Irda to unveil new norms on unit-linked pension products

Insurance regulator Irda plans to review a rule that mandates insurers to offer guaranteed maturity benefits on unit-linked pension plans to boost sales of these products. The regulator will unveil new guidelines on pension products offered by insurers in a fortnight and they will come into force from April 1 this year, said a senior Irda official.

"The 4.5% guaranteed return attached to the pension plan is something that deters insurers from launching pension products. Very few companies have launched pension products after the new norms came into force last year. We therefore plan to frame guidelines for pension products, keeping in view the differences in risk appetite for investors," said Irda member-actuary R Kannan.

Today, insurers are mandated to offer a 4.5% guaranteed return on pension products offered under the unit-linked platform. The regulator had reckoned that a guaranteed return would protect policyholders even when markets crash. The idea was to encourage long-term savings and help policyholders build a nest egg to cater to their needs as they grow old.

However, a review has been warranted after a spate of complaints from insurers saying they are not in a position to guarantee returns on unit-linked pension plans as it would hurt their profitability. In fact, the insurance regulator had earlier hinted that a 4.5% return was not sacrosanct and could come up for review, depending on the economic environment.

"A 4.5% guaranteed return was more reasonable compared with the 7.5% interest on government bonds and 4% interest on savings bank accounts. Insurance companies abroad mostly have only 70-100 bps profit margins in linked products. Compared to this, Indian insurance companies have a wider profit margin," said Mr Kannan.

He said the new guidelines for pension products will address the varying risk appetite of investors, but declined to elaborate. Mr Kannan also said Irda will unveil the guidelines for initial public offering of life insurance companies in a couple of weeks.

The regulator is likely to ask life insurance companies to follow all the Sebi disclosure norms for a share offer, along with some additional norms that are being finalised by it on profitability. The idea is to help investors take informed decisions.

Sebi had cleared the life insurance IPO guidelines in October last year. All life insurance companies that have completed 10 years of operations will be allowed to list on bourses. HDFC Life, ICICI Prudential & SBI Life are companies that can raise equity from the markets.