'Insurance ind enters adolescent age'
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Increasing number of mis-selling complaints against the life insurance companies has compelled the insurance regulator to take a tough stance. "Now industry has become adolescent. Some discipline is required," J Harinarayan, Chairman, Insurance Regulatory and Development Authority said in an interview to Ritu Kant Ojha of The Indian Express. All the key issues will be dealt with in the new guidelines on the product designs, he added. Excerpts:
Industry is against the "non-zero" return clause in the pension products. Are you planning to scrap it?
What these insurance companies call as "pension product" is not exactly a pension product. Why should there not be a "non-zero" return clause? If tomorrow a company returns money which is lesser than even the total premium one has paid, who will be responsible? The fundamental issue is protection of capital in a pension product which they have to guarantee. The main issue of life insurers is not "non-zero" return clause. They are worried over the mandatory annuity clause. A pension product is meant to provide income on a regular basis. Insurers give a lump sum amount at the time of vesting and expect the consumers to go to LIC to provide annuities. This is a wrong practice whereby they take the benefit during the investment term and at the time of annuity want to pass the buck to LIC. This is not going to change. They have to provide annuity.
Are you planning to scrap the "highest NAV-guarantee" products? What is the real issue?
It is a dangerous product and has been banned in most of the countries. The way it is structured, it is prone to being mis-sold. While insurance companies sell it in the garb of NAV product, the fact is that it is a fixed income product. How much will go in equity and how much in debt is calculated through a universal algorithm which must be followed. The returns from the fixed income products is low but since the product has a complex structure, a consumer is not able to understand it fully. The communication which is provided to the customer is different than what the product actually is.
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