits at a relatively low cost.

As for group policies offered by insurers, all existing policies that fail to conform with the new norms will be withdrawn from January 1, 2014, the regulator has declared.

Once a product stands withdrawn, no new member can be enrolled in the group policy in question.

It may also be noted that group policies at the time of renewal will have the option to switch over to the modified versions, if any, once the latter are introduced.

A policy that does not get switched over to the modified version may continue to be renewed under the old policy terms.

However, a specific written consent needs to be given by the group policy holder in such a case.

It remains to be seen if customers can really benefit from the product re-orientation that the LIC is set to unleash in 2014. Many of them, including the younger lot who perceive insurance products as modern financial planning tools, are believed to be unaware of the latest developments concerning the LIC.

For a country like ours, where under-insurance is rife, affordable insurance is the need of the hour — there are no two opinions about this. Insurance companies need to come up with simple, sensible products that are easy to understand and convenient to buy.

The author is director, Wishlist Capital Advisors