Now, Irda focuses on policyholder protection

After trying to reform unit-linked insurance plans (Ulips), the Insurance Regulatory and Development Authority (Irda) is now turning its attention to the protection of policyholders.

The regulator has identified 22 major and 150 minor complaints for which it proposes to strengthen the redressal mechanism, an Irda official said.

Policyholders often complain about the lack of clarity in the features of a life insurance cover and the fees and commission, which in case of some Ulips is estimated at over 35 per cent in the first year.

Besides, there are complaints that agents do not explain the difference between single premium and regular premium plans, which results in high lapse rates.

A large section of policyholders have also complained about poor service from agents as well as insurers, which Irda is now seeking to address.

"We are closely working with the consumer affairs section (in Irda) and have obtained data on the types and details of grievances. We will soon issue guidelines to address the grievances," an official added.

At the time of opening up the insurance sector to private players, Irda had issued guidelines on policyholder protection and also set up a committee to protect consumer interest.

The Securities and Exchange Board of India (Sebi), which last month sought to bar 14 life insurance companies from selling and renewing Ulips, had also cited investor protection as the primary reason for regulating the risk-cum-investment plans.

The committee headed by D Swarup had noted that the commission structure was responsible for mis-selling.

In addition, one of the two public interest litigations (PILs) filed in high courts has questioned the claims made by insurance companies and agents that Ulips offer high returns to policyholders.

"This (Irda action) is fine-tuning of what has happened so far to form the current infrastructure. A fair amount of steps have already been taken by the insurance regulator," said Paresh Parasnis, Principal Officer and Executive Director of HDFC Standard Life.

Those related to the stock market, however, see Irda's moves on improving policyholder protection as another step to strengthen its position in the turf war with Sebi.

Following widespread complaints about lack of transparency, last week, Irda asked life insurers to disclose the commission and fees that policyholders paid.

Yesterday, the insurance regulator issued norms that mandate a higher element of risk cover in Ulips and unit-linked pension plans. Besides, it introduced a five-year lock-in for Ulips and barred withdrawals from pension plans.

Also, the top-up premium for Ulips has to be used for providing a risk cover instead of the earlier system where it could be used to increase the investment element.

These moves would, however, result in lower returns from Ulips.